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Tim Worstall Contributor


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But Why Did Julian Simon Win The Paul Ehrlich Bet?

It’s a famous bet in the ongoing battle to try and get environmentalists to understand economics. The bet between Julian Simon, the economist, and Paul Ehrlich, the environmentalist. Ehrlich insisted that commodities would become more expensive: they were running out in the face of the population explosion. Simon asserted the opposite: more people meant more brains meant better methods of extraction and lower usage per unit of production. Thus prices should fall.

Simon won: but that’s not quite the end of the matter. With different commodities, or over different timescales with the same ones, Ehrlich could have. Which is something that Mark Perry notes here:


For the underlying argument though this is the important point:

I’m not so sure that Simon was just lucky. If Simon’s position was that natural resources and commodities become generally more abundant over long periods time, reflected in falling real prices, I think he was more right than lucky, as the graph above demonstrates.  Stated differently, if Simon was really betting that inflation-adjusted prices of a basket of commodity prices have a significantly negative trend over long periods of time, and Ehrlich was betting that the slope of that line was significantly positive, I think Simon wins the bet.

For Professor Perry shows us the all commodities index over the near century that we have data. And it is indeed declining. Sure, there are periods where the alarmists would win, but the general move over time favours the cornucopians.

My interest here though is to explain exactly why it was that Simon won in the 80s, the period of the original bet. And also why Erhlich would have won in the late 90s and 00s. But why he would still lose over substantial time periods (and no, I’m not willing to make a bet on this).

The original bet was on the following commodities: nickel, copper, chromium, tin and tungsten.

And there were a couple of standout points in that decade of the 80s. Tin, for example, slumped in price. But it wasn’t for any environmental nor even technological reason. It was because the world cartel backing the price went bankrupt. This was the International Tin Council. An organisation set up post-WWII to ensure a “fair” tin price. As anyone at all who has read the works of the late James Buchanan will immediately understand, the people who were really interested in this were the producers. Public choice theory does tell us that consumers won’t worry all that much about the price of only one material, for they use many and the price of just the one isn’t all that important. Producers will worry a great deal about the price of their only product. Thus governmentally determined “fair” prices will end up being high prices.

This is indeed what happened and to keep them high the ITC bought in and stored excess production. By 1985 they didn’t have any more money, they went bust and the price collapsed.

This was hugely beneficial to Simon’s side of the bet but wasn’t really the point he was arguing on. That is much better represented by what happened to copper. The full story is here.

The story is SX-EW (solvent extraction and electro-winning). This is what Simon was talking about: that technology would advance and new stocks of materials would be exploitable. This would happen faster than demand would leading to falls in prices. SX-EW opened up the entire planet to another wave of copper exploration. Roughly, before 1980, we made copper from copper sulfides. If we found a mountain of copper oxide then that’s what it stayed at, copper oxide. Copper oxide wasn’t copper ore, it was simply dirt, for we didn’t know how to extract the copper from it.

SX-EW changed that: it’s a process to extract copper from copper oxide. Thus all those mountains of copper oxide out there (and there are many, quite literally, mountains of copper oxide) became copper ore instead of dirt. Thus the price declined.

Moving on into the 90s the great event in the non-ferrous and minor metals world (all of these metals are in one of those two groups) was the collapse of the Soviet Union. Firstly, the economy collapsed meaning that there were no consumers there for the metals that were being produced. Thus they flooded onto the world markets, depressing prices. But more than that, there was also the series of stockpiles. One estimate is of $700 billion’s worth. These also flooded out onto world markets.

Take, as an example, tungsten. Today’s price is around the $50 a kg level. The price in the 80s was, inflation adjusted, not far off that. But in the 90s it fell to $7 a kg. Just so much was flooding out of the CIS (the ex-Soviet Union by this point) that that price had collapsed.  I played my tiny part in this, purchasing a few container loads here and there. And much the same happened to nickel, aluminium and chromium.

This explains why taking the prices from the mid 90s onwards would favour the Ehrlich side of the bet. Nothing at all to do with increasing scarcity in the grand sense, just a recovery of prices from their post-Soviet low. Once that $700 billion stockpile had been sold prices would obviously recover.

Just to give you an example of what this meant, I’m currently working in the Ore Mountains. On the Czech/German border. There are a number of tin/tungsten mines here, all closed by 1992 at the latest as as result of that ex-Soviet flood. They’re all reopening in the next few years as prices are back to around their long term levels. It was the 90s that was the exception: some of these mines have been going since the 14th century.

One more little story about nickel. There was great excitement in the 90s as an Australian company announced that it had a new process, capable of extracting nickel from a new type of ore. An ore of which there was bountiful amounts lying around in Australian deserts. The whole system would make them the lowest cost producers in the world.

This, not unnaturally, made everyone else hesitant to invest in new nickel projects. So no new ones were started. Then it turned out this new technology was a bit more complex than first thought and the company went bust. Which led to a vast spike in the nickel price. At which point people scrambled to get nickel projects going again, the new owners of the bust plant got it sorted out and prices came back down again. They’ve more than halved since the peak.

The end result of all of this is that yes, it is true that Ehrlich could have, would have, won the bet depending upon the starting date. But note that it would have been either political actions, or teething problems with new technology, that would have allowed that. None of these metals faces an actual shortage as yet. Further, note that over variable time scales Simon is still correct: it really is true that new technologies of extraction are developed and these increase supply and push prices down.

Which leaves me trying to point out that Simon really was correct: it’s just the timescale that can be a bit dodgy. We do discover new mineral resources, we do develop new extraction technologies, which make larger amounts of mineral resources available to us. There are other events that happen, certainly, which push prices up for periods of time. But the long term trend for metals at least is downwards.



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  • jjamesv jjamesv 2 years ago

    Wouldn’t this imply that all commodity prices are a random walk?

    In which case, we should be very, very afraid right now.

  • jjamesv jjamesv 2 years ago

    Also, I’m not sure that government-determined “fair” prices are always high. Consummer prices in the German Democratic Republic were basically fixed by the government, with basic items being very cheap and luxury (for GDR values of “luxury”) items very expensive. The result was, interestingly, shortages of everything, whether the price was fixed at below or above what might have been a market price.

  • SteveSalmony SteveSalmony 1 year ago

    The Ehrlich-Simon bet

    The gambling that occurred between a scientist and an economist was idiotic. Even though the scientist has been proven to be correct in many respects, the scientist lost the bet. Perversions of science such as those by economists have served to distract, mislead and set back the science of human population dynamics and overpopulation for too long. Similarly, a widely shared and consensually validated, preter-natural demographic transition theory (DTT) promulgated by demographers served a common purpose. This theoretical perversion of science ignored, avoided and denied apparently unforeseen and admittedly unwelcome research related to the diminishing prospects for future human wellbeing and environmental health on a planet with the size, composition and ecology of a finite and frangible planet like Earth.

    On our watch many too many people listen to and act upon what the economists and demographers say because their pseudoscience is politically convenient, economically expedient, legally rationalized, socially accepted, religiously tolerated and culturally syntonic. Their fabrications and optical delusions have acquired the imprimatur of science at least in large part because too many people with scientific knowledge refuse to stand up and speak out in affirmation of the best available scientific evidence. Too many scientists will not speak truth, according to the lights and science they possess, to those with the great wealth and power.

    All that is actively and wrongheadedly being done by those who are few in number to massively extirpate global biodiversity, to recklessly dissipate finite resources, to relentlessly degrade the environment and to threaten the future of children everywhere is bad enough. The elective mutism perpetrated by so many knowledgeable people is even worse. The masters of the universe along with their sycophants and minions, all of whom act as if “greed is good” and money rules the world, are but a few; those with ‘feet of clay’ are many. Thank you to everyone here and elsewhere with feet of clay for speaking out as if you are a million voices. By so doing we educate one another to what science discloses to all of us about the placement of the human species within the order of living things on Earth and the way the blessed world we inhabit works. Otherwise, the silence of so many and the greedmongering of so few kill the world.

  • Tim Worstall Tim Worstall, Contributor 1 year ago


    That last word, I’m sorry, I don’t know what it means. But to the basics of your argument, I’m sorry, but it’s wrong. Demographers are the scientists who study human populations. They are the experts on this point. Economists are the experts who study the response to incentives. They are the experts on this point.

    There is no other group of “scientists” who are correct on these points simply because there is no other group of scientists who have studied these points. For the scientists who have studied these problems are called by these names.

    Indeed, I would argue very strongly (indeed I do so argue) back the other way. The reason Paul Ehrlich is wrong about human population is because he’s an insect entomologist and thus entirely ignorant of what economists and demographers say about human, as opposed to insect, populations.

  • SteveSalmony SteveSalmony 1 year ago

    Dear Tom,

    I certainly hope that you are the one who turns out to be correct and not the other way around. I do think it important to note that declining fertility rates in some countries during my lifetime has not in any way changed the boldfaced fact that absolute global human population numbers have been skyrocketing between 1945 and now. When I was born, 2.3 billion human beings were members of the family of humanity, declining fertility in many countries notwithstanding. The idea that human beings are exceptional in relation to its population dynamics needs to reconsidered…..fast. Look at what the growth of the human population in our lifetime is telling us. Human beings are natural, a part of nature. We evolved here just like other creatures of the Earth. Because human numbers are now so great that our species appears to many scientists in the fields of ecology, biology, physics, et al as a culprit that is at least in part responsible for extirpating global biodiversity, dissipating finite resources, degrading the environment and threatening the future of children everywhere. The health and wealth of the global economy is directly dependent upon the resource base and ecosystem services only the Earth can provide. Without Earth’s resources and ecosystems there can be no functional economy. There are such things as vital non-renewable that human are recklessly depleting. Human pollutants are playing havoc with Earth’s ecology. We are at least in part responsible for the destabilized and changing climate. To believe otherwise strikes me as a function of hubris and foolishness.

  • So, what would happen if the commodity had been the price of oil?
    Of course, back in those days water was pretty much for free — not now!
    Or, what about the price of a specimen of one of the many species that have been driven to extinction since that silly wager?
    Why do economists all believe that population can continue to grow indefinitely?
    Is it possible fort here to be more economists in the universe than there are atoms in the universe?
    How long would it take for 1 million economists growing at an annual rate of 1% to reach a population equal to the number of atoms in the universe?

    Surely you realize that economics is about ways of making a living — which is exactly what ecology is all about. It’s just a matter of how you draw the disciplinary box…

    The bet was silly, as is your commentary upon it. When a population becomes limited, it is the most limited resources that increase most in value — and ultimately resources that are not limiting have no value. So, as the number of economists approaches the number of atoms in the universe, which resource to you think will become most limiting?