1 Ricardo on Exhaustible Resources, and the Hotelling Rule By Heinz D. Kurz and Neri Salvadori 1 1. Introduction Modern contributions to the economics of exhaustible natural resources, such as oil or coal, generally start from one form or another of the famous ‘Hotelling Rule’, first put forward by Harold Hotelling (1931). The Hotelling rule is an application of the concept of a competitive (uniform) rate profits to all processes in the economy, whether these are conservation or production processes. In the classical economists this rule is not yet to be found. Does this mean that their analyses are of necessity defective, incomplete or inferior? Or does it only mean that their argument relates to a world characterised by conditions that are different from those contemplated by the Hotelling Rule? Or is the rule implicit in their analyses and what is missing is only an explicit reference to royalties as something different from profits? The paper answers these questions. As regards the classical economists we will focus attention on David Ricardo, the most ‘classical’ of all classical authors, and deal with Adam Smith only in passing. Takashi Negishi in the introduction to a collection of essays devoted to the history of economic thought stressed that ‘it is necessary to study theories that are regarded as past ones from the point of view of other research programmes.’ (Negishi, 1994, p. xi) Alternatively, one might study theories that are regarded as incorporating the most recent vintages of economic knowledge from the point of view of earlier approaches to the problem at hand. Comparing old and new can be expected to shed new light on both and improve our understanding on what is truly novel, what is only an old result in a new garb and on what has been lost sight of in the course of time. As Negishi put it succinctly in another contribution: ‘The history of our 1 Neri Salvadori thanks Francesco Chioni for the discussions they had while Chioni worked on his Laurea Thesis under Salvadori’s supervision. ISER Seminar Series 9/11/09 (F) 4-5:30 PM