Are we?

1. “Are We Running Out of Everything?”S. Charles Maurice and Charles W. SmithsonCenter for Education and Research in Free EnterpriseSeries on Public Issues No. 1Texas A&M University, 1985

2. Are we? • A new shortage crisis seem to pop up everyday. • “Summer 1973: The Economics of Scarcity,” Newsweek, July 9, 1973 • However, the world has weathered resource crises in the past. • Prophecy of Doom! • In 1914, U.S. Bureau of Mines reports only 5.7 million barrels of oil remaining with drilling at 200 million barrels a year. • In 1934, with drilling at 1 billion barrels a year, the Interior Department predicted that production would stop in 13 years • In 1949 U.S. Secretary of the Interior reported that the end is near with pumps pulling up 2 billion barrels that year.

3. Most Recent Crisis in 1980s! • From 1950 to 1973, the real price (1967$) of a barrel of oil actually declined. • 1950 $3.38-US $2.37-World • 1965 $3.03-US $1.41-World • 1975 $4.76-US $6.65-World • 1980 $5.12-US $14.04-World • American wasn’t wasteful of oil in the 50s and 60s. No, it was saving on more expensive resources. • No Crisis at the time, so Americans made their homes cheaper.

4. What Caused the Crisis • In 1959, President Eisenhower limited imported oil to 12%. • On Sept. 14, 1960, OPEC was formed (Iran, Iraq, Kuwait, Saudi Arabia, & Venezuela) • By 1970 imports in to U.S. were 20%. • However what really caused the gas lines was the Nixon Administration imposing price controls. • Thus consumption continued to climb at the sixties rate without any incentive to actually find better extraction or sources. • The OPEC rate raise was only supposed to be a 52% increase over five years in 1971. Instead, it got a 300% increase in 10 weeks in winter of 1973 due to oil embargo during Arab-Israeli War. • The solution was not controlled which was shown again in 1979 when Iran started the second crisis. • It wouldn’t fade away due to price controls legislation.

5. Solution! • President Carter in 1979, amid protests, started to phase out the price controls by fall of 1981. • By the end of 1980, imported oil dropped by 25%. • Deregulation was fulfilled in January 1981 when President Regan took office, and it was nine months ahead of schedule. • During that period, consumption dropped 20%, and at the same time, new sources increased by 50%. After a brief jump in price of oil from $29 to $36 a barrel, the price dropped in early to mid 1980s. There was a surplus of oil.

6. Moral • When unhampered markets eliminate the crisis. • This is done by either new and expensive technology or alternatives. • So, is this a recent thing? • No!

7. The Timber Crisis • During the beginning of the Progressive Age, America was fueled by wood! • “Timber Famine Near, Says Roosevelt, (and) National Forest Service. The President Repeats that One is Needed” Jan. 6 1905 • Wood was essential for railroads that helped to create the infrastructure after the Civil War. • But Eastern Forests were being depleted. • From 1870 to 1900, railroads used 1/3 of annual timber production. • Railroads switched from wood to coal during the Civil War.

8. Crisis’ End • Railroads still used wood for everything else such as ties and cars until 1890. • The Forest Service suggest replanting, but this didn’t seem to be a super solution. • No, it was innovation that was the solution. • From 1900 to 1914, new wood products and protection made cheaper wood more viable. Crisis averted.

9. First Oil Crisis! • Petroleum- “rock oil” So, what was the first source of lamp oil? Well, I got a whale of tale for you. It was the whale! • By 1846, there were 729 American whaling ships afloat. Sperm whale oil price was 88 cents a barrel while other whales was 33 cents a barrel. • However, it was becoming more difficult to find whales. So the tonnage of whalers became larger. However, this was not the solution. • The solution came from George H. Bissell, journalist and teacher, and Edwin L. Drake, former railroad conductor.

10. There’s Oil in Pennsylvania! • Near Titusville, Pennsylvania on August 27, 1859, black gold seeped to the surface. • November 14, 1861, the Oil Creek Association met to “improve,” (i.e., raise) the price of Oil. • Whale Oil became a thing of the past.

11. Tin Crisis in Greece • Why did the Bronze Age (19th century B.C.) become the Iron Age? • Iron was a high commodity in the Bronze Age. It was so expensive that small amounts were used to decorate gold rings. • Exchange rate was 1 iron: 40 silver • Bronze however was even cheaper due to trade with Cyprus for cooper and Persia for tin. • Then in 1000 B.C., tin became almost nonexistent in the Aegean. Bronze suddenly became more expensive.

12. What to do? Become Iron Men • The problem was caused by Dorians and Philistines moving into the eastern Mediterranean. • So with a lack of tin, iron became a working metal. Though iron had become a working metal bronze weapons were still used at the Battle of Marathon in the Fifth Century B.C. • However, Iron eventually just became cheaper because of more experience of working with it. • By 7th century B.C. iron to silver exhange ratio was 2000:1

13. Recycling in the Stone Age • Two Mayan sites (in modern northern Belize) revealed drastically different attitudes to flint. • At Colha, flint was plentiful, so arrowheads were larger and once broken were thrown in garbage piles. • At Pulltrouser Swamp, flint was rarer, so arrowheads were reused & were smaller. • All without a message of “Be Mayan, Conserve Flint!”

14. Summary of Lessons from History • In Timber Crisis, consumers substituted away from timber and innovated. • In Whale Crisis, producers found another source. • In Ancient Greece, they switched to an alternative product. • In ancient Mesoamerica, they recycled flint.

15. So, what killed Rome? • Emperor Gaius Octavius Caesar (or Augustus) had a free market that fueled the Golden Age of Rome. • His successors revoked his policies and replaced them with interference with no economic mobility. • Some citizens opted out of the system and became serfs. However, this destroyed the market because there were fewer customers. • Diocletian, in 301, edict for wage and price controls (ceilings). Destroyed incentives. • By 476 A.D., Rome had already died before the last Emperor.

16. So, what’s the point? • Periods of Scarcity are a common occurrence in the history of man. • Currently, for the last twenty years, a water crisis seems to be brewing. • “. . .by the year 2000, only three of the 18 federally designated water regions on the U.S. mainland will be albe to live comfortably with their water supplies.” • If the market isn’t regulated, it will self correct.