“How often does a prophet have to be wrong before we no longer believe that he or she is a true prophet?” Simon goaded. He argued that Ehrlich had been wrong about the “demographic facts of the 1970s,” whereas Simon’s own predictions had been right. Ehrlich had said in 1969, for instance, “If I were a gambler, I would take even money that England will not exist in the year 2000.” Ehrlich had been expressing his view that, without worldwide population control, overpopulation would cause nuclear war, plague, ecological catastrophe, or disastrous resource scarcities. Complaining that Ehrlich made wild statements without ever facing the “consequences of being wrong,” Simon said, “I’ll put my money where my mouth is” and asked Ehrlich to do the same. Rather than betting on the future existence of England, Simon challenged Ehrlich to bet on raw material prices and test their theories about future abundance. Ehrlich’s warnings about limits to economic growth, famines, and declining food harvests suggested rising prices that reflected growing scarcity due to population growth. But Simon argued that prices generally were falling for natural resources because they were becoming less scarce due to increasing productivity and human ingenuity.
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Ehrlich, Holdren, and Harte knew about inflation and exchange rates, but soaring nominal prices could not help but encourage their belief that resources were rapidly getting scarcer. Many shared their conviction. The story of Bunker and Herbert Hunt, scions of a leading Texas oil family, might have provided a cautionary tale for the scientists. The Hunts gambled billions of dollars on the rising price of silver. When prices did not increase sufficiently, the Hunt brothers tried to corner the silver market; at one point, they and their partners controlled 77 percent of the silver in private hands. Their effort failed spectacularly in March 1980, however, when government regulators tightened credit and restricted silver purchases. As silver prices collapsed, the Hunt brothers in desperation were forced to borrow more than a billion dollars to extricate themselves from their silver play. Despite such stories from the business pages, Ehrlich and his colleagues believed that the price trends all were in their favor. They felt confident that they would prevail in the bet.
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During the late 1970s, tin prices rose sharply. Many observers anticipated shortages. Malaysian producers sought to corner the tin market to force prices even higher in 1981 and 1982. New high-quality tin deposits discovered in the Brazilian Amazon, however, undermined this market-cornering effort. By the end of the 1980s, Brazil, a previously marginal producer, produced roughly one quarter of the world’s tin supply. At the higher prices of the late 1970s, demand for tin also started to fall. Manufacturers substituted aluminum and plastic for tin in packaging. Trying in vain to stabilize prices, the International Tin Agreement held a quarter of the world’s annual tin production off the market. The International Tin Council soon ran out of money, however, and the agreement collapsed. Tin prices went into “free fall,” dropping more than 50 percent from $ 5.50 per pound in October 1985 to $ 2.50 per pound in March 1986. Overall, between 1980 and 1990, the gyrations of the tin market supported the arguments of Simon and the economists. New sources of supply, product substitution, and, above all, the breaking of the tin cartel had a far greater impact than population growth on tin prices, ultimately driving them down almost 75 percent.
More (#2) from The Bet:
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