“There Are No Natural Resources” (Boudreaux on Simon’s ‘ultimate resource’)

By Robert Bradley Jr. -- March 10, 2020

“Simon’s idea is simultaneously simple and startling. Once grasped, its truth is undeniable. Yet its implications are profound — none more so than the realization that the amount of resources on earth is not fixed.” (Donald Boudreaux, below)

Some articles are worth revisiting to keep the fundamental ideas fresh in our minds. I recently ran into one of them by the noted economist and educator Donald J. Boudreaux.

It was Professor Boudreaux, in fact, that switched his major to economics and pursued teaching when a professor explained the cause of the then-experienced natural gas shortages.

A few years back, the American Institute for Economic Research (AIER) published a piece by Boudreaux, simply titled “There Are No Natural Resources.” I reprint the article in full:

Recently I had a very enjoyable conversation over dinner with some impressive undergraduates at Bowling Green State University. During the wide-ranging and intelligent discussion, one of the students asked which economist I most recommend they read other than the famous ones — such as Adam Smith, F.A. Hayek, and Milton Friedman — whose works they have already encountered.

Great question! I immediately answered, “Julian Simon.”

Sure enough, none of the students had heard of Simon. So I told them about this too little-known remarkable scholar.

Julian Simon’s most notable contribution is his demonstration that the human mind is, as he described it, “the ultimate resource.” The human mind is the ultimate resource because it, and only it, creates all of the other economically valuable inputs that we call “resources.”

There Are No Natural Resources

At first this notion sounds wacky. After all, the human mind didn’t create the likes of wood or iron ore or petroleum. These materials were created by nature; that’s why they’re called “natural resources.”

It’s true that nature created these materials, but nature did not transform them into resources. This all-important transformation was the product exclusively of human creativity, intellect, and effort.

For example, what we humans now recognize as iron ore is just rocks that are especially rich in iron oxides. By themselves these rocks are useless. But they have become useful because humans, first, discovered that iron oxides can be turned into substances — iron and steel — that serve human purposes, and second, have figured out how to extract the oxides from the rocks and then to manufacture them into iron and steel. Without this creativity, intellect, and effort, iron ore would be no more a resource to people than it is to porcupines.

In short, a material’s character as a resource is instilled in it by human ingenuity. This fact is true even for land. For the vast majority of human existence, land was merely the turf upon which we, like all other land creatures, trod, sat, and slept. Not until about 10,000 years ago did some creative individuals figure out how to cultivate land for agricultural purposes. Only then did land become a resource.

Simon’s idea is simultaneously simple and startling. Once grasped, its truth is undeniable. Yet its implications are profound — none more so than the realization that the amount of resources on earth is not fixed.

Resources Are Not Being Depleted

Although the amount of material — the quantity of atomic matter — on earth is indeed fixed (save for what is delivered by meteors, asteroids, and astronauts), because of human creativity and effort the amount of resources can and does grow. This fact, in turn, means that as long as we humans have sufficient incentives to exercise our creativity, we almost certainly will never run out of resources or even suffer any significant resource depletion.

This prediction by Julian Simon wholly contradicts not only popular understanding but also the opinions of many scientists. Popular and professional opinion, however, err by assuming that resources are created by nature. And because nature isn’t doing much to put more petroleum, magnesium, bauxite, and other “natural” resources into the ground and the seas, surely (this argument goes) we are depleting our supplies of resources as we use them daily. This reasoning leads to the conclusion that the only way to avoid running out of resources is to slow the rate of economic growth or, perhaps, even to stop growth altogether.

But this line of reasoning and its conclusion are contradicted by an amazing fact: global supplies of industrial commodities have not fallen during the industrial age but have, instead, risen. We know this fact to be true because inflation-adjusted prices of industrial commodities are much lower today than they were nearly two centuries ago. Lower prices are powerful evidence of increased supplies relative to demand. So despite the tremendous increase over the past two centuries in the demand for industrial commodities (fueled by both economic and population growth), the fall in the real prices of industrial commodities signals a colossal increase in their supply.

Economic Growth Creates More Resources

Here’s an even more amazing implication of Simon’s insight: economic growth prevents, rather than promotes, resource depletion. It does so in part by making us richer and, hence, by supplying us with more time and resources for the education of people who will apply their minds to the task of figuring out ways to produce outputs using fewer resources or how to find and extract resources from places once inaccessible. Think here of how fracking enables the extraction of natural gas and petroleum from rocks.

Economic growth also prevents resource depletion by supplying humanity with greater quantities of the ultimate resource itself: human minds. Economic growth frees us from the Malthusian trap. It thereby allows more and more creative minds to survive into adulthood and then to interact with each other. This increasing interaction of human minds is itself creative because as different ideas compete and cooperate with each other, new and better ideas are formed. Matt Ridley accurately describes the process as “ideas having sex” — and just as more sex among human beings creates more human beings, each unique in his and her own way, more sex among ideas creates more unique ideas. The cycle is virtuous.

To Welcome Immigrants Is to Welcome More Resources

Yet another implication of Simon’s insight is that immigration, regardless of skill level, from countries less economically free and innovative into countries more economically free and innovative is a boon to all humanity.

Obviously, the immigrants themselves benefit. But so too does the native-born population in the destination countries, as indeed do people in all countries that trade with the destination countries.

In free societies, greater immigration means greater quantities of the ultimate resource. No longer constrained by the oppressive government policies or stifling traditions of their homelands, immigrants to countries with more economic freedom are encouraged to exercise their creativity and productive efforts in ways that in their homelands are either prohibited or unrewarded. The inventiveness and ingenuity of immigrants across the skills spectrum intensify. And all of them who operate in competitive markets mix their ideas and work efforts more frequently and with more ingenuity with the ideas and work efforts of other people. Innovation is fueled, production expands, and our already-high standard of living grows further.

If we denizens of destination countries applaud whenever new deposits of resources such as petroleum and zinc are discovered in our countries, we should follow the example of Julian Simon and applaud even louder and longer when new supplies of the ultimate resource — the human mind — arrive in our midst.

Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.Get notified of new articles from Donald J. Boudreaux and AIER.