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Wednesday, August 1, 1984

A Reviewers Notebook: Doomsday Myth

When the OPEC nations imposed their oil embargo as punishment for the Western “tilt” toward Israel in the Arab-Israeli War of 1973, it set off a decade of panic about future energy resources. As the OPEC monopoly price rose dizzily toward $36 a barrel (the international price had stood at $2.16 in 1970), the United States made all the wrong moves. Government-imposed quotas kept the oil companies from moving available supplies around to where they would do the most good. and the attempt to control the domestic price level put a premium on wasteful consumption at a time when incentives to new drilling were declining.

Fortunately Americans, in the last year of Jimmy Carter’s presidency and during Ronald Reagan’s political “honeymoon” month of January 1981, finally woke up to the fact that “letting the government do it”—was not the way to get new oil. With fear and trepidation Congress let the price of domestic crude run free. When the per barrel price jumped from a controlled $29 to $36, the gloom-and-doom boys said “We told you so.” But as the number of working oil rigs doubled under Reagan, the situation was quickly reversed. A world oil glut developed as wells in Mexico, Canada and the North Sea started producing. OPEC woke up to discover its monopoly had been dissipated. Even with warring Iran and Iraq eliminated as big producers, the other OPEC nations could not stay the glut.

So the big crisis passed into history. In telling the story of how the market, through the instrument of price, gave Arab sheiks their first lesson in the economics of freedom, Charles Maurice and Charles W. Smithson, two authors who call themselves “simple country econo mists,” decided to test the validity of their principles by an appeal to history. The results of their researches are presented in a fascinating book called The Doomsday Myth: 10,000 Years of Economic Crises (Hoover Institution Press, Stanford, California 94305, 162 pages; $16.95 cloth, $8.95 paperback), with an excellent foreword by Phil Gramm, the Texas Democrat-turned-Republican who has carried the ball for the tax-cut-ting supply siders in the House of Representatives and is now a candidate for the U.S. Senate on what amounts to a free trade ticket.

Earlier Crises Resolved

Maurice and Smithson skip around a bit in their recital of other economic crises that disappeared when governments decided to let the market work. Their first example is what happened to the food crisis that Thomas Malthus said must last forever and a day if the masses, pressing on the available land, did not practice the continence that was then the one church- approved method of birth control.

Malthus neglected to feed the discovery of the new wheatlands of North and South America into the computer of his mind when he was formulating his dismal equations. He also missed the import of soil analysis, the development of chemical fertilizers, and the wonders of plant and animal breeding. During the time bought by the new sources of agricultural plenty the peoples of the industrialized nations learned how to limit their birth rates. China, India and Africa have not yet learned how to get around Malthus, but there are willing teachers in the West who could tell them how to do it.

From Malthus the authors jump back to the twentieth century to consider the big rubber crisis of the early days of World War II. In 1940 all but two percent of U.S. rubber consumption came from natural rubber supplies in the Far East. When the Japanese moved south to conquer the East Indies, this seemingly spelled doom for our war effort. No one could visualize an army moving on anything else than rubber tires.

It so happened, however, that our chemists, with their “neoprenes,” their “bunas,” and their “butyles,” had already unlocked the secrets of synthetic rubber. The war shortages compelled a quick investment in new synthetic rubber plants—and within two years there was enough rubber to go around even for civilian automobile tire replacements. The British, who had neglected syn thetic rubber chemistry when they put their trust in the so-called Stevenson Plan for upholding a monopoly in tree-grown rubber, were glad to forget their own cartel pretensions by importing their needed World War II rubber from America.

The timber crisis which so frightened President Theodore Roosevelt and his chief forester Gifford Pin-chot in the early years of the century vanished when the railroads, unwilling to pay the high prices demanded for crossties, began to study means of wood preservation. As they extended the use of their crossties by chemical treatment and by better lumber species selection they also ceased to build bridges, piling, railroad cars, fences, tunnels, wharves and station platforms out of wood. As for the housing industry, bricks, stone and concrete began to replace timber. The American wood crisis gradually faded out, following the pattern of what happened to timber crises in seventeenth and eighteenth century Europe. Britain defeated the high price of wood, both domestic and imported, by creating a brick industry and by turning to coal for fuel.

We are reminded by Maurice and Smithson that the high price of charcoal constituted an early energy crisis that was not overcome until acoal burning furnace had been developed that could be used in producing wrought iron. When that miracle had been accomplished, the age of coal really began. It fouled up much of England with its grime and fumes, even spoiling the taste of beer for a time, but it sparked the industrial revolution for a couple of centuries before giving way to oil.

As for oil itself, it came as the answer to an early illumination crisis when the over-hunted sperm whale became scarce even in the far reaches of the Pacific Ocean. Maur-ice and Smithson make the point that the techniques for drilling water wells were available to Edwin Drake, the retired railroad conductor, when he hired William Smith, an experienced well driller, to go after the source of “rock oil” seepages in northwestern Pennsylvania.

The oil stank until Benjamin Sil-liman of Yale and others learned how to refine it, but it was cheaper than whale oil. When the Rocke-fellers got into refining, America’s first oil crisis was overcome. Oil quickly became so plentiful that Standard Oil yearned to monopolize oil transportation in order to sustain the price. But new gushers, such as Spindletop in Texas, ended all hopes for a monopoly even before the Supreme Court broke up Standard Oil. OPEC should have studied this history before trying its big price gouge. []

John Chamberlain’s book reviews have been a regular feature of The Freeman since 1950. We are doubly grateful to John and to Henry Regnery for now making available John’s auto biography, A Life with the Printed Word. Copies of this remarkable account of a man and his times—our times—are available at $6.00 from The Foundation for Economic Education, Irvington-on-Hudson, New York 10533.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.