Abstract
In 1973, the onset of an energy crisis in a world that for a century had been plagued by potential oversupply of fossil fuels at existing market prices caught many knowledgeable observers by surprise. The energy shortage immediately generated a search for a scapegoat or a rational explanation of the predicament of the highly developed, capitalist economies, heavily based on energy resources, of the United States, Western Europe, and Japan.
Brookings Papers on Economic Activity 2 (Summer) 1974. The paper was written with Laurence H. Falk and Hoesung Lee.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Notes
Leonard Silk, ‘Multinational Morals’, New York Times, (5 March 1974).
J. E. Hartshorn, Politics and World Oil Economics: An Account of the International Oil Industry in Its Political Environment, (New York: Praeger, 1962) p. 340. Even in 1974 studies have been produced to show that ‘prices paid by consumers for petroleum products reflect the actual costs of suppliers and are not “padded” by excess profits. The competitive process has held industry profits down’.
See Edward J. Mitchell, US Energy Policy: A Primer, (Washington: American Enterprise Institute, 1974) p. 103.
Robert M. Solow, ‘The Economics of Resources or the Resources of Econ-omics’, American Economic Association, Papers and Proceedings of the Eighty-sixth Annual Meeting, 1973 (American Economic Review, 64 (May 1974) p. 2.
William D. Nordhaus, ‘The Allocation of Energy Resources’, Brookings Papers on Economic Activity”,’ 3 (1973) pp. 530–1. Hereafter this document will be referred to as BPEA, followed by the date.
Frank H. Hahn, On the Notion of Equilibrium in Economics, (London: Cambridge University Press, 1973) pp. 14–16 (emphasis supplied).
This condition can hold only if monetary and fiscal policy are so precisely applied that they eliminate any divergence between the natural rate of interest and the market rate of interest. See Kenneth J. Arrow, ‘Discounting and Public Investment Criteria’, in Allen V. Kneese and Stephen C. Smith (eds), Water Research, (Baltimore: Johns Hopkins Press, for Resources for the Future, 1966) pp. 13–32.
For a complete discussion of user costs and petroleum production, see Paul Davidson, ‘Public Policy Problems of the Domestic Crude Oil Industry’, American Economic Review, 53 (March 1963) pp. 85–108;
Robert G. Kuller and Ronald G. Cummings, ‘An Economic Model of Production and Investment for Petroleum Reservoirs’, American Economic Review, 64 (March 1974) pp. 66–79.
As Champernowne has indicated, Keynes borrowed the term ‘user cost’ from Marshall, but was the first to develop the concept and apply it to the question of intertemporal production from depletable properties. See D. G. Champernowne, ‘Expectations and the Links Between the Economic Present and Future’, in Robert Lekachman (ed.), Keynes’ General Theory: Reports of Three Decades, (New York: St. Martin’s Press, 1964) p. 177;
John Maynard Keynes, The General Theory of Employment, Interest and Money, (New York: Harcourt Brace, 1936) pp. 66–73. Since then many other authors have refined the user-cost concept to analyse entrepreneurial decisions about the timing of production in the short run.
See, for example, Joe S. Bain, ‘Depression Pricing and the Depreciation Function’, Quarterly Journal of Economics, 51 (August 1937) pp. 705–15;
Alfred C. Neal, Industrial Concentration and Price Inflexibility, (Washington: American Council on Public Affairs, 1942) pp. 58–61;
Sidney Weintraub, Price Theory, (London: Pitman, 1949) pp. 378–81; A. D.
Scott, ‘Notes on User Cost’, Economic Journal, 63 (June 1953) pp. 368–84;
Anthony D. Scott, ‘The Theory of the Mine Under Conditions of Certainty’, in Mason Gaffney (ed.), Extractive Resources and Taxation, (Minnesota: University of Wisconsin Press, 1967) pp. 34–41;
M. Mason Gaffney, ‘Soil Depletion and Land Rent’, Natural Resources Journal, 4 (January 1965) pp. 537–57;
M. A. Adelman, The World Petroleum Market, (Johns Hopkins University Press for Resources for the Future, 1972) p. 40
Kenneth J. Arrow, ‘Limited Knowledge and Economic Analysis’, American Economic Review, 64 (March 1974) p. 8
J. R. Hicks, Value and Capital, (Oxford: Oxford University Press, 1946) 2nd edn, p. 129.
Arthur M. Okun and George L. Perry, ‘Editors’ Introduction and Summary’, BPEA, 3 (1973) p. 516.
George L. S. Shackle, Epistemics and Economics, (Cambridge: Cambridge University Press, 1972) p. 111.
Melvin G. de Chazeau and Alfred E. Kahn, Integration and Competition in the Petroleum Industry, (New Haven: Yale University Press, 1959) p. 236.
Michael V. Posner, Fuel Policy: A Study in Applied Economics, (London: Macmillan, 1973) p. 52.
Edward H. Chamberlin, The Theory of Monopolistic Competition: A Reorientation of the Theory of Value, (Cambridge, Mass.: Harvard University Press, 1960) 7th edn, pp. 266–69.
The USGS estimates that the lower forty-eight states contain between 575 billion and 2.4 trillion barrels of oil reserves, while current proved reserves are only 37 billion barrels. See Sanford Rose, ‘Our Vast, Hidden Oil Resources’, Fortune, 89 (April 1974) pp. 104–5.
T. H. McColloh has reported that economically recoverable, (at 1970 wellhead prices) oil reserves in the United States are from about three-and-one-half to ten times current proved reserves as reported by the industry. See United States Mineral Resources, USGS professional paper 20 (1973) pp. 491, 492. Since these two sets of estimates were made when wellhead prices were much lower, they significantly underestimate current economically recoverable reserves.
Cabinet Task Force on Oil Import Control, The Oil Import Question, A Report on the Relationship of Oil Imports to the National Security (Washington: US Government Printing Office, 1970) p. 226.
See James C. Burrows and Thomas A. Domencich, An Analysis of the United States Oil Import Quota, (Lexington, Mass.: Heath-Lexington, 1970) pp. 106, 119–29. The negative signs of Ed, are omitted throughout.
The Policy Study Group of the MIT Energy Laboratory, ‘Energy Self-Sufficiency: An Economic Evaluation’, Technology Review, 76 (May 1974) pp. 23–58.
US Geological Survey, Outer Continental Shelf Statistics, (1974) p. 34. In 1965, for example, the ratio of shut-ins was 18 per cent, and the trend was steadily downward until 1972.
Editor information
Copyright information
© 1991 Paul Davidson
About this chapter
Cite this chapter
Davidson, P. (1991). Oil: Its Time Allocation and Project Independence. In: Davidson, L. (eds) Inflation, Open Economies and Resources. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-11516-7_25
Download citation
DOI: https://doi.org/10.1007/978-1-349-11516-7_25
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-11518-1
Online ISBN: 978-1-349-11516-7
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)