The Classical Roots of Resource Economics

Abstract

This chapter begins by asking why we study resource and environmental economics, and answers: To know what economic theory and related empirical findings can tell us about a variety of interesting and important issues in this area, from rates of use of extractive resources, to more recent concerns about sustainability and climate change. All can be considered to derive from the Classical Economists, Malthus and Ricardo, who focused on the most important resource of the time, agricultural land. For Malthus, population (labor) was growing exponentially while land was fixed in supply, or growing very slowly if at all, leading ultimately by the law of diminishing returns to a large population living at the subsistence level. Ricardo shifted the focus to points along the way, where land of a given quality was fixed, but cultivation could shift to the next best land when diminishing returns set in, giving rise to the phenomenon of rent, or the return to each unit of the higher quality land. An example of the computation of rent is given, and the chapter closes with a short discussion of the insights and deficiencies of the classical analysis.