Economists have identified four factors that are necessary for an economy to begin producing goods. Of these four, natural resources stands out as the most important because a country without them will not be able to begin production. Natural resources are materials from the earth that people use to meet their needs.
Major Types of Natural Resources
The first, renewable resources, are those that are used at a slower rate than they are replaced. These include water, wind, and the sun. Two categories, plants and animals, are considered renewable even though we may be entering the sixth mass extinction.
The second, nonrenewable resources, are those that humanity uses faster than nature can replenish them. These include crude oil, coal, and natural gas as well as minerals. The sun could be considered a non-renewable resource because one day it will burn out. But most people put it in the renewable category since that won't be for another 5 billion years.
Four Factors of Production
Natural resources are one of the four factors of production, which are necessary for the economy to operate. The other three are capital, entrepreneurship, and labor.
If one of the categories is not present, the economy does not exist because production cannot be achieved.
Capital is the machinery, equipment, and chemicals used in production. Entrepreneurship is the drive to develop an idea into a business. Labor is the workforce. In a market economy, these components provide the supply that meets the demand from consumers.
Overview of America's Natural Resources
The United States is blessed with an unusual abundance of six natural resources. First, it has a large landmass that, early on, became governed by one political system. Second, it is bordered by two large coastlines that provide food and ports for commerce.
Third, America has thousands of acres of fertile land thanks to the Great Plains. Fourth, it has abundant fresh water. Fifth, it was once under a great sea that created oil and coal. Sixth, it is easily accessible via ocean or land. This made it attractive to immigrants who created diversity in the population.
Large Land Mass
The geography and geology of the United States provided a tremendous comparative advantage in building its economy. Only Australia and Canada have similar-sized landmasses that aren't bordered by enemies. China and Russia landmasses are bordered by enemies making them subject to invasion. The European Union has a similar size but not one national government.
America's large landmass under one nation allows economies of scale in government and businesses. This lowers the cost of providing services and products.
Coastlines With Shipping Access
America has 95,471 miles of shoreline, including the Great Lakes, which border 26 of the 50 states.
The coast contributed $222.7 billion to gross domestic product in 2009. It created 2.6 million jobs. Almost three-quarters of these jobs are related to tourism and ocean recreation. The highest paying sector is oil drilling, where workers earn $125,700 each on average. The ocean also provides other industries. These include ship and boat building, transportation, and shoreline construction.
Countries that are landlocked or have little access to the sea find that both exports and imports are more expensive.
America is fortunate to have a large coastline. Commerce in landlocked countries is dependent upon the whims of another government.
America's large coastline means no hostile governments border it. This allowed the United States to develop peacefully without the need to incur large war costs.
Land for Farming and Agriculture
Unlike Australia and Canada, the United States had temperate climates combined with fertile soil. The early settlers found rich soil on the Great Plains. This is the 502,000-square mile area between the Mississippi River and the Rocky Mountains.
The Plains was a huge basin sculpted out by glaciers during the Great Ice Age. As a result, mountain streams from the Rockies deposited layers of sediment. These streams then cut through the sediment to create plateaus. These large flat areas were untouched by erosion. That created thick sod and productive agriculture.
But the Great Plains is semi-arid. On average, it receives less than 24 inches of rainfall a year. The Plains became the breadbasket of the world only after irrigation was put into place. The water came from streams fed by the Rockies.
Water for Agriculture, Life and More
Lakes, rivers, and streams provide 80% of the water used in America. The electric power industry uses an astonishing 41%. Water cools electricity-generating equipment, but it is returned. Agricultural irrigation uses 31%, but it is not returned. Families, businesses, and industries use the rest.
The United States Geological Survey estimates that only 20% has to be pumped out of the ground to irrigate the semi-arid Great Plains.
Oil, Coal, and Gas
America has the world's largest reserves of coal, at 491 billion short tons or 27% of the total. This abundant source of energy helped fuel U.S. growth during the Industrial Revolution. It fueled steamships and steam-powered railroads. After the Civil War, coke, a derivative of coal, was used to fuel the iron blast furnaces that made steel. Soon after that, coal ran the electricity-generating plants. It still does for many, although that use is declining.
Unlike Canada's shale oil, the United States had huge reserves of oil that were easily accessible. As World War I brewed, the United States converted its coal-burning Navy ships to oil. That made ships faster, extended their range, and allowed easier refueling. Oil was also easily available on the West Coast, allowing the Navy to extend its reach across the Pacific.
Oil made possible many innovations, including cars, trucks, tanks, submarines, and airplanes. Scientists made trinitrotoluene, known as TNT, out of toluene, which they extracted from oil. The United States supplied more than 80% of Allied requirements during World War I.
After the war, oil supplied the power for the internal combustion engine. It also powered the machinery and petrochemicals needed to boost agricultural production.
In 1920, America supplied two-thirds of the world's oil production.
The number of cars registered increased from 3.4 million in 1916 to 23.1 million in 1929. That allowed America to move away from public transit. By 1925, oil accounted for almost one-fifth of U.S. energy consumption. That grew to one-third by World War II.
Other countries only used oil as secondary fuel. It accounted for less than 10% of their energy consumption. When the giant East Texas oil field was discovered in 1930, overproduction became the main issue facing the oil industry.
By 1950, those reserves weren't as cheap. Saudi Arabia and other producers in the Middle East supplied oil more cheaply than U.S. fields could. By 2005, 60% of oil used in the United States was imported.
In 2011, oil prices were high enough to fund low-cost exploration of U.S. shale oil. By 2015, imported oil only contributed 24% to U.S. oil consumption.
A Unique Labor Force
America has 44.7 million immigrants, more than any other country. Most of the people who came to the U.S. throughout it's history have had the courage and flexibility needed to survive in a new country. They helped create an innovative culture, especially in technology. As a result, Silicon Valley is the world's leading tech center.
Courage and flexibility spurred early immigrants to continue taking risks once they became citizens.
This cultural diversity is a strength in groups if people remember their common goals. When managed well, diversity brings fresh perspectives based on different experiences. But it takes the willingness to be open-minded and nonjudgmental about the value brought by those differences.
President John F. Kennedy was the grandson of Irish immigrants. Kennedy summed it up well when he called America, "a society of immigrants, each of whom had begun life anew, on an equal footing. This is the secret of America: a nation of people with the fresh memory of old traditions who dare to explore new frontiers...."
The Bottom Line
The United States is blessed with an affluence of both renewable and non-renewable natural resources. It has a large land mass unencumbered by enemy borders, abundant deposits of fossil fuel, and thousands of miles of coastline. It also is blessed with much fertile agricultural land and many freshwater sources.
Most important is its diverse population of different cultures which bring fresh ideas and innovation to business endeavors. These advantages have enabled America to become a major global economic power.
- Natural resources are classified as renewable and non-renewable.
- Renewable resources are replenished naturally.
- Non-renewable ones can't be replaced or are used up faster than nature creates them.
- Six natural resources endow the U.S. economy with a superior advantage.