Daniel Davies wrote:
I think that the only way you can square the circle is with something like Keynes' views on liquidity and animal spirits (ie the bits of Keynes' investment theory left out of Tobin's Q). It's like there is some intermediate values of Q in which it costs less to buy an oil company than to create one, but that a floatable exploration proposition can be sold for less than it costs to create. It's also clear that Q is higher for speculative exploration prospects like White Nile than for stable producing wells like Unocal.
One way that oil in particular can be analyzed in terms of Keynes's psychological premises is through the relation of the "hoarding instinct" to ideas about future resource scarcity as in the idea of Peak Oil. Keynes makes use of the premises to explain what he claims was Jevons's mistaken argument about the future of coal. "there is not much in Jevons's scare which can survive cool criticism. His conclusions were influenced, I suspect, by a psychological trait, unusually strong in him which many other people share, a certain hoarding instinct, a readiness to be alarmed and excited by the idea of the exhaustion of resources. Mr H.S. Jevons has communicated to me an amusing illustration of tis. Jevons held similar ideas as to the approaching scarcity of paper as a result of the vastness of the demand in relation to the supplies of suitable material (and here again he omitted to make adequate allowance for the progress of technical methods). Moreover, he acted on his fears and laid in such large stores not only of writing-paper, but also of thin brown packing paper, that even to-day, more than fifty years after his death, his children have not used up the stock he left behind him of the latter; though his purchases seem to have been more in the nature of a speculation than for his personal use, since his own notes were mostly written on the backs of old envelopes and odd scraps of paper, of which the proper place was the waste-paper basket." (vol. X, p. 117) Googling Peak Oil reveals a widespread "readiness to be alarmed and excited by the idea of the exhaustion of resources." Ted
