In resource economics, Hotelling’s rule suggests that owners of non-renewable resources will only produce a supply of their basic commodity if it can provide a rate of return in excess of the rate of return on financial instruments. Hotelling’s theory is used by economists to attempt to predict the price of oil and other non-renewable resources, based on prevailing interest rates.

For instance, if the natural resource price is expected to appreciate by 10% whereas the return on interest based investment is 7%, then the natural resource owner will not extract and will wait. On the other hand, if the natural resource price is expected to appreciate by 7% whereas the return on interest based investment is 10%, then the natural resource owner will extract and sell the natural resource and invest the proceeds in interest based investments.

Strikingly, it is ignored that natural resource has intrinsic value. The value in exchange is different from value in terms of maintaining and sustaining ecological balance. Water is highly valuable for life despite its very low value in exchange due to abundant supply at lower marginal costs.

A natural resource with intrinsic value shall not be compared with receipt of little more fiat currency. Fiat currency does not have intrinsic value. Even if investments in crypto currencies yield higher return now in the short run, it would be highly inadvisable to exchange them with non-renewable resources which have intrinsic value. Interest rates may go down to zero or even negative, but the extraction of non-renewable resources is irreversible.

Money supply can be increased out of thin air, but the non-renewable resources once exhausted cannot be brought back. Remarkably, the importance of ecology is not learnt even after repeated unsuccessful expeditions in space to search life supporting environment. An illuminating, enlightening and informative book cannot be valued just by measuring the cost of pages, printing and binding.

It is worth reflecting on what John Maynard Keynes wrote in his magnum opus ‘General Theory of Employment, Interest and Money’:

“Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.”

John Maynard Keynes, General Theory of Employment, Interest and Money