WITH their uncorrupted faith in the sublime dynamics of perfect competition, the editorialists of the Economist in London have been proclaiming a coming age of energy abundance in which oil producers will come hat in hand to sell their stuff at declining prices. According to this bastion of classic (i.e., 19th-century) English liberalism, the present expectations of ever-higher oil and energy prices caused by increasing scarcity are based on the "third-rate political economy of linear projections," which take no account of the inevitable reactions to high prices and their long-run effect on the market.

This argument rests on a bit of hardcore economic theory: assume that a group of wicked monopolists were to corner the market for a product-say apples, a favorite in first-year textbooks-thus artificially raising their price to three times the pre-monopoly level. What happens next? The good student knows what he is expected to say: first, economy-minded consumers will start buying pears instead, thus depressing apple demand; second, fruit growers and non-monopoly apple growers will plant many more apple trees, thus increasing industry supplies; and third, many other landowners will switch their lands to apple orchards, thus increasing further the supply by expanding the size of the industry itself.

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