A Sketch of the “Oil Question”

Economists of different theoretical persuasions believe that the problem of the running down of oil deposits is often misplaced and misleading in most debates of economic pol­icy and political economy as well.

Morris Adelman (1972 and 1995) has repeatedly addressed his criticism of the claim of the increasing scarcity of oil and the empirical evidence of the so-called Hotelling’s rule (1931). The latter sets the equality—an intertemporal equilibrium condition—between the rate of interest and the rate of appreciation of the stock of a natural exhaustible resource. With important exceptions like Irma Adelman, the neoclassical literature on the oil problem has applied that rule for analyzing the interdependence between the oil sector and the rest of the economy as part of a more general energy problem for a growing economy¹ After the oil crisis of the 1970s, a host of mixed interindustry-macro “energy models” have endeavored to formalize the interdependences between the energy sector and the rest of the economic system.² We limit ourselves to acknowledging that the nonscarcity argument, which I shared in my past and recent work, should avoid a too-optimistic interpretation. In fact, although it can be convincingly argued that the physical scarcity of oil is not a definite economic limit to growth, the recognition of this circumstance should take into account the related externalities that affect the environ­ment. Furthermore, although the price of oil in a global economy, or in a large country like the United States, may not be mainly governed by the physical scarcity of known reserves of oil, the depletion of some deposits can become an oil question for a single and not-so-large country that is currently an oil producer.

Critical theoretical arguments about the oil question have been advanced by econo­mists, who have contributed to the revival of the “reproducibility” approach adopted by the Classics and Sraffa, and advocate a theory of value and distribution that is alternative to the neoclassical “scarcity” approach.³ Such criticisms are combined with a reappraisal of the method of long-period equilibrium (positions) in the presence of exhaustible nat­ural resources. In the following we focus on this theoretical and methodological field of inquiry, leaving aside the institutional and policy aspects of the oil question.

It is questionable to what extent the Classics are justified for not having developed a theory of exhaustible natural resources as distinct from the theory of rent on land. However, it is just as debatable what a useful alternative to the classical “static” method of long-period positions, applied to the theory of exhaustible resources, is. It is dubious whether we should rely on a hybrid dynamic modeling, which preserves the assumption of a given distributive variable and determines a path of variable prices through a back­ward recursive calculation, starting from a future period when a backstop technology is supposed to be implemented.⁴ This route implies the abandonment of the determination of the prices of production within a self-contained period of time and, at least in the received models, is subjected to the assumption of full knowledge of the existing oil in the ground and perfect foresight of the future technology. This is indeed a demanding requirement, compared with the original method of the Classics. In the following I wish to reinforce my claim (Parrinello, 2004) that the same price equations Sraffa uses with land can be slightly reformulated to deal with exhaustible resources, still preserving the original determination of the prices of production within a self-contained period, instead of a multiperiod time horizon. My argument departs (1) from those hybrid models men­tioned above and (2) from one of my previous formulations as well.⁵

3.