How Growth Changes Scarcity

Ricardo’s land was scarce because of what it was. Many of today’s most consequential scarcities derive from where something sits within a productive system.

Economic history can be interpreted, imperfectly but usefully, through three distinct forms of constraint. Endowment scarcity arises when the economically relevant characteristics of an input are intrinsically difficult to reproduce. Accumulation scarcity arises when the input is reproducible, but the capital required to produce it has not yet been assembled at sufficient scale. Architectural scarcity arises when individually reproducible components of the same productive system possess sufficiently different adjustment speeds that one becomes binding relative to the expansion occurring around it.

These are analytical mechanisms rather than historical stages. Their usefulness lies in identifying why supply fails to respond, because the source of that failure determines both the persistence of scarcity value and its distribution.

The central proposition is that economic expansion revalues the complements least able to expand with it.

Scarcity by endowment

Ricardo’s theory of rent provides the canonical case. In On the Principles of Political Economy and Taxation, land is heterogeneous, spatially fixed and limited in supply. As agricultural demand expands and progressively less productive land enters cultivation, superior land earns rent through its differential productivity relative to the marginal parcel.

The mechanism extends beyond agriculture. Where growth raises demand for an input with exceptionally low supply elasticity, part of the surplus generated elsewhere is capitalised into the scarce factor.

The long history of housing illustrates the principle. Knoll, Schularick and Steger reconstruct house prices across 14 advanced economies between 1870 and 2012 and find that rising land values account for roughly 80% of the global increase in house prices since the Second World War. The result should not be extrapolated mechanically to subsequent housing cycles; its relevance is conceptual. Productivity generated through firms, labour, agglomeration and infrastructure can be capitalised partly into a factor whose supply responds only weakly.

The origin of productivity and the incidence of its value are different questions.

Scarcity by endowment is the clearest case because the constraint is embedded in the characteristics of the factor itself. Capital can improve what is constructed on a site. It cannot reproduce the same geography.

Scarcity by accumulation

Industrialisation relocated the constraint.

Factories, machinery and railways are reproducible, but their expansion required pools of capital that increasingly exceeded the resources of individual proprietors. Railway development consequently became closely associated with joint-stock finance, dispersed shareholding and deeper securities markets. By the beginning of the twentieth century, British railways represented about half of the market value of all domestic equity listed in the United Kingdom and constituted 49 of the 100 largest companies on the British stock market in 1911.

The constraint was upstream. Railway infrastructure could be constructed; the scarce input was the financial capacity required to reproduce it at scale. Joint-stock ownership and financial intermediation expanded the economy’s capacity to convert dispersed savings into fixed capital.

This form of scarcity contains its own adjustment mechanism. High expected returns attract savings and investment; financial innovation improves capital mobilisation; additional capacity progressively erodes the premium generated by insufficient accumulation.

That distinction explains why contemporary transmission constraints are not simply the railway problem with longer construction periods. In the nineteenth-century railway case, insufficiently mobilised finance was itself a material constraint. In several contemporary infrastructure markets, capital is abundant and seeking deployment while the physical and institutional architecture through which it must pass remains constrained.

Capital has moved from constituting the scarcity to bidding against it.

Scarcity by architecture

Architectural scarcity emerges when complementary inputs possess materially different supply responses.

Financial capital can move rapidly; standardised manufacturing capacity can expand across multiple production centres; digital processes can replicate at exceptionally low marginal cost. Transmission networks, substations, land assembly, specialist engineering and permitting systems operate on different horizons.

The resulting scarcity is relational. An input becomes economically scarce because the activity dependent upon it expands faster than its own effective supply.

The intuition has a long lineage outside economics. The law of the minimum associated with Justus von Liebig, building on earlier work by Carl Sprengel, formalised the idea that abundance in non-binding inputs cannot compensate indefinitely for an indispensable factor that remains constrained. Economic systems are more adaptive: investment, substitution, innovation and institutional reform can alter the architecture itself.

Nathan Rosenberg supplied the dynamic mechanism. His 1969 analysis of technological change described economically significant bottlenecks as “focusing devices” that direct innovation towards their resolution. Successful adjustment relaxes one constraint and exposes another.

Scarcity migrates through the architecture.

Solar abundance and grid scarcity

Solar manufacturing provides an unusually clear illustration.

In 2023, global spot prices for solar PV modules fell by almost 50% year-on-year as manufacturing capacity reached approximately three times its 2021 level. By 2025, the IEA reported that solar PV prices in China were more than 60% below their 2023 level amid module oversupply and intense competition. Scarcity at the manufacturing layer had largely been competed away.

The adjacent electricity infrastructure adjusted more slowly. At the end of 2025, approximately 8,200 projects representing 1,312 GW of generation and around 749 GW of storage (2,061 GW in aggregate) were actively seeking US grid interconnection. For regions with sufficient data, projects reaching commercial operation in 2025 had spent a median of more than five years between submitting an interconnection request and entering operation.

The same energy transition therefore generated abundance in one component and scarcity in another.

William Baumol’s 1967 analysis of unbalanced growth provides a useful comparison. Baumol examined differences in productivity growth between sectors and their effects on relative costs. The mechanism here concerns the supply elasticities and adjustment speeds of complementary inputs, with consequences for the location of scarcity value.

Transmission may bind during one phase of expansion. Additional investment may transfer the constraint towards transformers, substations, specialised engineering or permitting. Once those respond, another complement can inherit the constraint.

The queue as an institution

US interconnection queues also demonstrate that physical and institutional scarcity can diverge.

Active queue capacity peaked at nearly 2,600 GW at the end of 2023. During 2025, active capacity fell by 10%, while more than 750 GW of requests were withdrawn. Berkeley Lab notes that interconnection reforms and changing market conditions may have contributed, while cautioning that it remains too early to determine their full effects.

Nothing about that contraction implies that the United States simultaneously constructed a comparable quantity of transmission infrastructure.

FERC’s Order No. 2023 changed the rules governing claims on network capacity through cluster-based processing, stronger site-control requirements, larger financial commitments and withdrawal penalties designed to discourage non-viable projects from occupying queue positions.

A bottleneck can be physical while the economic right to occupy it is institutionally constructed.

Administrative reform can therefore reduce measured congestion without eliminating the underlying engineering constraint. Conversely, institutional design can intensify scarcity around a physical system whose allocation mechanism is not predetermined by physics.

Compute and power

Data centres make asymmetric adjustment especially visible because a rapidly expanding digital activity is encountering a physical system with much longer investment cycles.

The IEA estimates that global data-centre electricity consumption reached approximately 485 TWh in 2025 and could rise to around 950 TWh by 2030. Data-centre electricity demand increased by 17% in 2025, while consumption at AI-focused facilities rose by 50%. In the United States, data centres are expected to account for nearly half of electricity-demand growth to 2030.

The IEA also estimates that grid constraints could delay around 20% of global data-centre capacity planned for construction by 2030.

Compute scales rapidly. Deliverable power does not necessarily follow on the same timetable.

This also reveals an additional condition on scarcity rents: their value is bounded by the surplus of the activity being constrained. A slow, difficult-to-substitute complement attached to a low-margin activity has relatively little surplus to appropriate. The same constraint attached to a high-value activity commands a much larger shadow price because delay or exclusion destroys more economic value.

The value of a megawatt of deliverable power depends partly on what that megawatt enables.

When does a bottleneck become a durable rent?

Three response margins determine whether scarcity value persists.

The first is the supply elasticity of the constrained complement: how rapidly can additional capacity be produced? The second is the elasticity of substitution: how readily can the same economic function be performed through another technology, geography or production configuration? The third is the elasticity of downstream demand: how much activity survives as the effective cost imposed by the bottleneck rises?

A data centre unable to secure conventional grid capacity may relocate, develop on-site generation, invest in storage or alter its operating model. Similar mechanisms appear elsewhere: technological redesign reduces demand for scarce materials, modular construction reduces dependence on some categories of site labour, and alternative transport corridors weaken the pricing power of congested routes.

A slowly expanding complement with close substitutes therefore generates little durable rent. A slowly expanding complement with limited substitutes, resilient downstream demand and a large underlying surplus sustains considerably more.

Asset specificity adds another dimension. Klein, Crawford and Alchian showed why relationship-specific investment alters bargaining power once capital has been sunk. The sequencing matters. A data-centre developer that commits substantial site-specific capital before securing firm power capacity exposes itself to the infrastructure provider; a utility constructing a dedicated asset whose economics depend heavily on one customer creates exposure in the opposite direction.

Scarcity establishes the potential rent. Contracts and sequencing influence its appropriation.

Housing as compound scarcity

Housing illustrates why the three forms of scarcity should be understood as mechanisms rather than asset classifications.

Land creates an endowment constraint. Development requires accumulated capital. Additional supply must then pass through planning, infrastructure, construction capacity, labour, materials and financing.

Across the European Union, contractor prices for constructing new residential buildings rose by 48.2% between 2015 and 2025, including increases of 5.8% in 2021, 12.2% in 2022 and 6.9% in 2023. The ECB has separately documented the role of construction costs, materials and labour shortages, weak construction activity and supply-side constraints in the recent euro-area housing cycle.

The historical finding that land explained most post-war house-price appreciation through 2012 therefore does not imply that land remains the marginal constraint in every cycle. A developable site can exist while planning binds. Planning permission can exist while replacement costs make development uneconomic. Financing can become abundant while construction capacity or supporting infrastructure remains insufficient.

Housing illustrates the cumulative nature of modern scarcity: the value of the completed asset reflects the interaction of several imperfectly elastic complements. The marginal source of scarcity changes as relative costs, capacity and institutions adjust.

Who captures the scarcity value?

Economic progress does not guarantee that its surplus accrues primarily to the agents responsible for producing the underlying productivity improvement.

A more productive city revalues existing land when housing supply remains constrained. Cheaper generation raises the economic significance of scarce grid access. Restrictive entitlement regimes increase the value of sites that already possess development rights. Expansion in one layer can therefore raise the shadow value of an input controlled elsewhere.

The distributional tendency favours incumbency when existing owners already possess the least responsive complement. New entrants encounter the same scarcity as a higher acquisition price, longer development period, lower prospective return or exclusion from the opportunity altogether.

Institutions mediate the result. Private land ownership capitalises scarcity into property values. Regulated networks constrain the share of scarcity value that owners may appropriate through tariff-setting. Competitive auctions can transfer scarcity value to the public sector. Planning law shapes the value attached to existing development rights.

The physical source of scarcity and the institutional claim on the resulting rent are separate variables.

Albert Hirschman’s theory of unbalanced growth adds an important policy qualification. Bottlenecks can induce additional investment and institutional adaptation. The relevant distinction is therefore between constraints that generate productive adjustment and those whose persistence primarily protects incumbent rents.

From diagnosis to prediction

For the framework to have analytical value, architectural scarcity must be identifiable before the bottleneck becomes obvious.

The relevant characteristics are observable ex ante. An expanding system can be decomposed into its necessary complements and compared according to physical development lead times, permitting and regulatory exposure, supplier concentration, capital intensity relative to the activity served, asset specificity and the availability of substitutes. Complements combining long lead times, concentrated supply, high institutional dependence and weak substitution possibilities are natural candidates to become binding.

The analysis must then be dynamic. Demand growth determines how quickly spare capacity is consumed. Committed investment determines how quickly an apparent constraint may loosen. Substitution changes the effective requirement. Downstream economics determine the surplus available to support a scarcity premium.

This converts the framework from a retrospective taxonomy into an ex ante screen.

It is also falsifiable. A ranking of prospective constraints must be specified before the system reveals its bottleneck; the framework fails when constraints consistently emerge in components classified ex ante as readily scalable or substitutable.

For an allocator, however, correct diagnosis is only the first step. By the time transmission scarcity, grid-connected land or transformer shortages become consensus themes, the expected rent may already be embedded in acquisition prices.

The investable advantage may therefore lie in identifying the next complement whose elasticity becomes binding before the market capitalises that transition, or in owning a constraint whose scarcity is unusually resistant to migration because both replication and substitution remain structurally difficult.

The investor must distinguish the structurally slow complement from the temporarily congested one, and a future scarcity rent from one already embedded in the entry price. Rosenberg’s focusing mechanism reinforces the difficulty: a profitable bottleneck attracts precisely the capital and technological effort capable of undermining its scarcity.

The economics of relative speed

The historical progression can now be stated more precisely.

Ricardo analysed a factor whose relevant supply was fixed by endowment. Industrial capitalism confronted reproducible assets whose expansion was constrained by insufficient accumulation and mobilisation of capital. Contemporary production architectures combine abundant capital and highly scalable technologies with complementary inputs whose physical or institutional adjustment remains slow.

The first is intrinsic scarcity. The second is scarcity of accumulation. The third arises from differential adjustment across a system of complements.

Architectural scarcity is distinctive because it is migratory. The bottleneck attracts investment and innovation; substitutes emerge; institutions adapt; and successful adjustment transfers the constraint elsewhere.

Its persistence and magnitude depend jointly on the capacity to expand the constrained input, the ability to substitute around it, the economics of the activity it constrains, and the institutional claim over the resulting surplus.

These distinctions modify Ricardo’s intuition without abandoning it. Growth still increases the value of what it cannot readily reproduce. What has changed is that the relevant constraint may be embedded in a network rather than an endowment, may migrate as the system adjusts, and may be allocated through institutions rather than nature.

Productivity determines how much surplus an economy generates. The structure of complementary supply determines where the binding constraint emerges. Substitution and downstream economics determine how valuable and durable that constraint becomes. Institutions determine who captures the resulting rent.

Value can be created throughout an economic system. The slowest non-substitutable complement determines where its scarcity value is capitalised.

Sources

David Ricardo, On the Principles of Political Economy and Taxation, 1817.

Katharina Knoll, Moritz Schularick and Thomas Steger, “No Price Like Home: Global House Prices, 1870–2012,” American Economic Review, Vol. 107, No. 2, 2017.

Graeme G. Acheson, Gareth Campbell and John D. Turner, research on British railway ownership, equity markets and the development of dispersed shareholding in the nineteenth and early twentieth centuries.

William J. Baumol, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis,” American Economic Review, Vol. 57, No. 3, 1967.

Nathan Rosenberg, “The Direction of Technological Change: Inducement Mechanisms and Focusing Devices,” Economic Development and Cultural Change, Vol. 18, No. 1, 1969.

Albert O. Hirschman, The Strategy of Economic Development, Yale University Press, 1958.

Benjamin Klein, Robert G. Crawford and Armen A. Alchian, “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics, Vol. 21, No. 2, 1978.

Justus von Liebig, Organic Chemistry in Its Applications to Agriculture and Physiology, 1840; and the earlier work of Carl Sprengel on limiting nutrients and the law of the minimum.

International Energy Agency, Renewables 2023.

International Energy Agency, Renewables 2025.

International Energy Agency, Energy and AI.

International Energy Agency, Key Questions on Energy and AI, 2026.

Lawrence Berkeley National Laboratory, Queued Up: 2026 Edition - Characteristics of Power Plants Seeking Transmission Interconnection, 2026.

Federal Energy Regulatory Commission, Order No. 2023, Improvements to Generator Interconnection Procedures and Agreements.

Eurostat, producer price index for construction of new residential buildings in the European Union, annual data through 2025.

European Central Bank, “Developments in the Recent Euro Area House Price Cycle,” ECB Economic Bulletin, 2025.