A Case for Higher Prices of Oil
Whether or not oil was fairly priced in world markets, the fact
remains that it is a depletable natural resource, a real form
of wealth, and therefore it has to be fairly exchanged by other
forms of wealth. In this conversion process, the wealth holder
has the right protect himself against constant decline in the
purchasing power if paper money if it is used as the medium of
exchange. During times of high inflation, paper money cannot perform
fully its function as a store of value while prices of commodities
have to be adjusted to hedge against the decline in the purchasing
power of money.
Furthermore, higher prices of oil will serve as the most effective
method of achieving conservation as the cheap and abundant oil
in the past had led to wasteful use of this valuable natural resource
on the one hand and had made it economically difficult to develop
alternate sources of energy on the other hand. In 1950, solar
energy satisfied 9.4% of total US consumption of energy while
in 1970, the percentage dropped to 5.37%. In 1950, coal satisfied
35.9% of total US consumption of energy while in 1970, the percentage
dropped to 18.87%. Whereas, percentage use of petroleum and natural
gas of total US consumption of energy increased from 54.65% in
1950 to 75.65% in 1970.7
Higher prices of oil can serve dual purpose: reduction in wasteful
use of oil and a reduction in demand for oil with the end result
of spreading this valuable resource over a wider span of time
necessary for mankind to develop alternate sources of energy.
No matter how much new oil may be found, eventually its reserves
will have to drop. As oil reserves are depleted over time, the
market economy=s invisible
hand will be at work. Oil becomes more valuable in economic exchange.
Hence, further incentives are created to develop substitutes for
energy in a smooth non-disruptive transition.