Thought Experiment
By Tom A. Milstein
June 8, 2006
Einstein made fruitful use of a creative technique called the “thought experiment” (Gedankenexperiment),
by which he meant a purely intellectual experiment in physical science, impractical
to carry out empirically, but bound by logic and constrained by the rule that it not violate any
fundamental physical laws.
Let us carry out the following “thought experiment”:
Something happens to flood the world with large quantities of new oil. That “something” might
be, for example, the discovery of large oil fields in politically benign areas, or a new technology
permitting oil to be brought up from areas previously thought inaccessible. Neither of these two
possibilities is excluded by the laws of geology or engineering. Since we are conducting a
thought experiment, a “what-if” chain of reasoning, we are entitled to consider either as our
starting assumption, however unlikely in practice.
What scenario logically unfolds from such a development?
Today oil sells at about $70 per barrel. Whatever factors have determined this price, the injection
of large quantities of new supply into the world market would obviously imperil the existing
price structure. If the supply bulge were large enough, the price would plummet. How low it
might fall is a matter of conjecture. But if the example of other economic raw materials offers
any guide, oil would probably sell at its true cost of production, plus a reasonable profit – perhaps
about a dollar a barrel.
So the first consequence of our thought experiment is that the economic interest represented by
the difference between oil selling at $70 per barrel, and oil selling at around $1 per barrel, would
be adversely affected. How big an interest are we talking about? The word “cosmic” comes to
mind. After all, oil is the key commodity in the modern world. Virtually nothing can be produced
without it. It is truly the prerequisite, the sine qua non, of all the world’s business. Ipso
facto, bathing the world economy in virtually limitless cheap oil would thus have a revolutionary
impact on the structure of that economy. Not only would the interest represented by oil at $70
per barrel be disrupted, but new interests founded on the much lower cost of producing goods
would move to the foreground. Like all newly-empowered economic interests, they would carry
with them new political, cultural and technological values, more rooted in entrepreneurialism,
technological innovation, and the deployment rather than the amassing of capital. The historic
balance between banking capital and production capital would tilt in the latter’s favor.
But wait! We have left an important and inevitable element out of our thought experiment scenario.
It is not reasonable to suppose that an interest whose power and influence we have not
shrunk from calling “cosmic” would gracefully bow out of the political struggle and exit stage
right from the theater of economic history. On the contrary, we ought to expect a serious effort
to appeal the verdict of the market and reverse the laws of supply and demand. Such an effort
would be consistent with Newton’s third law: for every action there is an equal and opposite reaction.
This reaction would constitute the second consequence of our thought experiment: the
effort by the enormous economic, political and cultural Establishment represented by oil at $70
a barrel to preserve its power and influence notwithstanding the collapse of its key asset’s price
(upon which our thought experiment is predicated).
Since we have excluded a priori by the terms of our thought experiment the possibility of maintaining
or restoring an elevated price of oil, what we need to consider – from the standpoint of
its former beneficiaries – are ways and means of preserving its effects even after its cause has
been (hypothetically) removed. For it is upon these effects – not the price of oil itself – that the
above-mentioned Establishment bases itself.
A vast increase in the supply of oil would exert a massively depressing effect on its price. This
price has obviously been a hugely limiting factor on the consumption of oil, and therefore a
hugely escalating factor on the cost of things produced with oil. The price of oil has created a
regime of scarcity around the world’s most important single commodity. But abundant oil
would destroy this regime of scarcity and overturn high-priced oil’s applecart. Could a regime of
scarcity be reimposed based on some other criteria than price? In other words, could scarcity,
having been overthrown at the supply end of the economic curve, be reinstituted at the demand
end, where oil is consumed? If so, a lot of applecart passengers would be mighty grateful.
Global Warming! Al Gore is only the most prominent of the many Cassandras who have recently
arisen to warn us that all respectable scientific opinion now agrees that we are destroying
our planet with our uncontrolled emissions of petroleum combustion byproducts. For these
folks abundant cheap oil would not be a blessing, but the apocalypse, leading to new ice ages,
oceanic inundations, famine, pestilence, giant hurricanes, together with, no doubt, epidemics of
baldness, impotence, and date rape.
Global Warming, about which all scientists now unanimously agree (except for some miscreants
who don’t), provides the perfect rationale for instituting an artificial regime of scarcity to replace
the economic regime imposed by high prices and short supplies. Not the economy, but Mother
Nature herself, so help us Wicca, demands that limits be imposed on oil consumption, in order
to save Gaia, our violated planet. How very convenient for Nature to come to the rescue of the
$70 a barrel crowd also! Once before She performed this service, through the pious auspices of
the good Rev. Thomas Malthus:
The power of population is so superior to the power of the earth to produce
subsistence for man, that premature death must in some shape or other visit the
human race. The vices of mankind are active and able ministers of depopulation. They
are the precursors in the great army of destruction; and often finish the dreadful work
themselves. But should they fail in this war of extermination, sickly seasons, epidemics,
pestilence, and plague, advance in terrific array, and sweep off their thousands and
tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks
in the rear, and with one mighty blow levels the population with the food of the world.
-- An Essay on the Principle of Population, 1789.
For Malthus, scarcity was dictated by the his iron law of population, which he insisted would
always increase geometrically, outstripping food supplies, which could only increase arithmetically.
Malthus proposed his ideas just as the English landed aristocracy was becoming aware of
the threat which the new industrial system of manufactures posed to its ascendancy. His pessimistic
and anti-human doctrine of food scarcity helped create the political atmosphere which
resulted in the passage of Britain’s Corn Laws, high tariffs on imported wheat and other foodstuffs
whose purpose was to subsidize the country’s inefficient feudal estates and thus artificially
perpetuate the Tory aristocracy’s corrupt dominion over England against the modernizing challenge
posed by the Manchester industrialists.
Today it is not food but energy which is alleged to be scarce. Whether it actually is or not is beyond
the scope of our thought experiment. But it is certainly heartening to know that the same
doctrine of scarcity which preserved the English aristocracy can be trotted out in the 21st century,
suitably regarbed in the trendy couture of ecology, to perform an equivalent function for
our own $70 a barrel aristocracy in the disastrous wake of an (hypothetical) oil price collapse.
The dogma of Global Warming is thus the third consequence of our thought experiment. It
stands ready to rationalize the imposition of Energy Consumption Controls, no matter what the
price of energy production, in the name of saving the planet from mankind’s swinish overconsumption.
Such controls would no doubt take the form of huge new taxes on energy consumption,
thereby creating a massive cash flow into the world’s various environmental protection
agencies, governmental and private. So aggrandized, these high-minded bureaucracies will acquire
the clout to perpetuate an artificial regime of scarcity forever – or at least for a long time –
even if technology and capitalism combine to discredit the doctrine of scarce energy supplies.
This brave new form of socialism, based on the expropriation and redistribution of scarcity,
should inscribe on its banner, “Arise, ye prisoners of abundance. You have been all, you shall be
naught!”
But our little thought experiment has produced a very peculiar result: whereas a crash in oil
prices is purely hypothetical, Global Warming is with us now. Nothing hypothetical about it.
Thanks to Al Gore, we even have that ultimate 21st century validation of its really real reality, a
movie – named, with 66% mendacity, An Inconvenient (sic) Truth (sic). What are we to make of
this strange emergence of a causeless consequence?
