One of the more intractable debates recently has been over whether the recent rises and fluctuations in food prices have been caused by speculators or not. One side argues that investors have looked for new markets, as a result of the popping of the housing bubble (and other factors) and similar damage is now being done to the world’s food markets, with immense risk to the livelihoods of millions.
Those who favour markets more point out that hedge funds are, by contrast, a good thing. Investors will buy up commodities cheaply at a time of glut and sell them when there are shortages and the price is higher. Making a profit, yes, but smoothing prices and supply for the benefit of all.
A major report by the UN Conference on Trade and Development (press release) gives support to the former view. I haven’t had a chance to read it, but the summary seems quite clear: watching what commodity traders actually do, there has been a distinct change in behaviour to treat food as just another commodity, with food prices being much more correlated with other economic indicators than the supply/demand figures for the item. There is also good evidence that a herd-based mentality exists, with substantial price shifts based on rumour. Relatively harmless in the main economy, since things get corrected quickly and average out, but more dangerous if you’re paying to eat…
A theological reflection on this: I went to a talk last week from a Christian financier who argued in favour of market-based systems from Biblical principles (we are called to be social, we’re different, and can help each flourish by trading). While I agree with him up to a point, there are some limits. (For a parallel: the Bible argues that government is good. But not all governments that exist in reality are good.)
Something he said on which I think he is flat wrong: he sees money as merely a proxy for the underlying goods being valued by it. Hence “the love of money is the root of all kinds of evil” is just another statement of anti-materialism. However, looking at the UNCTAD report, I would argue that “love of money” is a key line which, if crossed, takes us from a healthy market system where money is the “oil” that keeps the economy running smoothly, to an unhealthy one where money is divorced from reality and accumulated in great amounts, distorting true trade. This seems to have been where much of the market has been headed for a couple of decades now, but at least with food prices excluded, people were shielded from its main instabilities. That era now seems gone.