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Thursday, January 27, 2005

Jevon's Paradox

Jevon's Paradox


William Stanley Jevons (1835-1882) is best known as a British economist who was one of the pioneers of contemporary neoclassical economic analysis, with its subjective value theory rooted in marginal utility.

Chapter Seven of The Coal Question was entitled "Of the Economy of Fuel." Here he argued that increased efficiency in using a natural resource, such as coal, only resulted in increased demand for that resource, not a reduction in demand. This was because such improvement in efficiency led to a rising scale of production. "It is wholly a confusion of ideas," Jevons wrote,

...to suppose that the economic use of fuel is equivalent to a diminished consumption. The very contrary is the truth. As a rule, the new modes of economy will lead to an increase of consumption according to a principle recognized in many parallel instances?. The same principles apply, with even greater force and distinctiveness to the use of such a general agent as coal. It is the very economy of its use which leads to its extensive consumption?. Nor is it difficult to see how this paradox arises?. If the quantity of coal used in a blast-furnace, for instance, be diminished in comparison with the yield, the profits of the trade will increase, new capital will be attracted, the price of pig-iron will fall, but the demand for it increase; and eventually the greater number of furnaces will more than make up for the diminished consumption of each. And if such is not always the result within a single branch, it must be remembered that the progress of any branch of manufacture excites a new activity in most other branches and leads indirectly, if not directly, to increased inroads upon our seams of coal?. Civilization, says Baron Liebig, is the economy of power, and our power is coal. It is the very economy of the use of coal that makes our industry what it is; and the more we render it efficient and economical, the more will our industry thrive, and our works of civilization grow (140-142).

The contemporary significance of the Jevons paradox is seen with respect to the automobile in the United States. The introduction of more energy-efficient automobiles in this country in the 1970s did not curtail the demand for fuel because driving increased and the number of cars on the road soon doubled. Similarly, technological improvements in refrigeration simply led to more and larger refrigerators. The same tendencies are in effect within industry, independent of individual consumption.

What he is saying is, I think, that people will consume what is available, over time, to the limits of it's availability. So that by increasing the energy efficiency of oil use, we will actually stimulate the growth in oil consumption and accelerate depletion rates.

Alrighty then...

1 comment:

WHT said...

Aaron, Got you blog-rolled.