Part 1: What is "real"? (commentary)
Part 2a: Real microeconomics (demand shocks)
Part 2b: Real microeconomics (supply shocks)
In the last post, I talked about real "demand shocks", when we want a lot more of something than we can presently produce. There are also real "supply shocks". A supply shock happens when something becomes considerably more expensive: given some set of resources, we can produce less of something we want or need than we could yesterday, with no compensation in the production of other things.
But what do I mean by "more expensive"? I'm talking about real economics, economics without money. The only resource we can arbitrarily change is how we spend our time. We cannot just arbitrarily make decide to have more iron: if we want more iron, human beings have to spend time digging it out of the ground. (We might also spend time creating machines to dig it out of the ground, or we might choose to use up some of the labor "embodied" in an already created digging machine to dig up iron instead of copper or uranium). So, by more expensive, I mean producing something requires more labor* than before, labor that has an opportunity cost, that could have been used to produce something else.
*Strictly speaking, socially necessary abstract labor time.
Real supply shocks tend to "creep"; in this sense, "shock" is kind of a misnomer. (In economics, "shock" just means something exogenous, i.e. in some sense outside the normal economic system.) We don't wake up one morning to find that hats suddenly take twice as much labor to make as yesterday. Rather, the real cost — the labor — tends to inexorably increase over a long period of time.
Oil is a good example of a supply shock. We believe (IIRC) we have in the last century extracted about half the oil that's in the ground. The problem is that we've already extracted the oil that's "easy" to get to, and increases in our productivity are starting to fall behind the increase in difficulty in extracting the rest of the oil. We're not going to "run out" of oil; oil will just take more and more labor time to extract, until the oil that's left is so expensive it will be used only for those things we really really want.
In a similar sense, agriculture before the industrial revolution was in a state of creeping supply shock. As the population grew, more and more land had to be put into food production. The problem is that we used the most productive and fertile land first; additional land was less productive than new land. This caused the average labor time for a given quantity of food to rise over time. Improvements in technology and the production of capital could not keep up with the loss of productivity, to the point where food production was a severe constraint on population growth. This sort of constraint is not pretty: people tend to actually starve to death.
Of course, supply "shocks" don't have to be crisis producing. As we create more capital, which makes labor more productive, and as technology improves, it requires less labor time to make most goods and services, which reduces the opportunity cost in terms of making goods and services that cannot have improvements in productivity. (One cannot, for example, greatly improve the productivity of live performances of classical symphonies.)
One interesting comparison of real economics vs. financial economics is that "positive" supply shocks (which can be abrupt), where the labor cost of something decreases, cannot produce a crisis in real economics, but can produce a crisis in financial economics. Curious.