PREVIOUS VOLUMES F R O M Resources for the Future on scarcity and growth (Barnett and Morse 1963; Smith 1979) have struck a generally optimistic

note about the capacity of economic systems to deal with natural resource depletion. In so far as scarcity exists at all, adaptive mechanisms exist to ensure that more plentiful resources are substituted for scarcer ones, and the efficiency with which resources are used improves over time. Efficiency here refers to the ratio of output to input: more gross national product (GNP) per unit of primary energy, for example. Substitution and efficiency are, in turn, induced by the workings of the market system. Resource prices rise with the onset of scarcity, inducing substitution and technological change, which improves efficiency. These forces can be augmented by deliberate policy, for example, by raising the price of energy with an energy or carbon tax. The debate then reduces to (a) alternative views of the evidence for scarcity as shown by resource price or cost (or royalty) trends; (b) differing viewpoints about the right balance of free market forces and policy intervention; and (c) the right mix of intervention measures.