David Fuller's view -
It is one of life’s mysteries that being wrong about everything has never been much of a barrier to success. Take Thomas Malthus, the British theologian: his big idea was that the number of human beings would necessarily grow faster than the supply of food, leading to calamity. There was little difference, in his mind, between people and rabbits: both were doomed to over-breed, over-consume and starve.
Yet this theory, expounded in 1798 in An Essay on the Principle of Population, one of the most influential books ever written, and now also routinely applied to oil and other resources, is bogus. Unlike rabbits, who are powerless to control their environment, the more we need, the more we eventually find a way of producing: the availability of food and oil are determined by technology and economics, not by some law of nature. Modern techniques (such as fertilisers, genetic selection or fracking) mean that agriculture and the extraction of commodities have become hugely more efficient.
The average British field yielded just over three tons of cereal per hectare per year in 1961; today, it is twice that. Thanks to the spread of free markets and knowledge, the world has never produced so much food, and the number of hungry people worldwide has dropped by 216m since the early Nineties, according to the United Nations.
Ditto oil production: in 2000, the Energy Information Administrationestimated that the world contained just over one trillion barrels of untapped oil; since then, proved reserves have shot up by 60pc, increasing every single year despite booming consumption from Energy-thirsty emerging markets.
Malthus wasn’t just far too pessimistic about supply: he was also wrong about demand. Rabbits can’t control their birth rates; we can. As more countries embrace markets and globalisation, thus ensuring that their economies develop, global birth rates keep on falling. As to Energy consumption, it is just a matter of time before improved battery technology and ever-cheaper solar power finally lessen our dependence on the internal combustion engine and oil. We will eventually be able to feed and fuel the world’s population using significantly less land and fewer hydrocarbons than we do today.
Jesse H Ausubel, an academic at the Rockefeller University in New York, has calculated that an area the size of the Amazonian forest could be returned to wildlife when the average farmer around the world becomes as productive as their US counterparts. Ausubel calls this the Great Reversal: nature’s chance to restore land and sea to their original use. It is an intriguing and exhilarating prospect, made possible by the wonders of capitalism, innovation and human ingenuity.
The abject failure of Malthusianism was, in fact, one of the defining trends of 2015, especially in the oil market; it will continue to be one of the central forces of 2016, impacting everything from how quickly the Bank of England puts up interest rates, to the stability of the Middle East. The price of Brent crude oil, which briefly reached $147 a barrel in 2008, is now down to around $37. Some analysts even believe it could fall briefly to $20, especially if more Iranian supplies than expected hit the global markets.
People are susceptible to Malthusianism because running out of what we need and want – food, companions, shelter, money – is a primal instinct. Fortunately, it motivates most people on a needs must basis. However, it can also overwhelm some with feelings of anxiety and loss.
As investors with a sense of history, we know that most markets have not only survived but also thrived after much more worrying events than we are witnessing today. We also know that the world improves more often than not, in terms of GDP growth, technological innovation and life expectancy. This is reflected by stock markets over time, to the benefit of sensible, worldly investors who buy low and sell high.
A PDF of Allister Heath's article is posted in the Subscriber's Area.
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