strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
(originally published by Booz & Company)


How Lucky Do You Feel?

Gregory Unruh, author of Earth, Inc.: Using Nature’s Rules to Build Sustainable Profits, introduces a passage about the price of critical resources from The Price of Everything: Solving the Mystery of Why We Pay What We Do, by Eduardo Porter.

Is the price of civilization as we know it too low? Globalization and growth depend on cheap transportation, communications, capital, and resources — all of which depend on cheap energy. In 1980, as the excerpt below from Eduardo Porter’s new book relates, Julian Simon bet that the price of civilization wasn’t too low. He won his bet, seemingly proving the cornucopian view that perfect markets produce scarcity signals, which spur innovative entrepreneurs to relieve the very limitations that scarcity imposes.

There can be no doubt that technological creativity continues to astound in its ability to expand the bounds of possibility. And if Simon is right, there is no end in sight. But perhaps we should be more prudent. Prices are effective signals when they reflect the full, long-term costs of resources. However, markets (like people, because markets are made up of people) can be bipolar, swinging from exuberance to panic. And as Porter points out, the recent mortgage debacle shows us that market prices can be a risky basis for planning the future.

Have we collectively bet our civilization on a carbon bubble? It is a crucial question, because what is at stake is the price of everything.

— Gregory Unruh


Excerpted from Chapter 9 of The Price of Everything: Solving the Mystery of Why We Pay What We Do


Only forty years ago, as concern over population growth and environmental degradation was shaping into an environmental movement, the economist Julian Simon decided to challenge the prevailing concern about the state of the earth and dared the Stanford ecologist Paul R. Ehrlich, a noted prophet of doom, to a bet.

Ehrlich had built his reputation dusting off Malthus’s expectation of impending environmental collapse. “In the 1970s the world will undergo famines — hundreds of millions of people are going to starve to death,” he wrote in The Population Bomb in 1968. In The End of Affluence, published in 1974, he forecast “a genuine age of scarcity” by 1985. Simon would have none of it. In 1980 he challenged Ehrlich to choose any natural resource he wanted — from coal to copper to corn. If these commodities were to become scarce as the world’s population grew, their price would naturally rise. Simon bet that the price of whatever Ehrlich chose would, instead, decline over the next decade.

Ehrlich bet $1,000 on a basket of five metals — chromium, copper, nickel, tin, and tungsten. He scoffed that explaining to an economist the inevitability of rising commodity prices was like “attempting to explain odd-day-even-day gas distribution to a cranberry.” But Simon won. The world’s population grew by 800 million people over the decade. But phone companies abandoned copper wire for fiber optics. Tin cans were displaced by aluminum. And the price of every one of the metals in Ehrlich’s chosen basket fell, after accounting for inflation. Tin and tungsten plummeted 71 percent.

Ehrlich sent Simon his winnings: a check for $576.07 — which amounted to the extent of the fall in the basket’s price. Ever since, the wager has provided a victorious narrative for the school of thought that we can ride global warming out without enormous sacrifices. Opponents of efforts to reduce emissions of carbon into the atmosphere wield Simon’s wager as a weapon. After his death in 1998, the Competitive Enterprise Institute in Washington, which spends much of its time and resources in denying climate change, created the Julian L. Simon Memorial Award to bestow upon fellow skeptics.

It seems risky to trust our ingenuity at this stage. Around the world, the planet is showing signs of stress to sustain 7 billion humans living on it.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


This Reviewer

  1. Gregory Unruh is professor of global business at Thunderbird School of Global Management and director of the Lincoln Center for Ethics in Global Management. He previously served as IE Alumni Professor of Corporate Sustainability at the Instituto de Empresa Business School in Madrid, where he cofounded, with William McDonough, the Center for Eco-Intelligent Management. He is the author of Earth, Inc.: Using Nature’s Rules to Build Sustainable Profits (Harvard Business Press, 2010).

This Excerpt

  1. The Price of Everything: Solving the Mystery of Why We Pay What We Do (Portfolio/Penguin, 2011), by Eduardo Porter
  2. Eduardo Porter writes about business and economics as a member of the New York Times editorial board. He was editor of the Brazilian edition of América Economía and covered the Hispanic population of the United States for the Wall Street Journal. The Price of Everything is his first book.


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.