How Does The Free Market Handle Recycling?

Recycling, just like everything else on a free market, works according to the deceptively simple law of supply and demand. To understand this we first have to distinguish between finite and infinite resources. Finite resources are resources that we as humans can't make more of. Uranium is one such resource. Timber or water, however, are not finite resources. If we notice that the demand for timber is growing, we can plant more trees, and 50 years from now we can cut them down and repeat the process.

The supply isn't just the amount of a finite resource that we have available at the moment (which is the supply the market sees), but the term “supply” includes all of that resource, even that which we might not have found yet. From time to time there are headlines saying that a drilling company has found a new pocket of natural gas that contains so and so much gas. Before they found it, it was still included in the term supply.

We see therefore that the supply of a finite resource is always decreasing unless we stop using said resource. We can however find ways to use less of a finite resource. In the case of uranium, we might for instance build power plants that are more energy efficient, or find new ways to extract uranium, giving us the opportunity to excavate ore with a lesser percentage of uranium and still make a profit.

Demand, on the other hand, can be increasing, decreasing or remain constant. If the demand decreases faster than the supply does, the price of the resource goes down. If the demand is constant, the price will eventually rise. If the demand is increasing, the price will also increase, and at a faster rate than if the demand was constant.

That is how recycling would work on a free market. Why are we being paid to recycle aluminum cans today? Because making new aluminum is a very costly process, so it's cheaper to recycle old cans. The same thing goes for plastic soda bottles that are made from a plastic called PET. It's cheaper to recycle than to make new plastic. When the supply of oil eventually drops, making plastic more expensive, the same thing will happen with other types of plastic containers and products as well. There simply is no need for a government to tell us what to recycle. But what about littering and pollution, you say? That's a subject for another blog post.