Years ago, I had a brief infatuation with the theory of peak oil. This is the idea that we are now reaching, or will soon reach, a point at which the total amount of oil being produced in the world begins to decline due to a lack of new discoveries. Since the global economy is still highly dependent on oil to fuel economic growth, this is obviously a big problem.

People often talk about “running out” of oil, but that is not really the right way to think about it — the effects of diminishing reserves of easily accessible oil will be more complex than that. Hegel and Marx liked to talk about the dialectical relationship between “essence” and “form of appearance”: the former is the more fundamental but not directly perceptible substance of things, while the latter is the concrete form in which those essences are reflected. Marx saw his work as an attempt to work from capitalism’s form of appearance — wages, profits and rent, markets, business cycles, and so on — to its underlying essential forms, which turned out to be value and the process of capital accumulation.

With regard to oil, the essence of the situation is more or less as the peak oilers have it: less new oil reserves are being discovered, and what is discovered is much more difficult to extract. However, the form of appearance of this crisis will not necessarily be skyrocketing oil prices, as everyone seems to assume. Paradoxically, the aftermath of peak oil may turn out to be a period of low oil prices, accompanied by a prolonged global economic slump.

How is this possible? Well, think about the sequence of events that would unfold as the supply of oil declines. It’s true that all things being equal, an additional barrel of oil should become more expensive. With most commodities, we would expect this to lead to people consuming less oil, leading to the price falling again. This is more or less the optimistic view of the situation: as oil becomes expensive, there will be an incentive to switch to other more sustainable energy sources, and everything will be OK in the long run.

However, oil is not a normal commodity — it is highly inelastic, meaning that large changes in price have only a small effect on the demand for oil. This is because we are so dependent on oil, and there are still no good large-scale substitutes for it. It is, at the very least, uncertain whether we will actually be able to make a smooth transition to solar, wind, and other green sources of energy.

But if demand for oil is inelastic, then a rise in price will mean that everyone in the economy will have to spend more money on oil and oil-derived products, and less on anything else. This additional revenue will mostly be captured by oil companies and the governments of the big oil-producing countries, which will seek to reinvest their profits in the economy. But there will be a major shortfall in demand, precisely because the rest of the economy is being starved of demand because of high oil and gas prices.

This shortfall in aggregate demand, in turn, leads to an economic slowdown. If the economy slows down enough, and there are enough idled resources, then demand for oil will also fall — leading to a fall in energy prices. Indeed, there is evidence that this is exactly what has happened in our recent recessions. And now, with stock markets tanking and another recession looming, oil prices are down again. Thus it turns out that the form of appearance of peak oil is low oil prices combined with a weak economy.

This dynamic is also relevant to “Great Stagnation”–style theories that explain weak economic growth as a function of slowing innovation. Tyler Cowen has an interesting post today in which he shows multifactor productivity in Canada, broken down by sector. It turns out that productivity is way up in the goods and manufacturing sector, but way down in mining, oil, and gas extraction. As Cowen notes, this “reflects Canada’s move from ‘suck it up with a straw’ oil to complex, high cost extraction tar sands projects and the like.”

I don’t think this dynamic is inevitable — we could, if we wanted to, invest a lot more money in de-carbonizing the economy and finding new energy sources. But that requires understanding the problem correctly, and unfortunately most people aren’t very good at thinking dialectically. So if we are in for a prolonged period of slow economic growth, people will become susceptible to all kinds of false explanations, and will be reluctant to consider the possibility that a resource constraint lies beneath the phenomenon of economic weakness.