DOWN GOES the price of wheat and with it go farmers' incomes and, sometimes, their farms. The slide in wheat prices has been going on for five years, and the farmers' distress is now well understood in American politics. But there's a much broader pattern here. It's not limited to wheat, and it's not limited to the United States. There has been precisely the same steady decline since the beginning of the decade in the prices of copper, medium staple cotton, rice, rubber, wool, aluminum -- most of the world's basic commodities.
Oil prices deservedly attract great attention in their ups and, more recently, downs. The curious thing is that the prices of most of the other commodities -- foodstuffs, metals, raw industrial materials of great diversity -- have followed strikingly similar cycles of rise and fall over the past 25 years. The International Monetary Fund recently published a survey of the world's commodities markets, and the outlook for them -- in most cases, at least for the immediate future -- is continued decline.
Like oil, the prices of most of these commodities were stable in the 1960s. Like oil, they suddenly spiked upward in 1973, then slowly sank until the end of the decade when they shot up to even higher peaks. And like oil, they have been coming down in irregular steps since the early 1980s. These simultaneous movements suggest that OPEC can't be the whole reason for the increases in oil prices. There wasn't any OPEC in corn or copper.
Here's a better explanation, one that's becoming clearer with time: In the early 1970s the great postwar surge of economic growth, the strongest in history, hit the limits of the world's ability to produce a wide range of basic commodities. Growth rates dropped but, by the late 1970s, demand hit the same limits again. Meanwhile, two things were happening. Suppliers responded to those high prices by expanding their production -- in some cases, massively. And customers, burned twice by high prices, found ways to get along with less of those materials or perhaps to produce more of their own. The result, from soybeans to tin to palm oil, is rising stocks and falling prices.
It's happened several times before over the past century -- shortages that lead to high prices that lead to overproduction and great social distress. There are a couple of lessons here for people who make policy. First, it's pointless to try to promote exports with subsidies. The world is simply producing more of these commodities than it currently needs. Second, the price decline of the 1980s is no more an enduring trend than the price rise of the 1970s was. Production will now drop, but foresighted governments will try to avoid setting themselves up for another round of shortages and price shocks like those of 1973.