Wed, 25 Feb 2004

Infinite Resources

I've been having a discussion with someone about the value of recycling. I said: William, the resource stream from a physical point of view is obviously not endless. From an economic point of view, the economic value of the resource stream *is* endless. Since you have to use economics to weigh recycled versus virgin materials, you can't rely on a physical analysis to come to an economic conclusion. It would be like trying to use algebra to solve a problem that needed calculus.

William responded:

You're still thinking inside the box. Step outside and take a look around.

The problem with the assumption of infinite resource value is that it does not match the real world. Economic theory based on such an assumption may be very beautiful and very coherent, but it has no practical value whatsoever. Just as I have problems with environmentalists refusing to recognize the implications of sound economic theory, I have problems with economists refusing to recognize the implications of sound ecology. The real world is NOT infinite. Therefore, any theory that assumes that resources have infinite value cannot be trusted to guide practical actions in the real world. That is a good, old-fashioned QED.

William is confused, so I must be writing badly. I'll try responding at length.

Economic Subjectivism

Over a century ago, economists generally agreed that something was worth what it took to make it. That is, something had an intrinsic value. We now know that's not true. It completely fails to explain trade in a free market.

If you had intrinsic value in a free market, nobody would bother to trade anything. Whenever anybody traded two things, they would be just as likely to trade them back, because they're of equal value. In a market is free of coercion, nobody would bother to trade one thing for another unless it was of equal intrinsic value. The only way out of this failure is to claim that free markets don't exist, and that all trades occur because the traders have unequal power.

If you can coerce people by applying power to the trade, then you will have trade. The more powerful party will force the less powerful party to hand over something of greater intrinsic value. Clearly, there is trade, so if you assume intrinsic value, then you must deny the existance of free markets.

Remember, Marx devised his theories in the face of intrinsic value theory.

What economists know, and what many people seem not to know, is that value is not intrinsic to the item, but is instead an attribute that each person applies to the item. This insight, although seemingly simple and perhaps even obvious, explains many things previously thought paradoxical.

Everyone has likely had the experience of going grocery shopping before dinner. Everything on the shelves looks so good. Doing the same shopping after dinner will produce different results, and yet the groceries haven't changed. You have, so you place different values on the foods. If food had an intrinsic value, you would purchase the same food before or after dinner.

Free markets are easily explained by the fact that parties trade for things that they value more. If I'm buying milk at the store, the store values my money more than their milk, and I value their milk more than my money. That's why they bothered to keep their store open and pay cashiers, and that's why I bothered to drive to the store. Sometimes I've traded a dollar for a dollar, because I had a bill and wanted four quarters. I valued the one form of a dollar higher than the other form, and the other party was indifferent to the form but desires the intrinsic pleasure of being helpful.

Infinite Value

Infinite value is the proposition that a finite amount of something can have an infinite amount of value. People who are not economists, and are stuck in the 1870's objective value see this as being obviously false. How could a finite amount of something be valued infinitely high? The idea is, as William said in the opener, false, QED. Unfortunately for him, he hasn't proved anything, but is simply assuming his result.

Infinite value is an inevitable result of relative value. Let's say that you were using natural resources at a certain rate, and you were increasing the relative value of these resources faster than you used them. Specifically, let's say that you produced a certain amount of value out of consuming the first half of a resource. You were able to double the value of a specific unit of the resource, so that you could consume half of the remaining resource and produce the same value. Like Zeno's paradox, the resource continues to produce value forever.

In the real world, you reach the atomic level sooner or later, and effectively run out of the resource. Does this invalidate the idea of infinite value? No, because in time, the substitutes for a resource become cheaper than the resource, and people will switch to those substitutes. What this means, though, is that people can consume resources based on the price, rather than having to worry about running out. You can act as if resources were infinite even though they're physically finite. That's a surprising result, but if a science doesn't surprise you from time to time, why bother studying it?

Recycling

What lesson does this have for recycling? Simply put, it means that you don't have to worry about running out of resources. Recycle when it makes sense for you. If it's cheaper to recycle something, then recycle it. If it's not cheaper for you, don't recycle it.

Posted [10:56] [Filed in: ] [permalink] [Google for the title] [digg this]