Macroeconomics
For most of the time since the subject of economics was first studied, the idea of resource constraints has been irrelevant. The world was simply not viewed as a finite place. The concept of resource constraints was limited, more or less, to the consideration of constraints on an individual economy. Adam Smith recognized that all economies would face resource constraints of one type or another. As Snowdon (2003) points out, "to Smith, it was obvious that all economies were faced with resource constraints and that free trade was a policy that would allow any nation to achieve the most efficient allocation of its scarce resources." This notion was built into the Ricardian trade theory and classical economics. It has not been until recent times, however, that the concept of worldwide scarcity has become relevant. The idea of peak oil and a world with seven billion people (or more) has economists searching for responses to the idea that economic growth is not sustainable forever, and that those resources which are finite on this earth will force economies to rethink their ideas about the nature of economic growth and the very concept of sustainability. This paper will seek to answer the question of whether or not diminishing supplies of natural resources will limit world economic growth, drawing on the theories of Keynes, Smith and modern economists alike.
Adam Smith and Scarcity
Prior to Smith, the prevailing economic view of the world was that the world is a zero sum game. This implies resource scarcity, leading to public policy that emphasized acquiring as many resources as possible in order to maximize the nation's economic wealth, knowing that it was coming at the expense of others. Smith argued that trade was a better solution. Smith's vision of trade held the issue of scarcity should be better addressed through trade because this enabled for maximize efficiency in the use of resources (Snowdon, 2003).
Flowing from this argument is Ricardo's theory of comparative advantage, which also emphasizes efficiency as an important objective of trade. Although Smith and Ricardo viewed economies as having scarce resources, they did not give much consideration to a world where finite limits on the use of critical resources was a legitimate concern. Smith would have traded his way out of scarcity. The modern trading system, build on Ricardo and Smith's arguments in favor of free trade, emphasize the role that efficiency plays in facilitating economic growth. Improved efficiency has, to this point, allowed us to enjoy economic growth even as a rapidly rising population on Earth tears through its resources at a rapid pace.
Keynes
Holt (2010) argues that Keynes' view of the economy did not adequately factor in resource constraints. Keynes, as with other economists o the time, did not view the environment as a constraint to economic growth. This meant that environmental externalities such as pollution and resource depletion were not taken into consideration. Indeed, the Keynesian accounting identity for GDP only factors in government, business and consumer spending, as well as the trade balance. There are no constraints of any type built into the model.
The Keynesian model did account for constraints on capital and labor, but there was an underlying assumption that these could be summoned if necessary. Capital in particular could be summoned through government borrowing if business and consumer spending were inadequate. Increased capital could bring surplus labor back into the market as well. Implicit in this view is that any other resource could be purchased for the right price. A critique that could be made of Keynes' view is that he failed to understand the value of resource constraints. He even went as far as to argue that resources constraints were not an antecedent or factor in war. Yet he presided over the development of the post-war economy, knowing that one of the biggest reasons why the Axis powers lost the war was their inability to capture enough oil and metal to power their war machine -- particularly after losing the Battle of Stalingrad. Resource constraints were very real in Keynes' world, but like earlier economists he doubtless viewed them as a national problem rather than a global one.
Alan Greenspan
Among later thinkers, Greenspan has generally taken the view that resource constraints are not relevant. He understood the relevance of financial constraints, but also was in a position as the central banker to loosen the purse strings and relieve those constraints. His view traditionally was that industries would protect resources out of self-interest (Nair, 2009).
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