Nature's Evil

Why is the raw materials economy concentrated and the labour economy pluralistic and complex? One mechanism is comparative advantage, as described in the economic theory of international trade. States trade because they specialise in different commodities. With time, each economy increases the share of that particular commodity in which it is most efficient. For example, if coal in England was cheaper than in India but in India cotton was cheaper than in England, then the share of coal would grow in the English economy and the share of cotton would grow in the Indian economy. Another mechanism is monopoly. In the commercial exploitation of raw materials, the price of a commodity can differ from the cost of its extraction, changing the calculus of efficiency. 20 The formation of a monopoly is more likely in the case of topical, geographically concentrated resources – sugar rather than salt, diamonds rather than coal. The theory and history of monopoly have been strangely underexplored; we have heard much more about free trade, competition, equilibrium theory and the informational role of prices – all those mechanisms of ‘complete markets’ that historical monopolies have been able to abolish for the sake of their profits. From Jeremy Bentham to John Marshall, social thinkers saw in monopoly a great challenge – a major source of wealth, inequality and evil. But monopolies and cartels continue to define our civilisation. Granted, all these economic mechanisms have always been subjugated to political decisions: when the Indian calicos were banned in England, the whole system of trade was transfigured, as also happened when the OPEC cartel was formed. But, in each case, the terms of trade also grew out of the natural characteristics of a raw material. It wasn’t the Spanish king who ordained Potosí to be the site of silver mines, just as it wasn’t the members of the Politburo who located the site of oil extraction in Western Siberia. This is how nature arranges things; her actions are either random or, what comes to the same thing, inscrutable. But the fates of the Spanish emperor and the Soviet general secretary depended on these acts of nature.

The broader relations between natural resources and labour also belong to the context of comparative advantage. In 1949 two economists who worked for the United Nations, Raúl Prebisch and Hans Singer, wrote that the price of a raw material changed more slowly than the price of labour. If one country produces mainly raw material while another invests the productive labour of its citizens, then the first country will gradually become impoverished while the second will become increasingly prosperous. 21 For example, German merchants bought Argentinian hides, took them to Central Europe, made bags or jackets, and sent them back to Argentina. Over the course of decades, you will be able to buy fewer and fewer leather bags and jackets for the same quantity of Argentinian hides (and, while the hides are always the same, the fashion in bags will change dramatically, giving another advantage to their makers). If you exchanged cars for oil, you would get more oil for a Tesla in 2020 than for a Packard in 1920. Prebisch and Singer ascribed this asymmetry to the democratic institutions, which are more successful in labour-dependent countries. Or was it the other way round – was it democratic choice that shunned the reliance on natural resources?

The gold standard

By virtue of their geological rarity and chemical stability, gold and silver have been used for hoarding capital from the dawn of human history. Always in short supply, gold was both the stimulus and the limit for the development of the banking system in Renaissance Europe. Silver was the first global commodity in the sense that its price throughout the world, from Mexico to China, fluctuated in one wave. The further east one went, the more gold was paid per unit of silver – silver was more expensive in China than anywhere else. At the opposite end of the world, the English thought up the gold standard – the idea that any financial transaction was potentially guaranteed by a stipulated amount of gold, and every deal had its place in the linear hierarchy of value. But there was never enough gold and silver to secure all possible transactions, so the idea of the gold standard remained a legal fiction. In the real world, if silver was in short supply, coins were debased with copper. In times of peace, this worked.