Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

A worker adjusts a pipe at the Nassiriya oilfield in Iraq.

© Atef Hassan / Reuters/Reuters

If you are an economist, you tend to believe that you can solve any supply problem by adjusting prices.

Not enough Tickle Me Elmo dolls at Christmas? Raise the price to $400 and the number of people asking for them will go down. Too many blueberries at the height of the season? Lower the price and you can sell them all.

Easily said. But can prices adjust enough to deal with the really important commodities – like wheat and oil, say – in a way that ensures there is enough for everyone who needs them and we never actually run out? The answer seems to be a tentative "yes," according to a new paper by David Jacks, an economist at Simon Fraser University.

Story continues below advertisement

The debate about whether there are enough resources for everyone has been around for centuries. Thomas Malthus (a downer-economist who wrote a seminal paper in 1798) suggested that there would soon be too many people in the world to feed. He was wrong, apparently; technology and aggressive planting expanded the food supply. More recently, the energy crisis of the 1970s started a debate about the end of oil supplies. That one is still up for grabs, although most of us have gotten our minds around to paying ever more for energy.

As a way of looking at how the markets have dealt with resource allocation, Mr. Jacks looked at the prices of 30 commodities over a period of 160 years. During some of that time, there were pressing demands for the commodities in question. In periods of rapid development, not surprisingly, prices went up. They did not stay up forever, however: at higher prices, the market came up with ways to supply more, even if it took a while. Price hikes also caused demand to adjust; when prices of one thing go up enough, people buy something else, and prices fall.

According to his research, the supply of some commodities is more easily expanded than that of others. Since 1950, agricultural prices have actually declined as a group, meaning that in real (inflation adjusted) terms it costs less to buy cotton, coffee, wheat, corn and rice than it did 60-odd years ago.

So, what to make of the recent spike in the price of some of these things? Well, hopefully it is what Mr. Jacks observed many times in his analysis of the past couple of centuries – a short-term gyration rather than something for keeps. If history repeats, the recent price hikes will lead to more production and falling prices.

Other commodities – notably petroleum, gold and natural gas – are quite a bit more expensive than they were in 1950, and in most cases are certainly more expensive than they were a decade or so ago. There are two things going on here. One is that you cannot increase the supply of most of these things as easily as you can agricultural goods, so of course there is going to be a bias to higher prices. The other is that there seems to be a new supercycle going on.

Mr. Jacks defines a supercycle as something that pushes prices up by at least 20 per cent, and lasts up to 40 years. He has observed such cycles multiple times over the 160-year horizon. In the most recent case, commodity prices are being sent higher by the recent boom in the Chinese economy (which started in the mid-1990s). As that boom matures, prices may well decline in tandem, although there is nothing to say that other industrializing countries will not pick up the slack.

So are some prices going to be bid up forever? We will see upward pressure for sure, but it is interesting how well the supply-demand mechanism explains the pricing history of commodities. It may take a while, but apparently anything can be replaced, at least partly, if the price is right.

Story continues below advertisement

Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies