Julian Simon Believed In People, In Economics, And In Abundance.
You have heard it said that the environment is in trouble. We are running out of resources. Things are bad, and they will only get worse–unless, of course, we hand practically unlimited power to direct our affairs to those who very clearly know better than we do what is best for us. The world, you hear day in and day out, is coming to an end. The inevitability of resource scarcity and hence the long-run tendency toward desperate poverty for everyone was the plot in one of the most successful film franchises of all time. In Avengers: Infinity War and Avengers: Endgame, our heroes do battle with the mad titan Thanos, who is collecting Infinity Stones so that he can snap his fingers and literally wipe out half the life in the universe–all because, he reasons, in a closed system with finite resources, mass poverty is all we have to look forward to. It was the grim economic and social vision of the Reverend Thomas R. Malthus, who had the bad fortune of offering what had been a pretty good description of the world up until the point at which he published his An Essay on the Principle of Population in 1798.
Poverty-and-starvation-for-everyone gave way to prosperity-and-plenty-for-a-lot-of-people, first in western Europe and its overseas extensions like the United States and Australia. We are, quite literally, on the verge of actually making poverty history here at the beginning of the 21st century. This is the case, Deirdre McCloskey and I think, because we have laid aside the old social deals that embraced and venerated blue bloods and bloodshed and embraced a new Bourgeois Deal that said “Leave me alone, and I’ll make you rich.”
How, exactly, were those who were left alone going to make us all rich? In a world where merchants and innovators had the economic liberty and social dignity to take a shot at something new, they had every reason to start making more of what the economist Julian Simon called The Ultimate Resource: the mind.
Simon was born on February 12, 1932. He earned a BA in experimental psychology at Harvard in 1953 and went on to earn an MBA (1959) and a PhD in business economics (1961) from the University of Chicago. He taught for a long time at the University of Illinois-Urbana-Champaign before moving to the University of Maryland, where he finished his career before his death from a heart attack on February 8, 1998, a few days short of his 66th birthday.
Simon suffered from severe depression from 1962 through 1975. He “banished” his depression quickly upon his discovery of what he called the “Mood Ratio,” which was the perceived state of oneself/a hypothetical benchmark state. From that point forward, he wrote, he had cured his depression. He remained extremely productive up until his death, and he is most notable for his book The Ultimate Resource (later updated and republished as The Ultimate Resource 2), his ongoing crusade against environmental pessimism, and the famous bet he made with the outspoken Stanford biologist Paul Ehrlich over long-run trends in resource prices. Simon’s resounding victory made him a legend in classical liberal and libertarian circles: the Competitive Enterprise Institute now bestows the Julian Simon Award on the scholar or journalist who, in its opinion, best exemplifies Simon’s analytical approach.
One can summarize Simon’s conclusion as “more people are blessings, not curses.” We are not, he argues, in danger of outstripping the planet’s ability to feed us. Malthus and so many of his followers have gotten things badly wrong by emphasizing diminishing marginal returns to labor, land, and resources. These are constraints in the short run, but not in the long run. Each person born brings a mouth to feed and hands with which to scratch the ground, but most importantly, each new person brings a mind with which to have new ideas. The key, he argues, is freedom. When free minds are blessed with political and economic freedom, they can accomplish anything.
To Simon, necessity is the mother of invention. Market prices are the necessary “signals wrapped up in an incentive,” to borrow the way Tyler Cowen and Alexander Tabarrok put it, that tell people when it is time to conserve and when it is time to look for substitutes. Big enough price changes mean sustained changes in people’s daily patterns, and facing the pressure from higher prices a lot of people will work to come up with better ways to do things. In the case of natural resources, they might work to find new sources of supply–like drilling for oil in deeper waters–or substitutes altogether.
Simon did not just speculate from an armchair. In addition, he spent enormous amounts of time and many pages of books like The Ultimate Resource looking at long-run trends in resource stores, resource production, and importantly, resource prices. He finds that the very long-run trends are more consistent with abundance than Malthusian poverty.
Simon also put his money where his mouth was. In 1981, he challenged Ehrlich to a bet about what would happen to resource prices over the next decade. Ehrlich, who had spent a long time mocking Simon’s resource optimism, jumped on the offer. They settled on a bet in which they would consider a hypothetical portfolio containing $200 each of five commodities: copper, chromium, nickel, tungsten, and tin. If the inflation-adjusted prices of these commodities had risen after ten years, Simon would lose the bet and pay Ehrlich the difference. If the inflation-adjusted prices of these commodities had fallen after ten years, Ehrlich would lose the bet and pay Simon the difference.
In October 1990, Ehrlich wrote Simon a check for $576.07. The inflation-adjusted prices of the commodities that Ehrlich thought we were “running out of” had fallen by almost sixty percent, and this in a world with some 800 million more people.
Simon, then, was a model mind and an outstanding intellectual citizen. He thought through the theory and formulated his hypotheses very carefully. He tested his hypotheses against the data. Importantly, he took real and consequential action based on his beliefs–at great risk to his own reputation, but to the everlasting benefit of the rest of us.
