Warnings of resource depletion have been proven wrong again and again. Human creativity and energetic entrepreneurship fueling “the free market innovation machine” are the most powerful drivers of change and advancement.

Ratcliffe-on-Soar is a civil parish in  Nottinghamshire in the East Midlands region of the United Kingdom. Although only 141 people live there, this small parish is about to earn its place in the history books. At the end of this month (September 2024) the coal-fired power plant in Ratcliffe-on-Soar will stop generating electricity. With this closure coal-fired electricity generation will come to an end in the United Kingdom. The first power plant based on coal was opened in the UK in 1882 nearby London. In 1990, coal delivered 80% of the UK’s electricity supply. At the end of September it will deliver zero and the UK will be the first among the major nations of the world to get to that point.  

This epochal, though hardly noticed, event reminded me of the words  credited to Ahmed Zaki Yamani. Yamani was from 1960 till 1984 Saudi Arabia’s oil minister. It is said that at one point Yamani claimed that “the stone age didn’t end for lack of stone and the oil age will end long before the world runs out of oil”. Anno 2024, it can be claimed that the coal age will be over long before the world ran out of coal reserves, with the UK doing the frontrunning. Recent estimates of available coal reserves suggest  in excess of 1 000 trillion tons of untouched coal reserves remain. Despite major ecological disadvantages, new coal-fired power plants are still being built, mostly in China and India. Due to legitimate climatological and environmental considerations, the transition away from coal has  accelerated appreciably over the last decade. So unless spectacular technological developments inspiring more responsible coal use would emerge, the larger part of that  1 000+ trillion tons of coal reserves will continue to rest hidden in Mother Earth’s crust.

I concur with the late Yamani that, just as with coal, the oil age will be over long before the world runs out of oil. Ever since I was at university, which was during the 1970s, depletion of oil reserves has been on the agenda, typically described in apocalyptic terms. There was a remarkable constancy in the depletion predictions. It would fall upon us somewhere in the coming 40 to 50 years. That was the prediction in the 1970s, in the 1980s, in the 1990s and again and again as we entered  the 21st century. I’m reminded of one famous line of the Roman poet Horace: “He makes himself ridiculous who is for ever repeating the same mistake”. Those who repeatedly started panicking about oil depletion should have realized their mistake had they paid more attention to The Coal Question, a widely read book published by William Stanley Jevons in … 1865.

Jevons was one of the most respected economists of his era and caused a major political uproar with his book, offering an analysis of the coal situation in the UK. The subtitle of the book explicitly refers to that cause of the uproar: “An Inquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal Mines”. Jevons’ basic argument was that the UK had realized enormous social and economic progress since the start of  the Industrial Revolution. Since that progress was to a large extent built on the availability of coal and since that availability, so Jevons argued, was physically limited, a huge problem was lurking in the not-too-distant future. Due to “the fixed amount of material resources”, especially coal, “we cannot long progress as we are now doing”. Jevons concluded that “the social and political consequences to ourselves and to the world of a partial exhaustion of our mines are of an infinitely higher degree of uncertainty than the event itself”.

William Stanley Jevons was proven by subsequent events to have been spectacularly wrong in his prediction. The  huge amount of coal reserves that still exist even today stand testament. Jevons made this monumental mistake because he was not able to see the line between two dots that he himself pointed out: “I believe that our industrial and political genius and energy, used with honesty, are equal to anything. It is only our gross material resources which are limited. Here is a definite cause why we cannot always advance”.

What Jevons completely missed was that the human “genius and energy” that he explicitly recognized make the claim that “our gross material resources are limited” a mistaken one. He saw the two dots but missed the crucial link between them. If properly incentivized and institutionally protected, human genius and energy leads to technological advancement and innovative entrepreneurship that time and again have lifted the constraints potentially imposed by “limited” material resources.  If coal becomes scarce, its price will rise and subsequently an intense search for alternatives to restrict or replace coal use will ensue. The same thing happens if for whatever reason governments limit the use of coal. What the late William Baumol defined as “the free market innovation machine” did exactly that, again and again. Relative prices perform wonders if allowed to work their way through the system.

Let me give another historical UK example of mistaken reasoning, à la Jevons. Thirty years after the political storm that accompanied The Coal Question, the British political elite was startled by “the great horse manure crisis of 1894”. London, so it was claimed, would be buried in meters of horse manure since the fast growing population and the economic expansion of that period would necessitate an exponentially increasing use of horses in the city. Once again, Baumol’s “free market innovation machine” avoided in due time the overproduction, so to say, of horse manure.

The list of wrong predictions because of the neglect of the role played by human creativity producing innovation and technological advancement is long. It is this neglect that leads to PIPO predictions: Pessimism In, Pessimism Out. If one just extrapolates the trends of the past and gives no room to innovation and technological breakthroughs, as most of these doomsday models do, than inevitably one ends up with the kind of pessimistic scenarios that were also the hallmark of the famous reports to the Club of Rome. This PIPO-ism is also one of the basic reason why the degrowth or anti-growth adepts of today are so wrong (the other basic mistake they are making is that no growth risks leading to civil war).

The benevolent impact of human creativity and innovative capacity and entrepreneurship tends to be systematically underestimated despite their collective impressive track record. The recent Draghi report on European competitiveness implicitly makes this mistake too. The result will be further deterioration of the EU’s international competitiveness.