It is shown in this paper that the price of an exhaustible resource in an economy of pure competition is not equal to the marginal cost of production and that, in this respect, the classical theory is the ‘worst possible case’ were the resources considered to be inexhaustible. The price of an almost depleted resource is shown to be equal to the marginal cost of production when the resource is exhausted, and on the other hand, its level depends on three factors: (a) the present cost of a substitute; (b) the life expectancy of the resource remaining; (c) the rates of interest on the international capital market. We have calculated from a coherent data assemblage the ‘right’ price for oil in the context of the theory, as it appeared prior to the 1973 crisis. This may be seen to have approximated the actual price ($2/bbl.). This is the optimal theoretical price produced using the pure competition of world resources. The technical, historical and strategical reasons behind this noteworthy convergence are given, reasons which establish scientifically the crisis as an ‘impasse’ in an outdated strategy which had become unable to adapt to new production characteristics. However, the theory of exhaustible resources shows that, even in an economy of pure competition, there is a natural revenue which cannot be considered systematically to be a revenue of a monopolistic nature, or even be judged in regard to the conclusion of the classical theory of pure and perfect competition.
Exhaustible Resources and Classical Theory
