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CHAPTER II
THE ROLE OF NATURAL RESOURCES AND THEIR UNIQUENESS
The current chapter covers two topics -- the role of natural resources in
our life and the unique characteristics of the mineral and energy industries.

The Role of Natural Resources

Dr. V. E. McKelvey sheds some light on the role of natural resources and
energy in determining the standard of living of any society. In the same arti-
cle in which McKelvey suggests his classification method, (1972, p. 32), he also
presents the following relationship:
R x E x I,
L =
P
where L is the standard of living, R is natural resource use, E - Energy use, I
is an index for human ingenuity, while P reflects population.
One may argue that L is not necessarily the product of the three numerators,
divided by the denominator; these numerators are, in part at least, dependent on
one another and are partially substitutable. In addition, I is yery difficult
to quantify and an increase in population may, in particular cases, promote
rather than retard economic growth. Nevertheless, Dr. McKelvey clearly points
out the important components of shaping a societal standard of living, even
though his suggested relationship among them may be off. A generalized algebraic
formula may, therefore, be more appropriate:
L = f(R,E,I,P,CUL)
where CUL indicates the specific culture and traditions of the society.
The role of natural resources in eyery day life is, however, not so obvious
as stated in McKelvey's equation, for two reasons:
1) The demand for natural resources is mostly a "derived" demand. The end
consumer is only interested in a finished product; he or she only seldom demands
natural resources directly. Therefore, the consumer will usually not realize
that his or her demand for the end product such as a car creates a derived demand
for natural resources by the manufacturing and processing sectors of the economy
(such as iron ore, coal, and power).
2) Traditionally, the value of output of the natural resource sector has
been measured or estimated at the extraction stage (e.g., the value of iron ore
and copper concentrates at the mine, crude oil at the wellhead). A major segment
of the industry -- that of mineral processing, smelting, and refining -- has been