Relative Prices

Abstract

In viewing the time ahead, especially the next quarter century, I have been inclined to conclude that the industrial progress of India, China, Southeast Asia, and the major countries of Latin America are likely to produce a phase of rising prices in foodstuffs and raw materials and increased outlays to deal with the forces of environmental degradation. It is my hypothesis that for a time, in the early part of the 21st century, these developments will outstrip the deceleration of population. The more or less regular occurrence of such phases of demand pressure has marked the story of the world economy since the end of the 18th century. At least since about 1789, there have been successive periods when foodstuffs and raw materials were expensive and then cheap, relative to manufactured goods. From 1789 to 1920, these periods lasted about 25 years. After 1920, the cycles were much less regular and were significantly affected by wars, by the successive rise in the importance of oil, by outlays to preserve the environment, and finally by the involvement more directly of politics in the setting of basic prices. But economic historians are likely to agree that the period 1789-1914 was marked by two-and-a-half long relative-price cycles in raw material versus manufactured goods (see Figure 4.1). Although he had several predecessors, N. D. Kondratieff, a Russian economist who was immortalized by Joseph Schumpeter as the discoverer of the Kondratieff cycle or long wave, identified, dated, and discussed analytically this long cycle in the interwar years. He died in one of Joseph Stalin's labor camps in Siberia. The approximate dates and length of these long cycles through 1920 are shown in Table 4.1. The successive phases of falling and rising relative prices continued to follow one another despite two world wars, a pathological interwar period, and an unexpected postwar recovery, illustrated in Table 4.2. The peak of the early 1980s came in the second quarter of 1982 (or, on an annual basis, in 1981).