The Production of Mineral Commodities

Gordon, Richard L. ; Vogely, William A.
Organization: Society for Mining, Metallurgy & Exploration
Pages: 61
Publication Date: Jan 1, 1985
In this chapter, the principles that determine the procedures selected to transform minerals in the ground into usable commodities are re¬viewed.a I argue here that straightforward mod¬ification of the modern general economic theory of production suffices to meet the practical needs of a mineral economist. Therefore, the chapter is largely a review of the general economic theory of production to which is added discussion of the special prob¬lems of the exhaustibility of mineral resources and the economics of finding and developing economically recoverable minerals. In many cases, propositions applicable to all industries are reviewed because they are not treated ade¬quately in prior texts. In the discussion, use is frequently made of basic concepts of differential calculus widely used in economics. However, this is supple¬mented by simpler verbal and graphical treat¬ments, so that those either untrained in the calculus or, as is often the case, whose skills have grown rusty, can still follow the discus¬sion. Where the argument depends critically on the mathematics, this is noted and the justifi¬cation for including the material is provided. In addition, an appendix outlines the critical mathematics and reviews some of the numerous books published that provide the most readable available introduction to the subject. Further¬more, mineral industries examples are used to suggest the relevance of the theory. THE RELEVANCE OF THE ECONOMICS OF PRODUCTION Three basic steps are involved in establishing the relevance of economic analysis to mineral ¬industries decision making. First, the general theory of production must be defined, and its relationship to the simpler models of production stressed in economics textbooks must be noted. Second, the critical modification-considera¬tion of the problems of discovering and devel¬oping mineral deposits-must be developed. It turns out this too involves a special case of the general theory of production. Third, the concept of an economics of exhaustible resources must be explored sufficiently to suggest why its practical relevance is doubtful (or at least far smaller than the numerous writers on the subject seem to believe). The present approach is heavily influenced by post-1945 developments in economic anal¬ysis. Particularly since World War II, economic theory has drastically changed its scope. First, stress has increased greatly upon viewing the economy as a network of intertwined markets known technically as the general equilibrium system.b In this view, not only is the economy viewed as an integrated system, but critical con¬cepts are viewed somewhat differently than was previously fashionable. Specifically, in general equilibrium models, the concepts of supply and demand are rejected as central concepts in favor of a distinction be-
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