Scarce or abundant? The economics of natural resource availability

Most natural resources that are used in production are nonrenewable. When t hey become depleted they are lost for future use. Does it follow that the l imited availability of natural resources will at some time in the future co nstrain economic growth as many environmentalists believe? While classical economists have shared the belief in limits to growth, the distinctive feat ure of modern neoclassical economics is its optimism about the availability of natural resources. This survey suggests that resource optimism can be s ummarised in four propositions. First, a rise in the price of a resource le ads to a substitution of this resource with another more abundant resource and to a substitution of products that are intensive in this resource. Seco nd, a rise in the price of a resource leads to increased recycling of the r esource and to the exploration and extraction of lower quality ores. Third, man-made capital can substitute for natural resources. Fourth, technical p rogress increases the efficiency of resource use and makes extraction of lo wer quality ores economical. In a critical analysis of these four propositi ons it is shown that while the conjecture that natural resources will never constrain future economic growth is logically conceivable, we do not and i ndeed cannot know whether it will be possible in practice to overcome any r esource constraint. JEL Classification: Q20, Q30, Q40.