Start with a brain teaser. It is 1980, and you are getting married. Your parents invite 100 guests to the wedding reception. The reception costs them $100 per person, or $10,000 in total. Fast-forward to 2018. Now it is your turn to throw a wedding reception for your child. The guest list has increased by 72 percent. Some of the old folks are no longer around, but the cousins have grown in number. That means that you are now catering for 172 people. If the price per guest had remained the same, your bill would amount to $17,200. Instead, the bill comes to $4,816, which is less than half of what your parents paid for you. You ask the caterer: How is this possible? The caterer responds that for every 1 percent increase in attendance, the bill fell by 1 percent. While the number of guests rose by 72 percent, then, your bill has declined by 72 percent. Surely, things like that don’t happen in real life.
Or do they...?
In fact, this is exactly what has happened to the abundance of 50 basic commodities between 1980 and 2018. Over that period, the world’s population rose by 71.2 percent, yet the average working time required to earn enough money to buy 50 kinds of energy, food, raw materials, and metals fell by 71.6 percent. Put differently, the amount of effort required to buy 1 basket of the 50 commodities in 1980 bought 3.5 baskets in 2018. As we will explain, abundance occurs when the nominal hourly income increases faster than the nominal price of a resource. Furthermore, when the abundance of resources grows at a faster rate than population increases, we call that relationship “superabundance.” This relationship between population growth and the abundance of resources is deeply counterintuitive, yet it is no less true.
So what’s going on?
In the animal world, a sudden increase in the availability of resources such as grass after an unusually rainy season leads to an explosion in the animal population. The population explosion then leads to an exhaustion of resources. Finally, the exhaustion of resources leads to population collapse.
Likewise, human beings were much more exposed to the vicissitudes of fortune in the past. Over time, however, people have developed sophisticated forms of cooperation that increase their wealth and chances of survival. Consider, for example, trade and exchange. In his 1776 magnum opus, The Wealth of Nations, the Scottish economist Adam Smith (1723–1790) wrote about humanity’s “propensity to truck, barter, and exchange one thing for another.” Smith noted that trade is one of the characteristics that distinguishes humanity from nonhuman animals:
It [trade] is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. . . . Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, “This is mine, that yours; I am willing to give this for that.”
More recently, the British writer Matt Ridley noted, “There is strikingly little use of barter in any other animal species. There is sharing within families, and there is food-for-sex exchange in many animals including insects and apes, but there are no cases in which one animal gives an unrelated animal one thing in exchange for a different thing.” Trade is particularly valuable during famines. A country struck by drought, for example, can purchase food from abroad. That’s not an option available to other animals.
The most important difference between people and nonhuman animals, though, is our superior intelligence and the use of that intelligence to invent and to innovate. “In a way, everything is technology,” noted the French economic historian Fernand Braudel (1902–1985): our “patient and monotonous efforts to make a mark on the external world; the rapid changes and the slow improvements in processes and tools; and those innumerable actions which may have no immediate innovative significance but which are the fruit of accumulated knowledge.”
And so, over many millennia of trial and error, we have accumulated a store of knowledge that has allowed us to reach escape velocity from scarcity to abundance somewhere toward the end of the 18th century. The Four Horsemen of the Apocalypse (war, famine, pestilence, and death) have not completely disappeared—that would be a miracle, not progress—but the world today is incomparably richer and more productive than it was just two centuries ago. If you don’t believe this, ponder, if only for a moment, the 768 types of breakfast cereal that you can buy at Walmart by putting forth just a few minutes of labor at minimum wage.
Trivial, you say? All right. Consider, then, the proper nutrition, high rates of literacy, widespread availability of antibiotics, and countless other conveniences now so commonly available in modern life.
We measure abundance in time prices. A time price denotes the length of time that a person has to work to earn enough money to buy something. It is the money price divided by hourly income. Money prices are expressed in dollars and cents, while time prices are expressed in hours and minutes. If a barrel of oil, for example, costs $75 and you earn $15 an hour, the time price will come to five hours. If the price of oil increases to $80 a barrel and your income increases to $20 an hour, the time price will decrease to four hours.
Time prices make much more sense than money prices for at least three reasons. Time prices avoid the contention and subjectivity of commonly used inflation adjustments. Since innovation shows up in both lower prices and higher incomes (more productive people are better-paid people), time prices more fully capture the effects of innovation. And time prices are independent of currency fluctuations. Instead of gauging the standards of living in India and the United States by comparing the adjusted “purchasing power parity” prices of a gallon of milk in Indian rupees and American dollars, time prices provide a universal and standardized way (hours and minutes) to measure changes in well-being.
That brings us to the most important contribution of time prices to economic discourse. The American economic commentator George Gilder argues that wealth is knowledge, growth is learning, and money is time. From these three propositions, we have derived a theorem, which states that the growth in knowledge—which is to say innovation, productivity, and standards of living—can and ought to be measured with time. Superabundance operationalizes this theorem within a new analytical framework. When we applied this framework to a wide variety of goods and services spanning two centuries, we were astonished by the near-ubiquitous and apparently accelerating growth in abundance. The purpose of this book is to share with you, the reader, what we found.
Our research into time prices and the abundance of resources began when we looked at updating the famous wager between the University of Maryland economist Julian Simon (1932–1998) and three scholars: Stanford University biologist Paul Ehrlich; University of California, Berkeley ecologist John Harte; and University of California, Berkeley scientist and the future director of President Barack Obama’s White House Office of Science and Technology John P. Holdren. The wager was based on the inflation-adjusted prices of five metals: chromium, copper, nickel, tin, and tungsten, and it lasted from 1980 to 1990. Ehrlich et al. predicted that because of population growth, metals would become scarcer and hence more expensive. Simon argued that because of population growth, metals would become cheaper.
Ehrlich thought like a biologist who did not seem particularly interested in economics. In 1971, for example, Ehrlich and Holdren wrote that as “a population of organisms grows in a finite environment, sooner or later it will encounter a resource limit. This phenomenon, described by ecologists as reaching the ‘carrying capacity’ of the environment, applies to bacteria on a culture dish, to fruit flies in a jar of agar, and to buffalo on a prairie. It must also apply to man on this finite planet.” In 1997, Ehrlich still believed this:
Since natural resources are finite, increasing consumption obviously must “inevitably lead to depletion and scarcity.” Currently, there are very large supplies of many mineral resources including iron and coal, but when they become “depleted” or “scarce” will depend not simply on how much is in the ground but also on the rate at which they can be produced and the amount societies can afford to pay, in standard economic or environmental terms, for their extraction and use. For most resources, economic and environmental constraints will limit consumption while substantial quantities remain. . . . For others, however, global “depletion”—that is, decline to a point where worldwide demand can no longer be met economically—is already on the horizon. Petroleum is a textbook example of such a resource.
Simon thought like an economist who understood the powers of incentives and the price mechanism to overcome resource shortages. Instead of the quantity of resources, he looked at the prices of resources and at the human creativity that higher prices awaken. He saw resource scarcity as a temporary challenge that can be resolved through greater efficiency, increased supply, development of substitutes, and so on. The relationship between prices and innovation, he insisted, is dynamic. Relative scarcity leads to higher prices, higher prices create incentives for innovations, and innovations lead to abundance. Scarcity gets converted to abundance through the price system. The price system functions as long as the economy is based on property rights, the rule of law, and freedom of exchange. In relatively free economies, therefore, resources do not get depleted in the way that Ehrlich feared they would. In fact, resources tend to become more abundant.
Simon won his bet with Ehrlich et al. when the real (which is to say inflation-adjusted) price of the bundle of five metals fell by 36 percent. Simon’s victory would have been even more impressive had he used time prices. Between 1980 and 1990, those fell by 40 percent. Unfortunately, it will take much more than a single bet between two scholars or, for that matter, a book like this one, to rid the world of the outdated idea that population growth and resource depletion inevitably go hand in hand, but we have to start somewhere, and the customary place to start is with Chapter 1.