Humanity’s Capacity for Progress
In 1798, Thomas Malthus wrote An Essay on the Principle of Population. The idea was that the population was growing faster than the food supply, and humanity was going to suffer as a result. His logic was arguably sound, but he failed to account for the invention of better fertilizers and higher yielding crops.
Similarly, in 1976, while speaking in the Presidential debate, Jimmy Carter cautioned that the world only had 35 more years of oil left in the ground and humanity wasn’t prepared. Fortunately, his team’s scientific models failed to account for human innovation, and today, 13 years after the assigned expiration date, the US is taking crude out of the ground faster and in greater quantity than ever before. Today we even export liquified natural gas, an export industry Carter couldn’t dream of because it did not exist as recently as 2015.
These two stories bring me to the Simon-Ehrlich wager, which is most beautifully captured in the book, “The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth s Future”. To pull a partial summary from Amazon:
In 1980, the iconoclastic economist Julian Simon challenged celebrity biologist Paul Ehrlich to a bet. Their wager on the future prices of five metals [copper, chromium, nickel, tin, and tungsten] captured the public’s imagination as a test of coming prosperity or doom. Ehrlich, author of the landmark book The Population Bomb, predicted that rising populations would cause overconsumption, resource scarcity, and famine—with apocalyptic consequences for humanity. Simon optimistically countered that human welfare would flourish thanks to flexible markets, technological change, and our collective ingenuity.
Like Mathus and Carter, Ehrlich’s models spelled imminent disaster. Too many people, too much pollution, and not enough food or resources to support them all. His proposed solutions, which influenced political policy at the highest levels of government, involved massive environmental projects paired with various population controls. And yet, despite the rationality and apparent precision of his models, he lost the bet. All five commodities which he wagered would explode in price as demand outstripped supply over the decade from 1980 – 1990 all declined in price. The world didn’t end. In fact, the more people we added, the more abundant resources became, and the more humanity prospered.
Why does this matter?
It is easy to look at big problems and imagine the inevitability of disaster. For example, scientists continue to warn about climate change and the impacts of continued pollution. This is an important discussion, and I don’t dismiss the validity of science or the need for change. But as an investor, it has never made sense to extrapolate the problems of today indefinitely into the future. Humans tend to solve big problems and none of today’s models can accurately account for tomorrow’s innovations. Will science figure out a way to produce cheaper, cleaner, and more abundant power when given the financial incentive to do so? Most likely. Will businesses figure out ways to capture existing carbon to minimize its impact on global temperatures? Probably. Will humans figure out ways to thrive at higher average global temperatures if required? I believe so. Will these solutions also create a set of new problems that will also have to be addressed? Undoubtedly.
I mention all of this because staying invested is hard when everyone else tells you to be scared and the doomsayers support their beliefs with models and news reports. However, as Thomas Malthus, Jimmy Carter, and Paul Ehrlich all found out, the world rarely ends and it is the optimists and those that bet on humanity’s capacity for progress, that make money.