By way of followup to yesterday’s post on locavores, I present this letter to the editor of Science, written in 1976 by Harvard economist Robert Dorfman. You can think of Earl Cook, to whom Dorfman is responding, as the Steven Budiansky of his time.
The article by Earl Cook, “Limits to exploitation of nonrenewable resources”, is extremely informative. In fact, I should like to assign it to my class except that it is marred by an egregious fallacy. Since this fallacy has been turning up repeatedly in writings about environmental and natural resource problems, I wish to call it to the attention of Science readers.
The mistake has to do with the nature of social cost. Cook, for example, writes “To society … the profit from mining (including oil and gas extraction) can be defined either as an energy surplus, as from the exploitation of fossil and nuclear fuel deposits, or as a work saving, as in the lessened expenditure of human energy and time when steel is used in place of wood … “. A number of other authors also equate social cost with the expenditure of energy.
For better or worse, neither kilocalories nor man-hours nor any other directly observable, unidimensional, physical input is an adequate measure of social cost. A moment’s thought should make this compelling. Consider a very simple self-contained economy where coal is extracted by surface mining and the coal seams lie under the only land suitable for growing hops. The greater the amount of coal that is surface-mined, the less the amount of beer that can be brewed. In these circumstances surface mining may be a loser, socially speaking, even though it requires the expenditure of far less than 12,000 BTUs per pound of coal; and subsurface mining may be advisable even though it requires more energy per pound extracted than surface mining, particularly if there is a beer shortage. The social cost of surface-mined coal includes the reduction in the availability of beer along with the expenditure of man-hours, capital investment, and other things too numerous to mention.
Clearly, then, social costs cannot be measured in simple physical units. The only adequate measure is what economists call “social opportunity costs”, meaning the social value of the alternative commodities that have to be forgone in order to obtain the commodity being produced. Under certain idealized conditions, this opportunity cost is measured by the dollars-and-cents cost of producing the commodity. Under realistic conditions the dollars-and-cents production cost is a fair approximation to the social cost. Under almost any conceivable conditions, the dollars-and-cents cost is a much better approximation to social cost than the amounts of energy expended or any other simple physical measure.
Energy is indeed a scarce and valuable resource, but it is only one of many, and there is a good deal more to life than British thermal units.