“Diminishing returns are opposed by increasing knowledge, both of the earth’s crust and of methods of extraction and use. The price of oil, like that of any mineral, is the uncertain fluctuating result of the conflict.”
– M. A. Adelman, quoted in Michael Lynch, “Morris A. Adelman, Petroleum Economist, Has Passed Away,” Forbes, May 9, 2014.
A giant of petroleum economics, MIT economist Morry Adelman, died last week at the age of 96. (A short mention in the Boston Globe is here.)
Unlike the Malthusians and peak-oilers in particular, Adelman kept his eye on marginal costs and institutions (resource ownership, government policy) to understand that oil was not a fixed, depleting asset but, at least potentially, a super-abundant, expanding one. To grow and thrive, petroleum needed market incentives just like plants need water to grow and thrive.
A First Meeting
In early 1984, having completed a draft of what became Oil, Gas, and Government: The U.S. Experience, I contacted Dr. Adelman about visiting him in Boston about my chapters on the oil proration debate in the oil states in the 1920s and 1930s forward. He had written persuasively on the subject , and I had a new interpretation of oil production under the rule of capture (it was less a ‘market failure’ than a ‘government failure,’ and in any case “overproduction” was not solved by oil-state regulation).
I received a most encouraging note in the mail. “You seem to have a very worthwhile project underway,” Adelman wrote. “If you can get here … there should be some people here, in addition to myself, interested and interesting.”
We met in the Energy Lab of Building 40 at MIT’s department of economics. (I have never thought of energy economics as deserving a “lab,” but that is another story.) The visit went well, with the professor and some colleagues intrigued with my historical research suggesting that the market, left to its own devices, was a lot ‘smarter’ than academics gave it credit for.
Professor Adelman’s writings have aged very well unlike so many of his rivals. He was humble and sharing with juniors such as me. He really made me feel that my years in the library stacks learning the real history of petroleum in the political world were worth it. He had, as the tribute below mentioned, “a broad smile and a giant heart.”
Michael Lynch Tribute
“I was a graduate student asked to work on a computer model of the oil market,” remembers energy economist Michael Lynch.
My first assignment was to read World Petroleum Market by Morry. So when I found myself asked to work as his assistant, I was quite pleased, but also rather surprised at how unassuming and modest he was.
Lynch, who in recent decades as a consultant and scholar has advanced his mentor’s tradition, wrote a brief tribute at Forbes:
Morris A. Adelman, the dean of American petroleum economists, passed away this week at the age of 96. He was a mentor to many, including myself, and a good friend.
For years, he was well known to those participating in debates about resources and petroleum. Most famously, he published the book, World Petroleum Markets, in 1972 just before the first oil crisis, establishing him as the authority on the microeconomics of the industry, following later with The Economics of Petroleum Supply [1993] and Genie Out of the Bottle: World Oil Since 1970 [1995].
His views can best be summed by the quote “Diminishing returns are opposed by increasing knowledge, both of the earth’s crust and of methods of extraction and use. The price of oil, like that of any mineral, is the uncertain fluctuating result of the conflict.” Many of his publications demonstrated this both theoretically and empirically.
This left him in frequent opposition to neo-Malthusians who sought many explanations for rising oil prices in the 1970s, besides the simple fact that many countries, engaging in resource nationalism, restricted oil investment and/or production in the 1970s. Claims that work by Harold Hotelling (in 1931), user costs or oil exporters’ different discount rates could explain the change in oil prices were demonstrated to be incorrect.
[Adelman] also developed a number of the equations used to estimate costs and did much empirical work that showed how the petroleum resource expanded and costs tended to be more moderate than many believed.
Very much an old-school economist, his work was data-heavy, using advanced math when necessary but relying on empirical analysis of an industry of which he had extensive knowledge.
He also devoted much time to nurturing students and was known for his open door. And although he occasionally epitomized the absent-minded professor, he never ceased to amaze others with his ability to retrieve precisely the most appropriate quote from the classics or historical figures….
M. A. Adelman was a scholar’s scholar. Tomorrow, a selection of his salient quotations will conclude this two-part tribute.
The New York Times published an obituary of Adelman yesterday: http://www.nytimes.com/2014/06/09/business/morris-a-adelman-dies-at-96-saw-oil-as-inexhaustible.html?_r=1. Adelman might or might not have liked the title’s use of the word ‘exhaustible’ (it has different meanings to different people, as Jevons back in 1866 explained in the preface of his second edition of The Coal Question), but Adelman did reject the distinction of ‘nonrenewable’ versus ‘renewable’ distinction for oil (and gas).