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Humans Innovate Their Way Out of Scarcity

Decline in commodities prices since the 1960s illustrates the enduring wisdom of Julian Simon

Last week, the World Bank updated its commodity database, which tracks the price of commodities going back to 1960. Over the last 55 years, the world's population has increased by 143 percent. Over the same time period, real average annual per capita income in the world rose by 163 percent. What happened to the price of commodities?

Out of the 15 indexes measured by the World Bank, 10 fell below their 1960 levels. The indexes that experienced absolute decline included the entire non-energy commodity group (-20 percent), agricultural index (-26 percent), beverages (-32 percent), food (-22 percent), oils and minerals (-32 percent), grains or cereals (-32 percent), raw materials (-32 percent), "other" raw materials (-56 percent), metals and minerals (-4 percent) and base metals (-3 percent).

Five indexes rose in price between 1960 and 2015.  However, only two indexes, energy and precious metals, increased more than income, appreciating 451 percent and 402 percent respectively. Three indexes increased less than income. They included "other" food (7 percent), timber (7 percent) and fertilizers (38 percent).

Taken together, commodities rose by 43 percent. If energy and precious metals are excluded, they declined by 16 percent. Assuming that an average inhabitant of the world spent exactly the same fraction of her income on the World Bank's list of commodities in 1960 and in 2015, she would be better off under either scenario, since her income rose by 163 percent over the same time period.  

This course of events was predicted by the contrarian economist Julian Simon some 35 years ago. In The Ultimate Resource, Simon noted that humans are intelligent animals, who innovate their way out of scarcity. In some cases, we have become more parsimonious in using natural resources. An aluminum can, for example, weighed about 3 ounces in 1959. Today, it weighs less than half an ounce. In other cases, we have replaced scarce resources with others. Instead of killing whales for lamp oil, for instance, we burn coal, oil and gas.

I will have a paper on this subject soon. In the meantime, please visit www.humanprogress.org.

(P.S.: I have used the World Bank's original terminology, but changed the Bank's base year from 2010 to 1960.)

Photo Credit: squallman/flickr

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  • Hyperbolical (wadair)||

    Instead of killing whales for lamp oil, for instance, we burn coal, oil and gas.

    "But, the use of fossil fuels is bad for the environment"

    /progressive environmentalist

  • Scarecrow & WoodChipper Repair||

    One of the worst aspects of socialists, statists, and the whole lot of elites is their condescending view of everybody else as too gullible, naive, and downright ignorant to run their own lives, or, as illustrated here, to innovate their way around problems. Of course, this is also why their schemes ultimately fail -- they cannot grasp the concept of routing around corruption, or using it in one's favor, and are easily out-thought by the less statist humans.

    Markets are like gravity. They always work, whether the statists like it or not. Just as you can dam a river, so can you dam markets and otherwise corrupt them, but just as the river will eventually silt up the dam and work around it, so will markets wander in unexpected directions and make a mockery of the state.

    Unfortunately, that rerouting has costs, and everybody pays them in the form of slower progress. State regulation has stifled and suffocated more people with red tape than all the overt wars and genocides put together.

  • Hyperbolical (wadair)||

    +1 nice analogy

  • Animal||

    "Instead of killing whales for lamp oil, for instance, we burn coal, oil and gas."

    What have you got against clean burning lamp oil?

  • Floccina||

    Add to that the fact that we use the commodities more efficiently. For example in the 1990's cars engines got 1% more efficient per year.

  • icewater||

    Oh hey, let's just exclude energy. Then my graph looks nice.

  • Sevo||

    icewater|1.12.16 @ 1:46PM|#
    "Oh hey, let's just exclude energy. Then my graph looks nice."

    Reading is hard, right, icewater? 'Cause you seem to have missed this:
    "Taken together, commodities rose by 43 percent. If energy and precious metals are excluded, they declined by 16 percent. Assuming that an average inhabitant of the world spent exactly the same fraction of her income on the World Bank's list of commodities in 1960 and in 2015, she would be better off under either scenario, since her income rose by 163 percent over the same time period. "
    See that "under either scenario" right there? That INCLUDES energy, and I'll bet it doesn't include the latest implosion of petroleum prices.

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  • Sevo||

    "...contrarian economist..."

    "Realist" is a far better label.

  • Sam Grove||

    How can an article reference Julina Simon and The Ultimate Resource without linking to the online version?
    http://www.juliansimon.com/wri....._Resource/

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