As the prices of food, fuel and other basic commodities continue to skyrocket, the tiny voice warning that the sky is falling becomes louder and more insistent. There are looming shortages of oil, of wheat, of copper.... Humankind’s insatiable demand for material goods has finally and permanently outstripped the resources necessary for producing them. A bleak future of ever-rising prices and stagnant growth is the inevitable consequence.

Newsweek might well get away with rerunning its cover story of November 19, 1973, headlined “Are We Running Out of Everything?”

Predictions of doomsday have been around since at least 1798, when Thomas Robert Malthus wrote that mankind was condemned to live at the margin of starvation. He reasoned that if wages ever rose above the minimum level necessary to sustain life, it would enable people to feed and raise more children. But because agricultural production could not possibly keep pace with population growth, famine and premature death would force a return to bare subsistence.

Parson Malthus was wrong, of course. He failed to appreciate the incentives for farmers to expand output as food prices rise, thereby pushing prices back down. Nor did he anticipate the technological advances that greatly increased agricultural productivity and allowed farmers to profit from feeding more mouths. He also did not know, as we do today thanks to Nobel Laureate Gary Becker, that as standards of living rise, people tend to have fewer children.

The same mistakes are made repeatedly. In 1972, the Club of Rome warned that, “if the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next 100 years.” The Limits to Growth gained instant credibility when, following the Arab-Israeli War of 1973, OPEC embargoed oil exports and the world price of crude jumped in three months by nearly 300%—from $3.01 to $11.65 a barrel—and gas prices hit $1 a gallon!

Now that rising energy demands in China, India, and other developing nations have oil flirting with $135 a barrel, and tight U.S. refining capacity has gasoline on its way to $4 a gallon, today’s Cassandras are in full cry. But they have forgotten their history:

• The transition from the Bronze Age to the Iron Age, precipitated by a scarcity of tin
• The shortage of whale oil used for illumination overcome in the mid 1800s by the development of processes for refining kerosene, later perfected by the Standard Oil Company
• The turn-of-the-20th-century timber “crisis”, which nearly bankrupted the railroads until they adapted by substituting coal for wood to power their engines
• The great British-Dutch natural rubber conspiracy of 1922–1925 that tripled prices and was broken by the invention of synthetic fibers

There are many more such examples.

The lesson is that markets work. Shortages cannot persist in a free marketplace because higher prices prompt consumers to economize on their purchases and producers both to expand existing supplies and to search for cheaper substitutes. Oil consumption in 2008 is already below that of last year and, for the first time since the 1970s, a major expansion is underway on the Gulf Coast that will eventually bring the world’s largest refinery online.

Other than refraining from interfering, no public policy is needed to ensure that the private sector responds to price spikes. As a matter of fact, government has been part of the problem. Aggressive promotion of ethanol and other alternative energy sources is partly to blame for the recent run-up in food prices. Other regulations keep crude prices high by prohibiting recovery of the vast oil and gas reserves known to exist on the Outer Continental Shelf and on federal lands in the Rocky Mountain West—and by diverting 70,000 barrels a day from one hole in the ground to another known as the Strategic Petroleum Reserve.

Doomsday can be averted this time around, as it always has been in the past, but not by looking to Washington for relief. If the profit motive is allowed to animate entrepreneurial creativity, this too shall pass.