Tuesday, July 19, 2005

A comment on Capital and Income

Individ has pasted a comment, and this is such a rare and exciting event that I put my reply here as well as back in the original posting, because that is 80 days ago and well buried here: Mabinogogiblog: "Nuclear Power is the answer to global warming" - NOT

Individ says:
Your concept of mineral resources is quite limited. The amount of reserves available at any time is not a predictor of how much of that commodity can be consumed into the future.

Here, let me give you an illustration the sinks your argument completely. Proven oil reserves at the end of 1993 equaled 1023.6 billion barrels. During the following ten years, 264 billion barrels were produced and consumed, yet proven reserves at the end of 2003 equaled 1147.7 billion barrels. See? The economy is dynamic. There is entrepreneurship, venture capital, human ingenuity, and "supply and demand".

Individ confuses resources, which are the absolute amounts within the Earth, and reserves, which are the amounts of thos resources identified by mining companies as next on the list for exploitation.

It is incontrovertible that reources are finite and will therefore run out. As they run douwn they will be more difficult to extract, and more expensive. Supply will also outstrip demand.

Read here about Peak oil.

Uranium, oil, coal and gas are capital, finite goods. Solar energy is the income of the planet, and is the real fuel of the future.


individ said...

No, you still don't understand resources. The USGS defines resources as concentrations of coal, oil or minerals in such forms that economic extraction is currently or may become feasible. As the price changes, the amount of a resource changes. The so-called "Peak oil" concept considers only "static" models of mineral economics and is sterile. You are still wrong.

DocRichard said...

Individ: As the price changes, the amount of a resource changes.

RL: Yes, as the price goes up, it becomes economically feasible to extract more difficult resources, and so in that sense, the amount of the reserve or resource changes. However, the absolute amount of coal, oil, gas and uranium in the world is effectively static. It is possible that due to natural processes, new amounts of coal, oil, gas and even uranium are being formed in the earth’s crust, but not in anything like the amounts that we are consuming them.

Individ: The so-called "Peak oil" concept considers only "static" models of mineral economics and is sterile.

RL: The Peak Oil concept is taking account precisely of this dynamic rise in energy price as reserves become more difficult to extract, and is looking at the effect that this will have on the world economy.

It is an absolute and undeniable fact that resources and reserves of coal, oil, gas and uranium are finite. They will come to an end. They are limited in amount. They cannot last for ever. As we use more, the price will go up, and at the same time the damage to the environment and our health will become more obvious, so that the sooner we change from these capital resources to income energy resources, the better it will be for all concerned.

Many thanks for your comment. I hope this answer has clarified the position.