"Resources for Freedom" in Retrospect

When the Paley Commission report was written between January 1951 and June 1952, the end of World War II was only five years in the past, with continuing reconstruction in Europe as a constant reminder, and the Korean War in full swing. Hostilities in Korea threatened to spill over into China, and the specter of war with the Soviet Union was more than the fanciful product of someone's feverish imagination. With the memory of World War II shortages still fresh in people's minds, readiness for a war emergency and the search for means of command over the wherewithal of war, that is, materials and energy, were a recurrent theme and in a way represented the raison d'être of the commission. "Almost all major war instruments now make much heavier materials demand," the report of the commission states, than was true in the past, especially in World War II. But having entered through the security door, the commission found itself in an arena infinitely more profound and far-reaching, in both space and time. The stage was set for a general discussion and analysis of materials problems, of "choke points," as we would say today, and relevant policy recommendations.

It is important to stress the word "materials," not only because it is in the commission's name, but because some major "resources"—as distinct from materials—are dealt with only lightly. These are agriculture and water. The report does contain calculations on projected food needs and what measures are needed to meet them—increased yields, a change in land use, and a more flexible farm income support system—but the materials label assigns only a minor role to not only food but, with the exception of timber, also agricultural materials, such as fiber. Similarly, only a slight bow is made in the direction of water, largely on the grounds that a presidential commission had just reported on it. The bulk of the summary report of volume I, which reflects the basic thrust of the five-volume opus, then addresses materials (and mostly minerals at that) and energy, and the pillars on which they rest, science and technology.

Thirty-five years after the report emerged, three aspects are of interest:

1. What was the commission's mind-set and how valid does it strike us today?
2. How good were its quantitative "sensors"; that is, to what degree did it have a reasonable, realistic notion of the path from 1950 to 1975?
3. Were there major intervening events, foreseeable or not, that, in hindsight, rendered irrelevant or fundamentally erroneous the commission's findings or recommendations?

The mind-set

It is nothing short of remarkable that, in the midst of a wartime environment, one of the clearest messages pervading the report is what it calls the "least cost principle." Buy wherever you get the best price, the commission advises, adding some such qualification as "with due regard to security considerations." To quote a pivotal sentence: "The overall objective of a national Materials Policy for the United States should be to ensure an adequate and dependable flow of materials at the lowest cost consistent with national security and with the welfare of friendly nations." The theme pervades the report. At times it turns up as favoring a specific procurement policy, as in the above citation, and at times it takes the form of rejecting self-sufficiency, which it calls a "self-imposed blockade," a policy it denounces, because "it costs too much" and would be a blow to our friends and allies in the sense that such a policy would deny them opportunities for growth and development.

The report does concede that there is a case for transition assistance to domestic industries hurt by the consequences of lack of international competitiveness. To appreciate this attitude, one must recall that, for example in the case of petroleum, the country was in the process of changing from a net exporter to a net importer and that its principal foreign supplier was Venezuela, a nearby country with its oil industry then firmly under the effective control of U.S. corporations. So, in a sense the proposed least cost principle, at least in this instance, imposed no burden, either economic or political. Nonetheless, the strong and unequivocal language denouncing self-sufficiency, trade barriers, and the like, stands out as a courageous act in the face, even then, of vociferous calls for protection of domestic industries, in fact or allegedly struggling to stay alive.

There was no pussyfooting either in the commission's attitude toward growth. It was for it! Not only was it feasible but it was also desirable. Disarmingly and engagingly, the report acknowledges that it cannot find "any absolute reason for this belief [in growth]" but that "it seems preferable to any opposite, which to us implies stagnation and decay." Still, the report recommended—though without further elaboration—that we must "examine such apparent limits as present themselves." A foretaste of Limits to Growth? Hardly, as is borne out in the commission's view of technology as having the potential for overcoming such "apparent limits," but rather, one is inclined to think, a concession to reasonableness.

Concern with growth is linked with another pervasive theme: resource depletion not as a physical absolute but as expressed through rising costs. As some observers have remarked, the report's greatest contribution to the perennial resource adequacy debate is its abstention from sounding the "running-out" theme. It is a mistaken notion, it comments, that on a given day the world will find that the last ounce or foot of a given resource has been used up. At a cost there is always more. What we are running out of, says the commission in the kind of terse and graphic language that characterizes the entire summary report, is "the evident, the cheap, the accessible."

In a similar vein, the commission usefully provides conservation with the often missing economic dimension. Conservation is not the "hairshirt," not deprivation, but using a resource more efficiently. Thus it is compatible with growth and with high consumption. Similar reasoning applies to waste. Don't confuse physical waste with economic waste, the report cautions. To save and preserve may under some circumstances be economically quite wasteful. At a time when war-induced shortages were very much on people's minds, these were truths not willingly or easily accepted by everyone. One might remark parenthetically that they were not understood more widely two decades later when the country had to cope with the consequences of the first energy shock and was trapped in the belief that every Btu saved was by definition a beneficial event.

Another pervasive belief is that, as contrasted with government intervention, private enterprise equates with efficiency. Profits and prices are the institutions on which the economy relies to get results, and government interference must be held down. But the dogma is not absolute. To believe in minimizing government interference does not mean that "the minimum must be set at zero." Indeed, coexistence of private and public strength is the desirable state of affairs. This is stated as a principle, and it motivates many of the commission's recommendations that suggest establishment of both incentives to private behavior and new public institutions. The philosophical stance of the report is that government's role is to enhance the conditions under which private enterprise may flourish.

The Paley Commission's projections of supply and demand twenty-five years into the future were truly a "calculated risk, or a risky calculation. They were also a first. Preceding it was another landmark project, J. Frederic Dewhurst's America's Needs and Resources, published in 1947 and revised in 1955. It was more comprehensive in that it also encompassed human resources (which in the Paley Commission structure served only as "basic parameters"), but it projected for only fifteen rather than twenty-five years, and it was far less ambitious and detailed in its resource demand and supply calculations. There have been other projection efforts since, including RFF's Resources in America's Future (1962) of which I was the senior author. undertaken at the urging of William Paley. There have been many others since 1973 when the energy crunch shook up whatever resistance there had been to engaging in projections that some misconceived as steps to a planned economy. But there is no doubt that the Paley Commission was a true milestone, indeed the milestone marked with a large Number One.

How well did the commission do? This is not the place to engage in a line-by-line examination. Nor are the numbers the one meaningful test. The commission itself emphasized that to test resource adequacy, the core of its task, orders of magnitude were for the most part sufficient. Looking back, a better question is: did they sense the direction in which the materials and energy segments of the economy—and their component parts—were moving? Were they pedestrian accountants, extrapolating and correlating without imagination, or were they impractical dreamers, ignoring the constraints of the real world? The verdict is that more often than not the commission's guesses pointed in the right direction. When they erred they missed the bull's eye, but generally not the target. The instances where this evaluation does not hold are those in which the commission failed to sense future developments on a very far horizon, or even below it, a failing they shared with equally surprised subsequent observers not ten or twenty years but at times only days or months before the events occurred. About this, more below.

Let us start with a quick tour of the basic parameters. The commission did not anticipate the prolonged baby boom. Population, at 151 million in 1950, was estimated to rise to 193 million by 1975. That estimate, arrived at in consultation with the Bureau of the Census, was conservative: population, in fact, rose to 216 million. The labor force, at 63 million in 1950, was put at 82 million for 1975. In fact, it turned out to be 95 million (what was missed here, as it was equally in later projection efforts, was the rapid growth in the female labor participation rate). The work week was expected to decline by 15 percent, and productivity, defined as output per worker-hour, was to grow at a steady 2.5 percent per year. Instead the work week declined by only 10 percent, and productivity, on the average, rose by 3 percent. Out of these factors the commission saw emerge an annual GNP growth rate of 3 percent, about the same, said the commission, as it had "averaged over the last century." Put differently, by the commission's estimate, GNP was to double in the twenty-five-year span under consideration.

Reality matched expectation closely: GNP rose at a compound rate of 3.3 percent. All factors exhibited a greater dynamism. Population rose faster by 23 million, yielding a working force greater by 13 million, which worked only 10, not 15 percent less per week, and productivity registered a better record than expected. With GNP functioning as a yardstick for many of the projections, it's correctly anticipated path imposed useful bounds on the more detailed estimates.

The commission had a hunch that its basic indicators might be on the low side. It called them "unquestionably conservative." Correctly, we believe, downplaying numerical "accuracy," the commission is content with nothing tersely that "demand for everything can be expected to rise substantially" and that history records "more estimates of the future that were too small than those that erred on the other side." Ironically, the commission's macroeconomic estimates add one more example to those that were too small, though by only very little.

Uncertainty on particulars

When it comes to particulars, that is, the demand for agricultural products, minerals, energy, and some other resources, the picture becomes more uncertain. In the case of energy, the commission made a straightforward assumption: its use would rise at the same rate as GNP, that is, by 3 percent—the famous "lockstep" syndrome. That turned out to be close. Energy use rose by 3.1 percent, not quite as fast as the 3.3 percent GNP growth rate. In this instance, the commission's numbers were better than its reasoning. Having stressed the theoretical potential for greater efficiency in use, the commission's actual calculations assumed no improvement and thus overestimated energy consumption in 1975 (by which time the first reverberation of the OPEC shock undoubtedly had begun to pull down energy consumption).

Other estimates are less easily summarized, as the commission emerged with wide-ranging differences in growth rates. For example, it estimated iron, copper, lead, and zinc consumption to rise only slowly—by 40 to 50 percent—but bauxite, a proxy for aluminum, by 200 percent, and magnesium, lo and behold, eighteen to twentyfold! Timber demand would rise by only 10 percent, but within that estimate was embedded demand for pulpwood that would grow by 50 percent.

Let us look at mineral consumption in a bit of detail. This is the table that appears in the summary report of volume I (actual percentage changes added by us).

As one looks through the index of the report, one is struck by the absence of such words, now in everyone's vocabulary, as environment, pollution, ecology, although water pollution does turn up. There are but two references to atomic energy (which at that time presented a net drain on the energy system, being focused solely on weapons production and expected to remain so for some time). Nor does the Middle East figure in the index. On the other hand, one finds solar energy as well as synthetic fuels.

It is a sobering exercise to transport oneself back to the world of 1950. The first nuclear power plant had not yet been erected. Detergent foam was not yet floating on water courses, nor were acid rain or the greenhouse effect household words. The Persian Gulf was a large body of water not yet viewed as being of crucial significance to the well-being of Western Europe, Japan, or this country, and Iran's Mossadegh had not yet set off alarm bells. The Korean War was fought with conventional weapons and the threat of nuclear annihilation, or the mechanics of deterrents, and the like, while recognized, had not yet become a persistent theme.

Only with supreme arrogance or uncommon wisdom could one judge what was and was not then foreseeable. Possessing neither, we shall refrain from making those judgment calls and merely remind the reader of the fundamental differences between 1950 and 1987. In that context it is remarkable how close to target many of the 1975 projections turned out to be.

The reverse of missing events that did occur is to predict with a fair degree of confidence developments that failed to materialize. For example, synthetic fuel obviously intrigued the commission. In what now reads like science fiction, a finding by the National Petroleum Council was cited that fuel from an approximate 200,000-barrel per day synthetic fuel plant could be placed on the Los Angeles market for 14.7 cents per gallon, compared to petroleum-derived gasoline at 12.7 cents. Possible barriers mentioned were the shortage of capital, monopolistic restraints, "or the like." We have only recently learned better, but the dream, especially of turning superabundant oil shale into a competitive commercial liquid, at a cost that for a long time was believed to be just 25 cents above that of a barrel of crude oil, loomed large in the commission's speculations and was to survive in subsequent projection ventures to the present. Two other energy sources figured prominently in the commission's speculations but not in its calculations: solar and the breeder. Neither was to make it. The first largely because costs were too high and the second because of growing hostility toward any kind of nuclear power technology and particular opposition to the plutonium-associated breeder.

Clouded future

In 1950 none of this was evident. It was the era of President Eisenhower's Atoms for Peace plan. Here the commission's praiseworthy concern with the cost of resources rather than their physical aspects led it into dealing inadequately with noncost factors, not only in the instance of nuclear energy but similarly in assessing the prospects of hydroelectric power, and the "bads" of coal use. The breath of "technological optimism" emanating from the report is refreshing, but at times resulted in false expectations. On the other hand, the commission did not fully anticipate the enormous revolution in agricultural technology and the resulting yield increases, and because it underestimated population growth, it also underestimated the demand for food. Nor is there any inkling of the coming revolution in electronics, communication, and biotechnology. But then the report was written by mortals.

Since national security is a major theme of the report, so, naturally, is concern with means of achieving it. Stockpiling looms large in that respect, but apart from commodities, it focuses heavily on standby capacity. Various schemes are proposed. For example, offshore oil exploration, still an unexploited source, is seen as having usefulness largely as a spare "reservoir" in case of war. Therefore, the government would prescribe well-spacing and withdrawal rates that would slow down draining of reservoirs and ensure their availability in military emergencies. Similarly, "resource agreements" with other countries, on a government-to-government basis, would be concluded under which the United States would assist financially and otherwise in locating reserves of minerals, not for immediate exploitation, but to constitute standby capacity. There are other proposals along similar lines, that is, designed to provide ready facilities when needed. It is a mechanism still at times proposed but more generally discounted as unrealistic. Perhaps, it was the image of another long-drawn-out conventional war that lay at the base of these proposals. Faced with the specter of nuclear war, semi-ready offshore oil wells or unmined copper-bearing ores on other continents now hardly seem strong reeds to lean on.

There are some other oddities, or rather passages or thoughts that strike one as odd in view of today's reality and perceptions. Discussing the crucial role of technology, the commission approvingly cites a statement that "...the Nation has been far more industrious in putting scientific facts to work than in increasing basic knowledge." Reading the statement today one would unquestionably take it to refer to Japan, not the United States. Then there are allusions to all manner of technological advances that did not make it or were hardly ever attempted. Among them, suction pipelines to extract coal from coal mines and production facilities that jointly turn coal into electricity, chemicals, and liquid fuel all in the same industrial complex.

On the other hand, the report, while bullish on solar energy (which, together with nuclear energy, it labels as "tremendous possibilities"), finds that means of collecting it are "not yet at hand." It also is bearish on natural gas, understandably so since widespread availability of natural gas has been a more recent phenomenon and the rapid increases that had occurred by 1950 were judged unlikely to continue at that pace. Its use, the report predicts, will decline prior to the end of the century or "conceivably sooner" and prices will increase. It based that assessment on the assumption that gas could not be imported and on the fact that there was no substitute available to dampen any price rise. To offset the assumed fact that the nation's reserves of natural gas were short, the commission supported the philosophy of reducing so-called "inferior" uses, that is, basically the burning of gas under industrial boilers. Pipelines should not be built to give access to these inferior users, but should be extended to so-called "high advantage" users, that is, household and commercial consumers. In today's era of the persisting "gas bubble" and with recent repeal of the Fuel Use Act that had placed restrictions on the use of gas as a boiler fuel, this sounds like a strange doctrine, but happily the commission argued that proper pricing would in itself channel the gas to the appropriate users and that regulation would not be the way to do it. We cite this stand as only one example of a generally antiregulatory attitude, which, however, stopped short of depriving government of useful functions when private initiative has, for good and sufficient reasons, failed to operate at all or operate success-fully.

As intriguing and absorbing as are the quantitative details of the commission's work, they speak primarily to the expert. They are helpful in gaining a better understanding of how ideas are formed that eventually yield numbers, the extent to which prognosticators are captives of fashion or, to the contrary, are fascinated by the not-yet-feasible. They provide a measure of the limits to which one can sense major societal upheavals, for example, the enormous increase in the female labor participation rate, or even the changes in the size of the population. But no report of this kind can or should hope to be remembered because it got its numbers "right," or more nearly so than some other study. What stamps the commission's report as having value is its stress on the economic rather than physical attributes of resources, from which follows the rejection of the "running-out" concept, and the "abstention" interpretation of conservation; of its courageous advocacy of the least cost principle in securing materials and energy, a stance that at all times finds vigorous opponents; and its judicious judgment of the respective roles of the private sector and government. These are lasting legacies that have influenced debate about resource problems ever since.

Epilogue: When published in June 1952, the summary report was available from the Government Printing Office for 25 cents.