Nature's Evil

Defying the long-term trend, the price of oil and almost all other natural resources significantly increased at the start of this century. When these prices peaked in 2014, the total value of shares included in the energy sector on the New York Stock Exchange (nearly $2 trillion) approached the total value of shares in the financial sector (just over $2 trillion). Since then much has changed, but the world still obtains almost all its energy by burning fuel and polluting the atmosphere. Lying in the ground like assets in the bank, fossil carbon defines the value of national currencies and the size of state budgets. Petrodollars, gas roubles, coal zloties and other carbon currencies circulate in the global market, setting prices of labour, education, health care and life itself. The price of a barrel of oil is the main index of the world economy – a more important indicator than the price of gold, which obediently tracks the price of oil. The gold standard was abolished decades ago – perhaps it would make sense nowadays to talk about the ‘oil standard’?

As Karl Polanyi showed, the gold standard was a key to the fabled stability of Europe in the nineteenth century. ‘Where Ricardo and Marx were at one, the nineteenth century knew not doubt,’ he wrote. 27 But Germany abandoned the gold standard during the First World War, and Great Britain and the USA left it during the Great Depression. In 1944, the Bretton Woods Agreement established fixed exchange rates between the dollar and the other currencies of the allied nations. Marketed almost completely in dollars, oil had already become the most important commodity in international trade. The dollar would remain fixed to gold, but the price of oil – the exchange rate of a barrel of oil against an ounce of gold – was floating. The USSR was a signatory to this agreement; the preservation of the gold standard was advantageous for a state that extracted gold and oil. The Bretton Woods Agreement had been worked out in discussion between the British representative, John Maynard Keynes, and a senior US Treasury official, Harry Dexter White, who, it emerged later, was a Soviet agent. Together, they proposed to create, along with the World Bank and the International Monetary Fund, a third global organisation which would answer for the world supply of strategic resources – oil, rubber, metals, etc. This interstate corporation would have stored raw materials in depots, smoothing price hikes and supplying raw materials according to national quotas. Clearly, this system would be beneficial for the resource producers – this project was like something dreamt up by the Soviet State Planning Committee. However, even the founders of the neoliberal movement approved of it. Friedrich Hayek, for one, proposed changing the gold standard to an ‘international commodity reserve currency’. 28 National currencies would have been pegged to a basket of ‘standard storable raw materials’, including petroleum. Sketches of a similar index have been preserved in Keynes’s papers. 29 When Keynes and Hayek were at one, the twentieth century ‘knew not doubt’. In August 1944, the USA and Great Britain agreed to found an international oil council – an early, broad and more powerful version of OPEC. Judging by the proactive position taken by White, his Soviet masters were also keen on this project.

The idea did not have legs, and it is important to understand why. The price of a barrel in dollars signifies the amount of goods and services which can be exchanged for it: the higher the price of oil, the cheaper labour and labour-intensive goods. Essentially, the price of a barrel is the ratio between oil and the economy. Oil fluctuates but wages are relatively stable, and this is why the long-term chart of oil prices looks as jagged as a broken saw. Pegging the dollar to a barrel would lead to instability of wages. If the gold standard were to be replaced by the oil standard and national currencies were to be backed by barrels of oil, prices of labour, services and real estate would fluctuate wildly.