F. A. Hayek made many contributions to the social sciences in his lifetime. This post shares his thoughts about natural resources–really mineral resources–from his 1960 book, The Constitution of Liberty. His thinking is contained in the section, “Conservation of Natural Resources,” (pp. 367–71).
The question Hayek addresses is whether self-interested free-market decisions overuse important, even ‘depletable,’ resources, leaving less for posterity from an economic viewpoint. Hayek argues against what might be called conservationism, or conservation for its own sake where present-value analysis does not apply.
Hayek employed familiar reasoning to explain how privately owned resources had a capital or salable value, which was particularly relevant to mineral deposits for which, ceteris paribus, present production meant less future production.  In his words:
If the owner can get a higher return by selling to those who want to conserve than by exploiting the particular resource himself, he will do so. There will normally exist a potential sale price of the resource which will reflect opinion about all the factors likely to affect its future value, and a decision based on the comparison of its value as a salable asset with what it would bring if exploited now will probably take into account more of all the relevant knowledge than could any decision of a central authority (372).
Hayek complemented his market rationality argument with an open-ended view of resources wherein one resource gives way to another—a stock-to-flow analysis that Ludwig von Mises had emphasized as well. Stated Hayek:
Any natural resource represents just one item of our total endowment of exhaustible resources, and our problem is not to preserve this stock in any particular form, but always to maintain it in a form that will make the most desirable contribution to total income. The existence of a particular natural resource merely means that, while it lasts, its temporary contribution to our income will help us to create new ones which will similarly assist us in the future (374).
Exploiting (depleting) fixed resources promotes future progress because wealth is created from present usage, and higher prices signal the market to develop substitutes. Hayek explained:
We are constantly using up resources on the basis of the mere probability that our knowledge of available resources will increase indefinitely—and this knowledge does increase in part because we are using up what is available at such a fast rate (369).
Hayek was dubious about a government solution to an overproduction problem, elaborating on the argument that Mises made more than a decade before:
The claim that the government possesses superior knowledge raises a more complex problem…. There will always exist … an even greater store of knowledge of special circumstances that ought to be taken into account in decisions about specific resources which only the individual owners will possess and which can never be concentrated within a single authority. Thus, if it is true that the government is likely to know some facts known to few others, it is equally true that the government will be necessarily ignorant of an even greater number of relevant facts known to some others (371).
Hayek posited the knowledge problem in the particular context of exhaustible resources:
The problem concern[ing] the rate at which stock resources, such as mineral deposits ought to be used up … presupposes a rational estimate of the future course of prices of the materials in question, and this in turn depends on forecasts of future technological and economic developments which the small individual owner is usually not in a position to make intelligently (371).
Yet government does not possess such knowledge to define and correct the alleged problem.
Most of those who complain about what has happened, however, are being wise after the event,” stated Hayek, “and there is little reason to believe that, with the knowledge available at the time, even the most intelligent governmental policy could have prevented those effects which are now most deplored (368).
Enforced conservation in ages past, in fact, would have held back the progress responsible for today’s high standards of living and the capacity to mine new resources.
Industrial development would have been greatly retarded if sixty or eighty years ago the warning of the conservationists about the threatening exhaustion of the supply of coal had been heeded; and the internal combustion engine would never have revolutionized transport if its use had been limited to the then known supplies of oil (during the first few decades of the era of the automobile and the airplane the known resources of oil at the current rate of use would have been exhausted in ten years). Though it is important that on all these matters the opinion of the experts about the physical facts should be heard, the result in most instances would have been very detrimental if they had had the power to enforce their views on policy (369–370).
Hayek then exposed the circularity of the argument being put forward by those urging postponed use for its own sake:
All resource conservation constitutes investment and should be judged by precisely the same criteria as all other investment…. To extend investment in the conservation of a particular natural resource to a point where the return is lower than the capital it uses would bring elsewhere would reduce future income below what it would otherwise be. As has been well said, “the conservationist who urges us ‘to make greater provision for the future’” is in fact urging a lesser provision for posterity (374).
Market failure as a rationale for government intervention was effectively rebutted.
[i] Hayek did not dirty his hands with the economists’ favorite case study of resource overexploitation: “overproduction” and “waste” from oil production under the rule-of-capture. This situation arose where drainage competition occurred between co-owners of a reservoir containing a fungible mineral, driving up costs and even damaging recoverability. (This race for possession was not present with hard minerals since surface boundaries protected asset deposits.)
An Austrian-institutional reinterpretation of the “common pool” problem of oil production under the rule of capture has been set forth by this author in Oil, Gas, and Government: The U.S., Experience (1996), chapters 2–4.