When the Price Mechanism Breaks: What the Simon–Ehrlich Bet Gets Wrong About AI
Why capital misprices constraint when physics moves slower than markets.
In 1980, Julian Simon made one of the most famous bets in economic history.
He bet that human ingenuity would defeat scarcity.
Paul Ehrlich bet the opposite.
Simon won.
Commodity prices fell.
Technology advanced.
Supply responded.
The lesson became doctrine:
When prices rise, markets fix shortages.
That belief now underpins trillions of dollars in capital allocation.
It also underpins the AI boom.
But here’s the question investors are not asking:
What happens when prices can’t fix the bottleneck?
This week, we’re not debating AI.
We’re not debating energy transition.
We’re not debating scarcity narratives.
We’re examining something deeper:
When does the price mechanism stop working — and what does that mean for portfolio construction?
Inside this issue:
Where Simon still works
Where the mechanism slows
Where it structurally fails
And how to allocate when constraint becomes time-based, not price-based
Because in 2026, the edge is not identifying demand.
It’s identifying where capital hits physical delay.
Continue reading for the full allocator framework.
