World Resources and Economic Exploitation
JULY 01, 1987 by M. W. SINNETT
Mr. Sinnett is a divinity student at St. Mary’s College, in the University of St. andrews (St. Andrews, Scotland).
“The United States, with x per cent of the world’s population, is consuming y per cent of the world’s resources.” This is the general form of a class of statements which reach us from a variety of sources and with various specifications. Whether it is the “United States” which is specifically mentioned, or the “Western world,” or the “developed nations”; and no matter the particular values of “x” and “y” (just so long as y is considerably larger than x); the message is always the same: a small minority of the world’s population is “consuming” a large majority of “the world’s resources.”
The real significance of these types of statements, however, does not lie in their strictly factual nature, but in the inference of economic inequity, or exploitation, which is almost universally drawn from them. It just seems to follow immediately that the situation is unjust in which x is less than y, especially if x is considerably less than y, and it is precisely this lurking inference of inequity, with its reinforcement of what we may call the will to planning, that we wish to examine in this essay.
How has this situation come upon us? How has this inference of inequity come to occupy such unchallenged pre-eminence in public discussion? This situation has arisen (as is so often the case) from the presence of a hidden premise, which we may state as follows: “Resources are part of the physical endowment of the earth, and all people have a right to consume their fair share of them.” It now remains to show, through a critical analysis of its terms, that this premise, far from being obviously true, is rather spectacularly false. We will then be in a position to conclude that, far from constituting injustice or exploitation, the unequal consumption of the “world’s resources” is a result of developments which should be particularly welcome to the inhabitants of developing nations.
Virtually every rendering of the facts of resource distribution employs the language of consumption, it is said that “the United States . . . is consuming y per cent of the world’s resources,” and against the alleged injustice of this circumstance, it is urged that “all people have the right to consume their fair share” of these same materials. Very rarely will the fact be volunteered that before firms and individuals in developed countries consume resources they also buy these resources. Nor, in our opinion, is this merely an oversight. For it seems clear without further analysis, that the assertion, “The United States, with x per cent of the world’s population, is buying y per cent of the world’s resources,” is a relatively more innocuous statement, and one less to be relied upon to motivate the conclusion of economic exploitation, than the one with which we began.
Why does the change of this one word have such a dramatic effect? One reason might well be that we immediately recognize the legal (and moral) right of the purchaser to “consume” the materials he has purchased. Far more importantly, however, our recognition of the purchase, and not the mere consumption, of natural resources opens our minds to the existence of the seller, as well as to his reasons for choosing to participate in the sale. Even without knowing the concrete details of any particular transaction, the mere recognition of an exchange should serve to remind us of the precondition of any market transaction; namely, that buyer and seller have placed different relative values on the goods exchanged. It should serve to remind us, that is to say, of the fact of “subjective valuation.” Indeed, as we shall now see, subjective valuation takes on an extremely dramatic form in the context of resource economics.
The Meaning of “Resource”
The inference of exploitation depends upon the idea of the objective value of resources. For, if resources have an objective value—that is, a value independent of person or place—and if manufacturers in developed economies are profiting by “consuming” them, then, so the argument goes, the exporters are not being justly rewarded for their contribution to this process; that is, they are not being paid for what their resources are “really worth.” Thus, in what amounts to another “surplus value” argument, exploitation is inferred from the simple fact of the importers’ profits.
This appearance of objective value, in turn, is achieved by representing a resource’s “utility” (i.e., its “usefulness” in various manufacturing processes) as itself an objective characteristic of the material in question. The utility of the resource comes to be viewed as a property which is inherent to the material as a physical substance, and which is independent of the person who uses the substance and of the circumstances in which it is used. It is then as if the term “resource” belongs to the technical vocabulary of geology (as in the first half of our previously mentioned hidden premise, where “resources are part of the physical endowment of the earth”); and as if “utility” denotes a physical characteristic possessed by a given material along with its density and specific gravity, so that anyone physically possessing the material in question just as surely enjoys the “utility” of that material (as in the second half of the “hidden premise,” where the universal “right to consume” resources presupposes the universal capacity to consume resources).
Now, in fact, “resource” is part of the terminology of economic science (instead of geologic science) and it is to the formulations of economists that we must turn in order to gain a proper understanding of it. In the first place, the concept of “resource” is what F. A. von Hayek calls a “teleological concept.” That is, it is a concept which “can be defined only by indicating relations between three terms: a purpose, somebody who holds that purpose, and an object which that person thinks to be a suitable means for that purpose.” A resource, therefore, is “defined not in terms of [its] ‘real’ properties, but in terms of opinions which people hold about [it].”
This teleological emphasis can be more directly applied to the questions at hand by means of a distinction made by Ludwig von Mises, the distinction between “objective use-value” and “subjective use-value.” The former, says Dr. Mises, is a “technological notion” referring to “the relation between a thing and the [objective] effect it has the capacity to bring about.” The latter, on the other hand, is a “praxeological notion”—a notion pertaining to human action—and “is tantamount to [the] importance attached to a thing on account of the belief that it can remove uneasiness.”
By way of illustration, “It is to objective use-value that people refer in employing such terms as the ‘heating value’ or ‘heating power’ of coal.” The capacity of coal to burn and give off heat is a constant of the material and certain physical conditions, but the opinions which people hold of this capacity can vary almost arbitrarily from circumstance to circumstance, and from user to user. Thus, the objective use-value of coal is the same on a sultry summer afternoon in Houston as it is on a blustery winter evening in Boston, but the subjective use-value in the two situations is likely to be conceived quite differently by most people.
It is clear that the two concepts are related. Subjective use-value will often be predicated by people on the basis of their recognition of objective use-value. Particularly in discussions of resources, the concept of objective use-value will be a necessary one, but it will not be sufficient. An adequate understanding of the nature of a resource must take into account subjective use- value as well, particularly as this is manifested in market demand for the material in question. As a bare minimum, it must take into account (1) the process of technical and entrepreneurial development by which the status of a material as a resource is first constituted; (2) the many uses of the material in the market which constitute its exchange value, but which, for the most part, will lie beyond an observer’s technical knowledge; and (3) the multiple substitutions made for the material, by which people achieve given purposes through different means, and of which, once again, an observer will know very little. We may summarize this by saying that an adequate concept of “resource” must involve us in the process of the market.
An Example from Adam Smith
The question now arises as to how something as static as a “concept” can possibly “involve” us in something as dynamic as “the process of the market.” As is so often the case in social theory we may best proceed by means of a concrete example; in this case, a situation described by Adam Smith in The Wealth of Nations. Smith observes that, in the British Isles of his day, “timber for building is of great value . . . and the land which produces it affords a considerable rent.” At the same time, however, “in many parts of North America” the materials of lodging and shipbuilding were so excessively abundant that “the landlord would be much obliged to any body who would carry away the greater part of his large trees.” And he points out that, while such materials afford the North American landlord no rent at all from within his own country, “The demand of wealthier nations . . . sometimes enables him to get a rent for it” (emphasis added). In other words, it seems, a material (timber) of no exchange value at all within the “developing” economy of North America brought great revenue when placed in contact with the “wealthier,” more highly developed, economies of Europe.
What does the foregoing analysis allow us to understand about this situation? In the first place, we see the crucial importance of distinguishing objective from subjective use-value. From an objective point of view, timber is the same whether it is stacked on a New England farm, say, or in a Liverpool shipyard (just as coal-in-sultry-Houston is objectively equivalent to coal-in-blustery-Boston). But from the differing subjective perspectives of participants in the economies of North America and of Great Britain, it is almost as if we have to deal with two completely different substances. The New England farmer, eager only for more cleared land to cultivate, viewed “his large trees” as merely timber-in-New England: they were a waste-product and a considerable nuisance. To the commission agent of a Liverpool shipyard, on the other hand, this same material was viewed as timber-in-Liverpool: it was a valuable resource, for which he was prepared to pay good money.
It is now easy to see why the farmer might well have been willing to sell “his large trees.” His options, after all, were: first, to accept coin of the realm in exchange for the trees to which he otherwise attached no value at all (or, if anything, a certain disvalue); or, second, to disdain the shipyard’s money and retain his valueless trees! It is difficult to imagine him deliberating too long over such a choice as this. Indeed, his only point of confusion might have come in persuading himself that the Englishman was in earnest in offering money for something he re garded as being utterly worthless.
This example gives us further insights of what it means to “consume.” Our normal use of this word seems to connote an activity of the utmost passivity. As it is used in the statement with which we began (as well as in the “hidden premise”), it would seem to imply that an economy “consumes” resources in the same casual way in which a person “consumes” the food on his dinner plate. Quite to the contrary, however, in the case at hand this consumption required the techniques of eighteenth-century naval architecture as well as the enormously complex demands placed upon the shipbuilding industry by the global reach of British commerce. Once again, it was precisely the economic process represented by the shipyard’s capacity to consume the farmer’s trees by which they were constituted a valuable resource (timber-in-Liverpool); and it was precisely the farmers’ incapacity to consume “his large trees” which rendered them worthless (mere timber-in-New England) in his eyes, and which made him more than willing to sell them to anyone foolhardy enough (from his perspective) to buy them.
Our results may be generalized as follows. It is the market processes of the developed econ omies which create resources out of raw materials which are completely valueless when viewed strictly within the context of underdeveloped economies. Indeed, as we have been implicitly asking all along, if developing nations did not enjoy, or chose not to exercise, the option of selling their raw materials what would they then do with them? What is it about the possession, merely as such, of materials which have no subjective use-value—which are not resources—within an underdeveloped economy, which would compensate that nation for the loss of the revenue which would accrue from the sale of these same materials? When one realizes, as is now obvious, that no such compensation is forthcoming, then one also realizes why these nations’ representatives are ready to sell these materials to those from beyond their borders who alone are able to regard them as resources and who are therefore willing to pay money for them. It is now clear that there is little to be said for the “hidden premise” which it has been our purpose to analyze.
Exploitation in a Pickwickian Sense Only
It now remains to directly address the charge of “economic exploitation.” The challenge which confronts us is not so much that of resolving the issue at hand, but of keeping a straight face while doing so. Indeed, it is interesting to note that the comic possibilities of such a situation as we confront here have already been exploited. In The Pickwick Papers, Charles Dickens shows us Mr. Pickwick and his loyal followers journeying through the Kentish town of Cobham. Suddenly, the immortal Pickwick drops to his knees at the foot of a cottage door and announces his discovery of a small stone bearing what he takes to be an ancient inscription. Immediately he launches ‘into negotiations for the purchase of the stone from the cottage’s astonished owner, a laboring man by the name of Bill Stumps :
“You—you—are not particularly attached to it, I dare say,” said Mr. Pickwick, trembling with anxiety. “You wouldn’t mind selling it, now?”
“All! but who would buy it?” inquired the man, with an expression of face which he probably meant to be very cunning.
“I’ll give you ten shillings for it, at once,” said Mr. Pickwick, “if you would take it up for me.”
Mr. Stumps’ astonishment derives from the fact—later publicized by Mr. Blotton, one of Mr. Pickwick’s rivals in his own club—that while Mr. Stumps presumed the stone to be ancient, he “solemnly denied the antiquity of the inscription—inasmuch as he represented it to have been rudely carved by himself in an idle mood. . . .” On the other hand, this revelation does not lessen the value of this “antiquarian discovery” to Mr. Pickwick, to whom it brings a pair of gold spectacles (voted him by the Pickwick Club) and membership in seventeen “learned societies” both “foreign and domestic”; and which “remains an illegible monument” to the greatness of Samuel Pickwick, as well as “a lasting trophy to the littleness of his enemies.”
Now, is there really any point in asking whether Mr. Pickwick has “exploited” Mr. Stumps? Well, of course, no one will suggest that there is. But is Mr. Stumps’ position with regard to the “antiquarian discovery” really all that different from that of the New England farmer with regard to “his large trees”? The farmer, after all, had as little use for his trees as Mr. Stumps has for his stone. This is why we were so easily able to imagine the farmer’s astonishment at the fact that someone would offer money for them: “Those large trees there: you—you—are not particularly attached to them, I dare say. You wouldn’t mind selling them, now?” says the commission agent. “Ah,” responds the farmer, “but who would buy them?”
We conclude that underdeveloped nations, in exporting their resources, are victims of “eco nomic exploitation” in a Pickwickian sense only. Indeed, it is difficult to imagine them having to endure in this process anything more rigorous than windfall profits; profits which they have had no role in producing; profits which depend upon technical developments and market demand which have been exclusively the contribution of the developed nations. On such terms as these we will all be anxious to be “exploited” ourselves to the fullest extent possible!
The Creative Powers of a Free Civilization
It is interesting to note, finally, the transformation which has now been worked in our view of the gap between x and y (the gap between America’s percentage of the world’s population and the percentage of America’s consumption of the world’s resources). Whereas, originally, it was somewhat natural for us to see it as a source of shame or embarrassment—whereas, originally, it naturally suggested to us the inference of economic exploitation—it now appears in a different light. Now that we know what a vital role is played by that “x per cent of the world’s population” in creating “the world’s resources,” the gap in question is no longer a measure of exploitation, but of undeserved benefits poured out upon less developed coun-tries. It no longer measures the debt of the United States to the world, but that of the world to “the creative powers of a free civilization.”
2. Of course, it may be argued that those within less developed countries who make such choices are the beneficiaries of profound inequities in ownership and control of such resources within their own nation. However this may be—and there can be no doubt that the political organization of many Third World nations leaves much to be desired—the applicability of the following analysis is unaffected. For, if resources could be more profitably employed inside the exporting nation, then the persons having control of them, no matter who they are, and no matter how they achieved this control, would not choose to sell them outside their country.
5. Cf. I. M.D. Little, Economic Development: Theory, Policy, and International Relations. Twentieth Century Fund Book (New York: Basic Books, Inc., 1982), p. 220: “One Marxist feature, common to all or most members of [the neo-Marxist school of development economics], is the manner in which they manipulate language. The trick is to define a concept with value- laden connotation in a manner that often hears little relation to ordinary usage—the so-callad persuasive definition. Marx’s key persuasive definition was that of the word ‘exploitation’—so defined that any enterprise that pays a worker a wage, and makes a profit, necessarily exploits him.”
9. Cf. the distinction between a “technologic” and an “economic” definition of resource supply in J. L. Simon, The Ultimate Resource (Princeton: Princeton University Press, 1981), pp. 42f. See also the discussion of this point in M. W. Sinnett, “Method versus Methodology: A Note on The ‘Ultimate Resource,’” in Review of Austrian Economics, Vol. 1 (Lexington, Mass.: Lexington Books, 1987), pp. 217f.
10. A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, R. H. Campbell and A. S. Skinner, eds., W. B. Todd, text ed., Vol. 1 (Oxford: The Clarendon Press of Oxford University, 1976), p. 179.
11. Cf. N. Rosenberg and L. E. Birdzell, Jr., How the West Grew Rich: The Economic Transformation of the Industrial Worm (New York: Basic Books, Inc., 1986), p. 10: “. . . a society’s economic resources are not its natural resources as such, but a relation, internal to the society, between its natural resources and its organizational and technological skills in extracting or otherwise acquiring and utilizing those natural resources for advancing its people’s material welfare. Resources that contribute to economic wealth axe not simply material; they are a subtle combination of materials present in nature with the human knowledge and social organization re quired to use those materials (and, by extension, the efforts of human beings) to satisfy human needs. To the American Plains Indian, for example, the oil, coal, iron ore, forests, and farmlands of North America were not economic resources, but the buffalo herds were resources of the utmost importance.”