The Argument
After an appropriate reinterpretation, the theory of production prices (formalized by Sraffa’s price equations with land) can be adopted to deal with the existence of exhaustible natural resources—oil in the case at issue—provided that the theory remains at the level of abstraction adopted in Production of Commodities by Means of Commodities (Sraffa, 1960), where the quantities of commodities are assumed as givens.
Such reinterpretation consists of assuming that the supply of oil of each quality available for production is a given and observable flow, whereas the total stock of oil is not conceived a joint product of a production process. Only a flow of oil is technically necessary at the beginning of the period, as if it were a kind of circulating capital that disappears at the end of the same period. The residual stock of oil can be associated with a conservation process, but its price, even in the sense of accounting price, depends on conditions that do not belong to the determinants of the prices of production and can be left to a separate analysis.6 Notice that the total stock of oil in situ cannot be assimilated to Ricardian land. This does not only derive from the fact that the former undergoes a depletion process, whereas the latter is indestructible by definition, but it depends also on the consequential circumstance that the services of all existing land are offered for cultivation in each production period, whereas only a fraction of the reserves of oil are available for a similar purpose.Let us stress the following features of the proposed reinterpretation. First, the assumption of a given supply of oil does not rest on the assumption of perfect foresight and knowledge of the stock of oil in the ground. The total amount and the quality of oil in situ may not be known with certainty, and the knowledge of it can change as a consequence of research and development and technical innovations. Secondly, we read in J. S. Mill the following: “In some instances the owners [of the mines] limit the quantity raised, in order not too rapidly to exhaust the mine: in others there are said to be combinations of owners to keep up a monopoly price by limiting the production.”7 In this passage, Mill suggests one of the main sources of the economic, as distinct from the physical, scarcity of oil: its supply can be controlled by monopolies and oligopolies. Also, the flow of oil available in each period, which conforms to the method of given quantities, can be governed by noncompetitive practices.
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