chapter  6
20 Pages

ECONOMIC GROWTH AND EXHAUSTIBLE RESOURCES

Sustaining a prosperous economy in the face of an essential input which is both finite and being depleted is the issue in an economy wide consideration of exhaustible resource use. If population is growing, economic growth per capita in the long run seems impossible without much technical improvement. Thus one tends to look first at the case of a constant population and reproducible capital (buildings, machines, infrastructure) being accumulated to offset reductions in the use of exhaustible resources in the long run. We can suppress the introduction of population or labor in production in these latter problems and focus attention on ac­ cumulation of reproducible capital, resource use, consumption, investment, and output. One might view a fixed population as standing on the sidelines, consuming but not laboring. Needless to say, consumption cannot be increased indefinitely with an unchang­ ing techology. Generally, per capita consumption must decline in the face of a finite stock of resources and output positive over infinite time. However in one special case, accumulation of re­ producible capital can offset a steady decline in resource use (oil consumption by firms?) and allow per capita consumption to be maintained at a constant positive level indefinitely. This case involves society investing all rents from exhaustible resources reproducible capital instant by instant. We will then set out an

analysis of aggregate growth with population constant first and later consider the extension to situations of population growth. We then turn to accounting procedures for measuring economic growth and its sources when exhaustible resources are essential.