Back in the 13th century, Princess Kinga of Hungary received an engagement ring from Duke Boleslaw of Poland. When discussing her dowry with her father, instead of just offering the usual “gold and money” which was relatively common in those situations, Kinga asked her father to gift a salt mine. Salt was a scarce resource and the only way to conserve food at the time, so it inherently had a lot value.
When gifted the largest mine in the Austro-Hungarian empire ( Maramureș ), she was worried that the whole mine couldn’t be moved to Poland and therefore she’d still be under the thumb of her parents. So after significant thought and even prayer, she dropped the engagement ring down the mine’s shaft.
Later, when princess Kinga was in transit to Cracow for her first meeting, she took a handful of Hungarian miners with her. She ordered her party to stop around the Wieliczka area. And asked them to start digging. They hit a rock and said they can’t go any further. Kinga asked that the rock be crushed open. It turned out that it was essentially rock salt, and her engagement ring was found inside.
While the truth behind this origin story has been lost in the mists of time, a mineral repository was discovered. What did happen as a result? Huge economic growth in the region. The cities in the country went from being built in wood with wooden forts to brick and mortar and castles. Largely financed by salt mine profits.
Over the longer term, the price of salt fell. With it, the economics importance of the salt mine to the country’s treasury. And other resources became important to economic growth. A paradigm shift occurred. And the medieval salt warlords drifted into irrelevance and obscurity.
How is that relevant today?
The closest analogue today is probably the petrochemical industry that fuels the Middle East’s economic engine. As long as the price of oil stays high, that whole region has a disproportionate amount of wealth generated. These profits are reinvested in other parts of the economy local and global economy. And the prospect of peak oil would seem to give the sheikhs high hopes for even higher prices of oil and oil-based products over the longer term.
Yet already there are longer term trends at play which are likely to disrupt this. Looking at companies like Tesla, Elon is betting that the solar energy will replace oil as a source of energy. And the bottleneck will move from generation to storage and possibly transport. At that point, the price of lithium and other minerals needed to build batteries is likely to enter into a longer term bull market.
So, just because oil is valuable now, doesn’t mean it will always be valuable. If Elon’s strategic hypothesis proves to be right, the oil magnate sheikhs will be out of luck too. Nobody really knows how this will play out. But I’d be willing to bet the oil, gas, and automotive industries will look different in 50 years than they did 50 years ago.
It’s easy to overlook one particular resource
Strategic resources or “factors of production” to consider according to classical economics:
- Natural resources
Usually the current strategic approach is to think about finding the optimal balance in the resources above for your particular industry. The goal is to maximize wealth in the long run.