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Bad News For Pessimists: Malthus Was Wrong

Blake Clayton, Council on Foriegn Relations

There is a tempting intuition to the idea that the real prices of non-renewable goods like coal, iron ore, or oil should rise, more or less, forever. It’s an easy argument to make, and it sounds right: The world’s population is getting bigger and bigger, so more and more goods like metals and hydrocarbons are being consumed. Every year, the sum total of what we’ve taken out of the ground mounts, never to be replaced. Supply of the stuff is limited—once it’s gone, it’s gone.

So, this argument goes, as we exhaust our resources, we’ll have to mine, drill, or otherwise get our hands on it somehow but it will get more and more expensive to do so, because we’ll have exhausted the best stuff. Left to exploit ever-greater quantities of ever-more-marginal deposits, prices will rise indefinitely into the future.

Thus, in this line of reasoning, unless we start consume less of a given non-renewable material, it will forever and ever get more expensive.

The logic appears unimpeachable at first glance. But it’s wrong. The prices of raw materials have not traveled the path this story would predict for any traded commodity once inflation is factored in, over long stretches of time. One of the most powerfully counter-intuitive and empirically conclusive findings in economic history is that the real prices of nearly all major resources have actually trended lower over very long periods of time, even if they’re produced at higher and higher rates.

Figure 1. Economist Industrial-Commodity Price Index in Real and Nominal Terms (1871-2010)

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