Even the briefest introduction to economics will describe the Law of Supply and Demand which says that when demand for something goes up (or supply shrinks) that the price will rise until the demand and supply match up again. More demand leads to higher prices.

This law is true only in the short term. In fact, it may be better to understand the reverse of this law:

As demand for a good increases, that drives increase in supply, and the price drops, sometimes greatly.

In other words, in the long term, more demand leads to lower prices.

This principle is not a "law" that always happens, but history shows it's the way to bet. And many people know this principle in different forms, but it is very often ignored. Often to serious consequences.

Quite simply, as demand increases, innovation is funded to make it cheaper, and also to increase supply, which also makes it cheaper.

Predictions of shortages and doom are common in history. Centuries ago, Malthus gave a warning on overpopulation that turned out to be completely wrong, and even so it is still repeated. The reality is that running out of "stuff" almost never happens in the long term. In 1972, it was chic to accept the predictions of a book called The Limits to Growth from the Club of Rome, none of which came true. In 2002, we saw a wave of predictions of Peak Oil which were followed by major expansions of the supply of oil and gas. (More on that later.)

The greatest example of this reverse law is the transistor, as part of the computer integrated circuit, or chip. As demand has grown for computers and the transistors that make them up, the cost of transistors has gone down a trillionfold. Consider that number again. It certainly didn't go up, or just go down. It effectively disappeared. There are many others stories like this, though perhaps none quite as dramatic.

What is the "good" that gets cheaper?

The key to understanding how this law works is to think carefully about what the "good" is that is in demand, and gets cheaper. People often mistake it for a particular raw material or natural resource. It is possible to have a shortage of a raw material -- though that turns out to happen less often than people think. But nobody generally directly wants a raw material. They want something made from it or some use of it. There is no demand for oil, there is demand for dense, portable energy -- or rather, what that energy does for us, like heat our homes or transportation.

When demand for some true good rises, with a temporary rise in prices, this triggers investment in better ways to provide that true good. Sometimes that investment is simple and around better ways to produce the existing solution. Often it's around ways to produce better ways to meet the demand that may have nothing to do with the original underlying commodity we're afraid of running short of.

The people building computers out of vacuum tubes would have easily predicted they would always be expensive. The idea they could cost a trillionfold less (or much more when it comes to tubes) just would never have entered their brains. But as soon as companies saw that the computers were useful and there would be demand, effort continued to find ways to do it better and cheaper, with incredible success that has endured for 8 decades. (Even inside the industry, people have routinely declared the death of this march of progress, and they are doing so today, but they have always been not just wrong, but really badly wrong.)

If the true good involves technology and human ingenuity, the principle above is pretty close to a law. If physics allows a solution, then with enough demand it will very likely be found. It will not always be easy, and there will be exceptions, but it's pretty likely. It may not always be wise to bet your business on the breakthrough, but it has definitely been unwise in history to bet your business on everything staying the same.

Natural resources

As noted, the first step to understanding demand and supply is to realize that the thing demanded is almost never a raw material or natural resource. Even so, we have had surprising success in that area. While it is often predicted that the world will run out of some resource, it almost never actually happens, though sometimes it is avoided by changing what resource we use or finding ways to use the same resource more efficiently.

We probably would reach "Peak Oil" if we kept using oil the way we did in the past, but we're not going to. Raise the price and we'll find a way to not use it. What we've never done is just stop doing the thing that we did with the resource. We're not good at conserving through reduction of our desires and activities, as much as we might like to be. We can be very good at conserving through increasing efficiency, though.

A decade ago, there was major concern over the supply of oil and gas. This led to improvement in both technologies to find new reserves of these in the ground, and also fracking which, for better or worse, increased our ability to extract the gas. While there are many concerns about the environmental consequences of fracking, the new lower cost of natural gas had a marvelous result -- it greatly reduced the burning of coal for electrical power. It wasn't any shortage of coal that did it.

Today a war has raised the price of gas, and that is causing stress, but it will be a blip. In fact, the high prices due to this war are hastening the real journey, to get off of these fossil fuels. This will become easier, because today, if you are somewhere reasonably sunny, it is cheaper to get power by building a solar farm than it costs for the coal to put into an existing coal plant. We're going to shut down those coal plants because they are not economic, not due to any shortage. That's because the real good was electricity (and the things we do with it) and not the coal, oil or gas.

Batteries and storage

Today's big area of poor assumptions around demand and supply is in the transition to renewable energy, including the resources for electric cars. Today's EV batteries all use lithium, and so there's a lot of debate about how to get that lithium and whether we will run out, or see the price rise, or get destructive in our quest to mine it. (That latter one is less avoided by the "law.")

Once again, lithium is not the good we seek. At the first order, it's batteries, and at the highest order it's transportation. In the middle it's best stated as an energy storage technology, which meets various requirements for vehicles -- low weight, low volume, low cost, low fire, long lifetime, high power in/out, etc.

People are putting this focus on lithium for a few reasons. The most valid one is something that is unique about lithium -- it is the lightest metal and physics says we won't find a lighter one. Our current thinking about batteries suggest a light metal is essential, but that does not preclude many solutions to our actual problem that don't demand the lightest metal. Indeed, there is already a lot of promise in the lab of using lithium's heavier cousin sodium, which is extremely common and cheap. We're never running out of sodium. Key to this is the realization that while our current battery designs love a lithium cathode, it is not just the weight of the lithium that dictates the weight of the battery, it's the whole chemistry. Thus we've seen sodium batteries just a bit less dense than the lithium ones.

Of course, most things in the lab never make it to production at scale. But they tell us that the physics allows things, and with enough demand, which means with enough research money, we are very likely to find what is possible and make it work. Not always, but it's the way to bet.

What about when it doesn't work?

Of course, there are exceptions. People are still pounding away at controlled fusion for energy after many decades. Helium, though super abundant in space, is only plentiful because we take it out of the huge volumes of natural gas we're going to stop extracting, and it has some properties physics says nothing else will replace.

Land is an interesting one, which certainly goes up in price with demand. At the same time, we keep increasing the supply of "developed land" and the cost in constant dollars has been fairly stable. When land is scarce we build up so we can have more living space (the real good) on the same land, and it's laws, not economics that stop this and keep land scarce. The main thing that makes land go up in price is human tastes -- places that are cool to live are expensive -- though a few things, like beachfront real estate near a cool city have fixed supply for now. We have turned half the habitable land to agriculture, but 3/4 of that is for meat -- and technology is now working to make substitutes for meat that don't need that land. We'll see how that goes. Shortages of food have almost entirely been caused by politics, and over time the food supply has grown to more than meet the growth in population -- and food has become cheaper, as the law of demand and supply predicts.

Specialized human services can become scarce (though usually not for long) but there are lots of artificial scarcities which these principles can't touch. NFTs are a recent example, but signed/numbered prints long predate them, and of course they go up in price as demand increases, just like the works of dead artists do.

As with all bets, one will sometimes do some hedging, and be ready for both outcome. You don't want to be ruined by either outcome, but you will tolerate more pain in the the event of the less-likely outcome in order to avoid missing out on the more likely outcome. Predicting the future is rarely done well, so the best strategy is often to try to delay decisions, where you can, and then decide later when you know more about what's happening.

If you are drawn to bet that the status quo will continue, and we'll run out of some key resource and face ruin, be sure you've analysed what the real demand is for, and have an argument why physics says we won't do better. Even then, a lot of those arguments have ended wrong because of immature or poorly formed physics. It will be frustrating, knowing that somebody who bets on a future that doesn't exist yet will end up winning, even though we don't know enough to know which. The bet from "Shakespeare in Love" that "It all turns out well. I don't know, it's a mystery" is more true than its fictional origins.