by Lee Friday
The government tells us we must recycle all kinds of stuff: bottles, cans, paper, plastics etc. They say that recycling reduces the number of products made from natural resources, which means more resources are conserved and our energy costs are lower. Superficially, this seems plausible. Surely it is more wasteful to manufacture products by digging resources out of the ground than to use discarded resources which already exist above ground – right? Not necessarily.
Resource Allocation through Market Prices
Our objective is to minimize the use of resources (including energy) in the manufacturing process for all products. In order to achieve our objective, we must be guided by market prices, without exception. As long as prices are allowed to freely adjust to changes in supply and demand, resources will be allocated to their most highly valued uses, and resource conservation will be maximized. The capitalistic process of profits and losses ensures these outcomes.
Profits tell us that a firm has taken various factors of production (labor, raw materials, land, buildings, machines etc.) and combined them in such a manner that they are now valued by consumers of those products – which means these resources have not been wasted. Furthermore, profits are a signal that consumers approve of the manner in which a firm is utilizing resources.
In contrast, losses tell us that a firm has taken various factors of production and combined them in such a manner that they are now worth less than the sum of their parts – which means these resources have been wasted! Losses are a signal that consumers disapprove of the manner in which a firm is utilizing resources. If the firm does not improve, it will be forced out of business, thereby conserving these resources for others who can utilize them more efficiently.
Economics of Recycling
In an unhampered market, if it is profitable to manufacture products by recycling plastics, bottles, paper etc., then it will be done, and firms might even pay us to take away our empty containers. However, if such a business is not profitable, then these items would simply be included in our regular household garbage. And by the way, we are NOT running out of landfill space.
To determine the viability of a recycling enterprise, a free market firm must balance the cost of committing resources (labour, trucks, machines, recycling plants) to the task of recycling against the revenue it receives for its recycled products. If it believes the enterprise will be profitable, it will proceed. The firm will have decided that it is cheaper to make certain products from recycled materials than to make the same products from raw materials. In this way, resources in the ground are conserved.
However, if the firm does not believe the enterprise would be profitable, it will not proceed with recycling. But resources in the ground are still conserved, because a determination has been made that it is uneconomical to extract resources from the ground to build and maintain the trucks, plants, and machinery necessary for recycling. This is the point constantly overlooked by the public when governments involve themselves in recycling. In our rush to conserve resources, we forget that resources are required for the task of recycling, and we just assume the government is doing the right thing.
Because they seek profits, free-market firms have a strong incentive to minimize costs, which means to minimize resource usage. The price system enforces this discipline in the marketplace. In contrast, the government operates outside the marketplace, and therefore does not concern itself with profits and losses, or revenues and expenses. When it wants more revenue, it simply takes it from us. Thus, the government has little incentive to minimize costs – which means it has little incentive to minimize resource usage.
I have no idea if recycling minimizes waste and pollution, but I know that government managed recycling does not, and cannot, achieve this goal. It cannot achieve this goal because it has released itself from the discipline of the marketplace. Floy Lilley tells us:
. . . the price for recycling often tends to soar far higher than the combined cost of manufacturing from raw materials and virgin sources and dumping rubbish into landfills. To recycle waste is to use twice the energy and create twice the pollution from factories, trucks, and by-products.
However, the government points to its own ‘expert’ opinions in support of its claim that recycling conserves energy and other natural resources. But the coercive nature of government allows it to avoid testing this claim in the marketplace. We must remember that an institution is forced to use resources sparingly, judiciously, and efficiently only when it is subjected to the harsh, unforgiving, unrelenting discipline imposed by the market.