Monday, March 21, 2022

1974 Redux?

 The stock of Thomas Robert Malthus rises and falls with the real price of food. He was not the inventor of his theory of population, a point that Karl Marx threw at him among other criticisms, with such people as James Anderson and Benjamin Franklin preceding him with pretty much the entiretly of his theory. But his timing was much better, publishing the flawed first edition of his Essay on the Principle of Population in 1798, a year coming at the end of a decade of rising food prices coinciding with the chaos of the French Revolution, which Malthus also opposed. The main flaw in his essay was his argument that food production grows linearly while population grows exponentially. The theory of exponential growth applies to the populations from which food comes as much as it does to human populations, but those populations find their growth limited by the fixity of land, which leads to the relevance of the law of diminishing returns, a point made by Ricardo and which Malthus picked up on by the third edition of his book, switching to it then to justify his theory of human populations tending to press upon the means of subsistence. Ricardo relied on Malthus's theory to underpin his depressing Iron Law of Wages.

Neo-Malthusianism expanded to include concern over natural resources beyond just food to such items as oil and energy more broadly as well as industrial metals.  Thus the neo-Malthusian Limits to Growth, initially published in 1972 had a heyday of popularity in 1974 when not only was world population growth approaching its all time maximum rate but the world experienced simultaneous energy and food price shocks.  The former was driven by the tripling of the price of oil following the Yom Kippur War in late 1973 and the Saudi oil export embargo on the US that happened then but that held even after the embargo was lifted as a broader production cut by OPEC was put in place. The latter followed poor harvests in 1972 and 1973 accompanied by large-scale purchases of corn in particular by the USSR to maintain meat production, which led to a tripling of the price of corn (maize) with other major grain crops also sharply rising in price. The upshot was sharply rising prices of both gasoline and food in the year 1974, the year that the stagflation of the 1970s took fully hold.  Oil prices soared again at the end of the 1970s with the fall of the Shah of Iran, but then grain and thus food prices did not do so.  But 1974 was a year of neo-Malthusian frenzy as both of these soared.

In the aftermath of having fallen very low during the pandemic, oil and grain prices had been rising since April 2020 and had accelerated with the more general outbreak of rising inflation since the beginning of 2021.  But now the outbreak of war in Ukraine has led to a much sharper surge of oil and wheat prices as oil and wheat exports from Russia have been widely embargoed (although not totally), with it the world's leading exporter of wheat and the second leading exporter of oil, and with wheat exports from Ukraine, the fifth largest source of it on world markets, due to disruption from the Russian invasion.  Oil prices have quintupled since their April 2020 low and wheat prices have more than tripled, with both of them surging by something like 50% in the month since Russia invaded Ukraine.  This is the first time since 1974 we have seen such a convergence of sharply rising oil and grain prices, although corn prices have not been up quite as sharply.  Only the slowdown of world population growth has kept us so far from having an outburst of neo-Malthusianist sentiment, and indeed to the extent that pressure to enact policies to combat global warming are partly driven by neo-Malthusian attitudes, the sharp increase in gasoline prices has brought at least in the US a reaction against such policies at least with respect to oil, as politicians on both sides of the fence call for at least temporarily suspending gasoline taxes in order to combat inflation. Heck, elections are at stake.

Barkley Rosser 

1 comment:

Frank (JMU alum) said...

Prof. Rosser,

I did not until a recent article in the Economist about how Egypt is actually the largest purchase of wheat globally, and that it's been subsidized for so long. From an urban planning perspective, I'm very interested in the Egyptian government's plans to move their administrative functions to a new city which does not yet have a name, ideally helping alleviate congestion in Cairo which has 10M in its core and 21M in the metro area.

Economist article: