Continuity and Change in the International Economic Order: Towards a Sraffian

interpretation of the change in the trend of “commodity” prices in the 2000s

Franklin Serrano*

“It is the cost of production which must ultimately regulate the price of commodities,
and not, as has been often said, the proportion between the supply and demand: the
proportion between supply and demand may, indeed, for a time, affect the market
value of a commodity, until it is supplied in greater or less abundance, according as
the demand may have increased or diminished; but this effect will be only of
temporary duration” (Ricardo, Principles, p. 382 as quoted by Palumbo(2012).

“This proposition would have seemed less novel had it been clearer that the pattern of
demand can only affect relative prices to the extent that it affects distribution”
(P.Garegnani (1983))

I. Introduction
In the first decade of the twenty first century we can observe some elements of
continuity and other of change in the international economic order. In terms of
continuity, what is perhaps most striking is the resilience of the “floating dollar
standard”, which was neither a cause of the major world crisis of 2008, nor was
negatively affected by it.1 In terms of change, there is the new tendency towards a
greater relative autonomy of the (relatively fast) rates of growth of gdp of many
developing economies from the (low) growth rates of the advanced capitalist countries,
which seems to be the combined result of a favourable situation of the world economy
both in terms of growth of trade and acess to capital flows and of an important reaction
in terms of economic policies adopted by developing countries to the various financial
and balance of payments crises of the late 1990s up to 2002. A second (and intimately
connected) element of change is the new trend towards increasing absolute (dollar) and

*
Professor Associado, Instituto de Economia, Universidade Federal do Rio de Janeiro, Brazil. Besides
the presentation at the Sraffa 2010 seminar at Roma3 University, the paper draws on two presentations on
these topics, at CEFIDAR in august 2011in Buenos Aires and at the “Congreso Internacional Crisis de la
teoria economica y politicas alternativas ante la crisis global”, 7-11 november 2011 at UNAM, Mexico
City. The author is grateful to the organizers and participants of these two events. Special thanks are due
to very useful discussions on the topic with my colleagues, profs. Carlos Medeiros, Eduardo Crespo and
Eduardo Pinto. None of them, of course, bear any responsibility for the errors and mistakes in the paper.
1
For reasons of space and scope very little will be said in this paper about this crucial aspect of the
international economic order (which in practice means that the U.S. economy suffers no balance of
payments constraints) apart from brief remarks in section V below. For a more detailed discussion of the
“floating dollar standard” see Serrano(2003, 2004, 2008) and Feldman(2009).
 2

relative prices for internationally traded “commodities” (food and raw materials in
general). Although usually explained exclusively by the relatively fast growth of
demand and/or the wild short term forces of financial speculation , this new trend of
prices appears to us to reflect a number of more permanent changes both in technology
and in income distribution.
The purpose of these notes to provide a tentative and admittedly preliminary attempt to
understand the broad underlying causes of this marked, and to a large extent surprising,
change of trend of dollar and relative international “commodity” prices. A change
that appears particularly drastic in comparison with the two previous decades of low
and falling international dollar and relative prices for these kinds of products.
We consider that the modern classical surplus approach, revived by Sraffa and
Garegnani since the early 1960s may provide a useful analytical framework in which to
base this attempt. As it is well know, the classical notion of price of production,
revived by Sraffa, focuses on the objective material elements in the “cost of production”
of all produced goods. This should also apply to the relatively standardized foods and
raw materials which are traded in international markets that are nowadays known as
“commodities”. Moreover, the theory of prices of production brings to the fore the
necessary connections between “costs of production” and the distributive variables,
and in particular the (social) rules that govern the distribution of income between
wages, profits and different types of rents (and also exchange rates), in a particular
historical situation.
Given this, the reason why we consider this approach useful for the question at hand is
quite easy to explain. We are convinced that most analyses of the recent increase in
commodity prices has focused almost exclusively on the side of “demand”, whether of
final users or for speculative purposes. There has been a relative neglect of the role of
certain supply constraints and of more persistent cost of production considerations.
And there is, if anything, an even greater neglect of the necessary “intimate connection”
between these changes in the costs of production and associated changes in the
distribution of income.
We should perhaps also note that this neglect of cost of production and income
distribution aspects stands in sharp contrast not only with the sraffian classical
surplus approach but also with the analyses of the pioneers of development economics
 3

such as Singer, Prebisch and Lewis, who focused on precisely these aspects when
studying the long run trends of terms of trade.2
In our analysis we shall argue that the proximate determinants of this new trend of
commodity prices are: the return of a “natural resource nationalism” in a number of
“commodity” exporting countries; a simultaneous tendency towards an increase in real
wages and a real appreciation of the currencies of many “commodity” exporting
countries ; the very fast rate of technical change in the industries related to information
technologies; and the trend of real wages not to grow in line with productivity neither in
the developing countries that export industrial products nor in the more advanced
capitalist countries. We shall also briefly not to which extent both of the main changes
in the international economic order , namely, the parcial decoupling of the growth rates
of developing countries and the new trend of relative commodity prices were in part
anticipated as possibilities by Arthur Lewis, the “classical” pioneer development
economist.
The paper is organized as follows. Section II briefly describes the main characteristics
of the recent boom in commodity3 prices. Section III addresses the demand side
elements of the boom in dollar commodity prices. Section IV looks at some of the
supply and cost of production aspects of the rise in dollar prices of specific broad
groups of commodities. Section V, first discusses the changes in the balance of
payments position of commodity export countries in the 2000s , including the partial
decoupling of growth rates of developing countries in general, in order to show the
important role for the cost and dollar prices of commodities in general of the trend
towards a nominal (dollar) and real appreciation of the currencies of major
commodity exporting countries. Section VI deals with some aspects of the slow
growth of non commodity international dollar prices, which are need to understand the
the question of the rise in the relative prices of commodities. Section VII contains brief
final remarks.
II. The recent boom in commodity prices
Apart from being extremely volatile, international “commodity” prices in general
(agricultural and mineral) have increased substantially in the decade 2000-2010, both in
absolute terms , that is, in U.S. dollars, and also in relative terms, whether we compare

2
For a classical surplus “cost of production” interpretation of the previous period of rising “commodity”
prices in the 1970s see Sylos-Labini (1982).
3
From now with its precise meaning clarified commodities will not be written in quotes.
 4

commodity prices with international dollar prices of manufactured prices or in terms of

the overall internal price indexes of most countries.
Dollar prices for oil started recovering, after reaching extremely low historical levels
in 1999.4 Nominal increases in metals and food prices came later. By 2003 oil prices
started growing much faster and metals prices began to accelerate even faster than oil
prices. By 2007 food prices began to increase at very fast rates. In the wake of the world
crisis, prices of all types of commodities fell drastically in 2009, but quickly recovered
in 2010. Prices reached a peak in mid 2011 with food and metals (but not oil) at higher
nominal dollar levels than in 2008. Over the whole decade, it was dollar energy prices
that have increased most, followed by metals, while food prices increased by much less.
According to IMF data, crude oil prices increased at an annual rate of 17.84% a year
from 1999 to 2002, and then at 18.14% a year from 2003 to 2010. Prices of metals
actually decreased at a rate of -0,2% a year from 1999 to 2002, but then increased at a
very fast rate of 20.36% a year from 2003-2010. Food prices increased from 1999 to
2002 at a low rate of 0.28% a year, but rose at 4.3% a year from 2003 to 2010.
Over the same period, international industrial prices and world inflation did not keep
pace with such fast commodity price increases, resulting in a large increase in the
relative price of all types of commodities. Indeed, world inflation actually fell from an
average of 4.44% a year during 1999-2002 to 3.87% in 2003-10. Consumer price
inflation in the richest developed economies remained pratically stable around 2% over
the whole decade. But inflation in developing countries fell, from 8.19% during 1999-
2002 to 6.72% in 2003-2010 in the case of latin american countries. International dollar
prices for manufactured products also increased at a much lower rate than commodity
prices. WTO´s index of manufacturing unit values actually decreased at a rate of 2% a
year from 1999-2002 and then increased at an annual rate of 4.85% a year from 2003-
2010. For commodities as a whole, the phase of fast rising dollar prices of 2003-8 was
the longest (5 years) and had the largest overall through to peak price increase ( 131%)
since 1900 (World Bank(2009)).
III. Demand Aspects
III.1 The “China-Demand” Effect
Most analysts attribute such fast increase in both dollar and relative commodity prices
to the acceleration of the growth of the world economy in the 2000s, based on the very

4
Most of the data in this and in the next section comes from Ferreira (2012).
 5

fast growth rates of some developing countries. According to this view, the increasing
weight of developing countries in the world economy has been characterized by a
process of heavy industrialization and urbanization, as well as by the diffusion of new
“western” consumption habits. This process has increased the demand for oil, metals
and food in these countries and would be the basis for a “super cycle” of commodity
prices that could last a couple of decades.
Among these fast growing developing countries, the emphasis is usually placed on
China´s extremely fast growth rate of imports of commodities. Indeed, between 2002
and 2003, Chinese imports of commodities increased more than 40 %. In 2003 China
was responsible for 26.5 % of the world demand for steel, 19.8 % of the world demand
for copper and 19 % of the world demand for aluminum. These are the reasons why
there is so much talk about the China (demand) effect on commodity prices. This
popular account, however, has a number of serious limitations as an explanation of the
new trend of rising commodity prices.
First of all, the world economy actually did not grow significantly faster in the 2000s in
comparison with the 1990s. In fact, the world economy grew much faster in the second
half of the 1990s than in the 2000s as the U.S. dotcom boom then coincided with the
very high growth rate of China. It is true that the rate of growth of developing
countries was, as a whole, faster in the 2000s than in the 1990s but this largely just
made up for the reduction of the growth rate of the advanced economies.
The same pattern of growth in the 2000s being more or less similar to the 1990s , with
the faster growth rate occurring in the second half of the 1990s is found also for
indexes of world industrial production and of the volume of world trade in
merchandises.
Thus neither world gdp, nor world industrial production nor world trade in volume have
grown relatively faster in the 2000s relative to the 1990s , even if we take aside the big
recession year of 2009 (as perhaps we should not, since periodic crises are, of course, a
constituent part of the commodities and business cycles).
Another problem with the explanations centered on the side of demand is that, as it is
well known, the income elasticity of world demand for most commodities is defintely
below one, reflecting both technical change and the usual trend reduction in the
commodities intensity of gdp as income increases. Indeed, since the early 1970s, the
decline of commodity intensities has been faster for food and energy commodities In
the case of metals we observe the same, though a little less pronounced, pattern of a
 6

declining trend of intensities, when we exclude China. But in this case, and only in this
case, the China effect on demand is so big that it makes measures of the metals intensity
of world gdp increase, rather than decrease, after 1995. Since then, indeed, there has
been an increasing trend of metal intensity of world gdp.This means that after 1995 the
income elasticity of the world demand for metals has been definetly substaintially
greater than one(World Bank( 2009)).
The third problem is that the data from China confirms that the China demand effect
has only been very relevant for the world economy as a whole in what regards the
demand for metals. While it is true that the consumption and imports of all types of
commodities in China grew at fast rates, in most cases these very fast rates of increase
started from a very low base level. Even for a few non metal products in which this
was not the case and Chinese consumption has had a greater weight in world demand,
China´s role seems to have been mostly to partially compensate for the marked decline
in the demand for commodities coming from the richer countries.
The big exception to that was the above mentioned extraordinarily high increase in the
use of metals in China, associated with the very high rates of growth of public and
private investment, particularly in construction and infrastructure in general. In the
period between 2002 and 2007, China´s consumption of coffee increased 32% but as the
world´s total consumption actually decreased minus 1.9% over the same period, china´s
contribution to world demand growth in that period was of just 0.1%. Beef consumption
grew 27% in China over that period, in which world consumption of beef grew 7.2 % ,
and China´s contribution has been only 2 %.
In the case of oil , China´s consumption grew 48.7 % while the consumption in the rest
of the word grew 6.6% , the chinese contribution to world demand growth was of 2.7%
over a 5 year period (about 0.5% a year).
The case of metals stands in sharp contrast to that general pattern. Chinese consumption
of iron ore increased 224.9 % between 2002 and 2007, while in the rest of the world it
grew 19.5 %, and china´s contribution to world consumption growth was no less than
38.4 %. In the case of other metals such as aluminum, zync and copper Chinese
consumption grew at less spectacular rates over the period, between 70 and 125% but
still lead to a China effect between 10 and 20 % of the growth in world consumption of
those metals over that five year period (Jenkins (2011)).
The upshot of all this is that the China demand effect on the world demand for
commodities, apart from metals, has been much smaller than it is usually thought.
 7

And even in the case of metals, where massive Chinese demand was of crucial
importance for the fast growth of world demand, we find that the acceleration of the
world demand for metals started around 1995 with a further acceleration around 2001
while, as we saw in section II above, the prices of metals only start booming after 2003.
Something seems to be missing in the demand side explanation, even for metals.
III.2. Speculation
In part precisely because of the quite moderate growth of the “requirements of use” (or
final demand) for many commodities whose prices also increased sharply, many
analysts have attributed the trend of rising commodity prices to increased speculation.
Among these three elements have appeared, separately or together, as explanatory
variables for the increase in speculation in commodity markets: falling interest rates in
the U.S., the devaluation of the dollar relative to other major currencies such as the Euro
and financial deregulation and financial innovation in future markets for commodities.
In this view, the decrease of short term interest rates in the U. S. would have reduced the
attractiveness of financial assets relative to commodities and cheapened the formation
of speculative inventories. Moreover, the increase in dollar commodity prices would be
a leading indicator that monetary policy is too expansionary. Low interest rates would
lead later to a substantial increase in overall inflation and speculators would be
anticipating this higher future inflation caused by monetary policy, using commodities
as a hedge.
In reality, the idea that lower interest rates may increase to a certain extent the
speculative demand for commodity prices is in itself reasonable. But the idea that the
large increases in commodity prices that have occurred in the 2000s can be attributed to
market expectations of a massive future acceleration of the U.S. does not make much
sense and has no independent evidence to support it. “Core” and/or trend inflation in the
U.S. and other developed countries has been kept low, in spite of drastic increases in
dollar commodity prices. The ultimate cause of this regime of inflation moderation
appears to be the weak bargaining power of American workers, reinforced by the
relatively slow growth of employment in the advanced countries and it seems clear that
market participants understand that this trend is not likely to change anytime soon.5

5
For data that confirms the lack of impact of recent commodity price increases in the trend of U.S.
inflation (in contrast with what happened in the 1970s) see Tootell (2011). On the causes of the low
bargaining power of workers in advanced capitalist countries see Pivetti(2011).
 8

Other analysts argue that it is against the devaluation of the dollar against key currencies
such as the Euro or Yen (i. e. , of rich countries that do not export commodities) that
commodity speculators are hedging against. It is pointed out that in a period of some of
the sharper short term dollar commodity price increases the dollar was falling in value
relative to these currencies. In fact this presumed correlation between dollar commodity
prices and the value of the dollar relative to currencies of rich countries that do not
export commodities is not robust at all and there are many periods, such as what
happened between 1984 and 1995, in which a large and almost continuous fall in the
value of the dollar relative to these currencies has coincided with low and falling dollar
commodity prices. It is more likely that in certain periods when this correlation can be
observed, the falling dollar and rising commodity prices could be responding to a
common third cause, such as low interest rate in the U.S. relative to those of other rich
countries.6
It is unlikely, however that the lower American interest rates could, on their own,
cause such large swings in dollar commodity prices. Indeed, while changes in the
interest rate could be having some effect it is interesting to note that this variable does
appear as a significant driver of dollar commodity prices even in recent studies made by
leading advocates of this view.7 It is probable that the regularity of its small effect has
been totally swamped by the wild very short term fluctuations of expectations in the
organized commodity markets.
Indeed, the process of financial deregulation and financial innovation, particularly in
the American economy, has brought about an immense amount of financial funds to
the commodities future markets. By some estimates the value of funds directed to these
markets by purely financial speculators has grow from 13 billion dollars in 2003 to

6
In fact, perhaps the only relevant, though indirect, effect of the nominal devaluation of the dollar relative
to the currencies of the other advanced economies is that it moderates the nominal and real increase of oil
and other commodities in terms of the domestic currencies of these countries. This reduces the magnitude
of the initial domestic inflationary shock of the dollar commodity price boom and perhaps helps the boom
to continue, by preventing more drastic action of the central banks to fight domestic inflation. Such
measures could end up slowing down the growth of aggregate demand in these rich economies, thereby
cutting the world demand for commodities, which would lower current dollar commodity pricesThis
possibility is raised in UNCTAD(2008). This latter effect does not seem to have been decisive, for even in
the U.S., due to the weak bargaining position of workers, the fact that the economy faced the full impact
of the rising dollar commodity and specially oil prices did not generate a price-wage-price spiral that
could increase core inflation and lead to contractionary measures by central bank (see previous footnote).
7
Jeffrey Frankel has been the most emphatic advocate of this view and has incorrectly been predicting
high inflation in rich countries for many years (Frankel (2006)). In Frankel & Rose (2009) we find the
admission that the lack of a reliable significant econometric effect of low interest rates of commodity
prices is a “disappointment”.
 9

more than 260 billion dollars by march 2008. For many this was a major cause both
of the high volatility of dollar commodity prices but also of their rising trend.8
On the other hand, those who want to deny that a speculative bubble could be
amplifying the recent rise in dollar commodity prices, have two main arguments.
First, the data does not show episodes of very large accumulation of physical
inventories of commodities, what is considered a necessary signature of speculative
activity.9 Moreover, it is argued that the volume of transactions in the futures markets
only reflects compensating bets of different agents and does not affect the physical
availability of commodities.10 Therefore, activity in futures markets can not affect the
balance of supply and demand in the spot market, and thus has no effect on prices.
Both of these arguments denying the impact of speculation on spot commodity prices do
not, however, seem to be very solid.
A large accumulation of inventories is not really a necessary condition for speculation
to happen. The argument is based on the idea that a large accumulation of inventories
would be needed to sustain a speculative price increase, in order to compensate for the
equilibrating role of a high decrease in the quantity demanded and a high increase in the
quantity supplied that presumably happens when the spot price increases.
But perhaps one of the most important features of the products that we call
“commodities” is precisely the difficulty of both decreasing significantly the quantity
demanded and increasing significantly the quantity produced in the very short run.
Therefore, in the very short run, very small imbalances between supply and demand can
lead to very large primary fluctuations of spot prices, and divergent expectations
between speculators allow the price movements to be magnified in both directions as
the same limited amount of inventories is sold and resold with speculators selling to
other speculators who think the price is going to rise some more, for instance.
As for the argument of the irrelevance of activity in the futures markets, its main
deficiency is failing to see the necessary close connection, given by the possibility of
riskless gains of arbitrage, between spot and future market prices of the same
standardized commodity.
Both the spot and the forward prices of commodities are strongly influenced by the
spot prices expected in the subsequent periods. If there is a general expectation that the

8
For the former view see Pollin & Heintz (2011) and the latter see Wray(2008).
9
This point was raised by Krugman (2008).
10
See Sanders & Irwin(2011).
 10

spot price will be higher at a subsequent date, both the spot and the forward prices will
tend to increase right now. If speculators, expecting a higher price tomorrow, buy spot
today thinking of selling the commodity tomorrow, the spot price today will tend to
increase. And such increase in the spot price is transmitted to the futures market , since
now there is now the option to reduce the supply allotted for future delivery and sell it
today at the initially higher current spot price.
On the other hand, it is also true that if there is a large increase in purchases in the
futures market today the spot price will rise today, because now investors have the
option of selling more at the higher current forward price for future delivery.
Recent financial deregulation and innovation, and in particular the extremely low
margin requirements that allow extraordinarily high leverage ratios for financial
speculators in commodity markets has indeed greatly increased the availability of credit
that can be directed to speculative purchases in future commodities markets, that are
very quickly transmitted by arbitrage also to spot market prices.
There is also the counter argument that volatility was high also for a number of
commodities which have no organized future markets such as rice and iron ore.11 But
this probably means that in these markets other forms of access to cheap and plentiful
credit has also been available, not that speculation did not happen either in these spot or
in the other futures markets.12 Given all this, it seems reasonable to argue that, in spite
of the controversy on the size of the effect of recent changes in future markets, overall
speculation has indeed played an increasingly important role in the world commodity
markets over the 2000s.
But speculation usually works both ways, sometimes greatly intensifying the price
increase when output is perhaps only a little lower than current final demand, and at
other times causing dramatic price falls when output is greater than final demand. But
then speculation cannot really explain the trend of rising dollar and relative prices of
commodities, for there seems to be no obvious reason why the massive short term price
increases have been, on average, so much higher than the, also very large, short term
decreases in commodity prices. Speculation, as we have seen depends crucially on the

11
Note that, on the other hand, for obvious material reasons there is really no organized market for
immediate physical delivery of oil. What is called the “spot” market for oil is actually a “relatively near
future” market.
12
As due to the possibility of arbitrage expected spot prices affect strongly both the current spot and
futures market prices , persistent diferences between current spot and future market prices can be traced to
variable margins connected to perceived financial costs and risks and convenience yields attributed to
assured delivery by market participants. See Kaldor (1939).
 11

expected spot market prices. Why, within such instability and volatility, the trend of
expected prices was rising, rather than falling or being nearly random? Something still
seems to be missing.
IV. Specific Cost of Production and Supply Aspects
IV.1 Oil
Oil prices started to rise earlier and rose more than the price of other types of
commodities. Here the China (and India) demand effect is quite popular but particularly
misleading. China´s oil consumption amounted to less than 8% of world oil
consumption in 2008 (and India´s oil consumption amounted to around 3 % of world
consumption in that same year). And overall world oil consumption grew a little more
than 2% a year from 2000 to 2008.13
This makes it clear that a satisfactory explanation of the rising trend of dollar oil prices
requires that we turn our attention to the supply side. But we should be clear what
exactly do we mean by supply. One of the meanings of ·supply·is the cost of
production, in particular the cost of production of the methods of production of oil that
have to be used to meet the trend of final demand. Another meaning refers to the
availability of physical quantities. And by availability we may mean either the existing
inventories of already produced oil, the current productive capacity that would allow a
quick expansion of output to meet demand or the known deposits or reserves of oil
under the ground (or ocean), or even the total physical or geological endowment of the
resource left in the planet.
World supply of oil in the sense of existing inventories has not, on average, been scarce
relative to demand over the years in which oil prices have been increasing. The trend of
world production has closely matched the trend of world consumption.
The availability of oil in the sense of known reserves, in spite of the popularity of the
view of increasing physical or geological scarcity and the “Hubbert Curve” and the
world “Peak Oil” doctrine, has also not really been an issue. Not only the world´s oil
reserves where substantial higher in 2010 than in 2000 in absolute terms but more
importantly the ratio of current proven reserves over current production reserves has
actually increased moderately from one decade to the other, from 40 to 42 , between
2002 to 2007.14 In fact this fundamental overabundance of oil reserves together with the
crucial role oil has a basic good that is used directly and indirectly in the production of

13
See Serrano(2008).
14
World Bank (2009).
 12

every other good is the key to understand that royalties do not reflect a presumed
looming physical scarcity of the resource but mostly, political power and strategic state
policies.15
Therefore, it is to the strategic energy policies of States and the supply in terms of
possible productive capacity constraints and the cost of production, including in the
latter the customary royalties charged on the operation of such productive capacities,
that we have mainly to refer if we want to understand the “supply” side of the oil
market.16 These productive capacities and associated costs, together with American
geopolitical and energy security policies, generate different types of monopoly, absolute
and differential rents for public and private resource owners and producers.
A key element to understand the world oil market is the fact that in the lowest cost and
highest reserve regions that correspond mostly to OPEC countries, not only the reserve
deposits of oil are vastly overabundant but also the cartel tends to produce much less
than what could be its full capacity output.
Traditionally, Saudi Arabia has played a role of “swing producer”, keeping a sizable
planned degree of spare capacity to smooth the adjustment of current supply and
demand in the world oil market and as weapon to force coordination between OPEC
members.
Saudi Arabia´s ultimate objective seems to have been an attempt to restrict the supply
of oil of the OPEC countries which as a whole are those who have both the largest
reserves and the lowest relative costs of production (extraction) . This policy has, over a
long period of time, allowed market oil prices not to fall for too long below an
informal and unstated tacit floor: a price high enough to cover the costs of production
of the american or more recently north american (more specifically U.S. and Canada)
oil industries. This has been very important to ensure the long run survival and
profitability of the huge (and politically powerful) but relatively high cost american oil
industry. This fundamental point of American strategic energy security policy is based
on the special geopolitical relationship between Saudi Arabia and the USA. This
informal floor for oil supply prices creates a peculiar kind of classical monopoly rent

15
Note that, contrary to what it may seem, the fact that oil is not scarce should make environmental
concerns more rather than less serious. Given that the use of oil causes many forms of undesirable
pollution , its high energy efficiency and lack of scarcity mean that there is no reason why the serious
negative externalities coming from its excessive use will be somehow reflected in its market price.
16
Ravagnani(2008) provides a detailed critique of attempts to use the notion of a given, known and scarce
finite stock of resources and the associated “Hotelling rule” for the determination of the price of
production of oil and other nonrenewable resources.
 13

in the OPEC countries which is then shared between OPEC members and the big
multinational oil companies according to the (sometimes shifting) bargaining power of
the two groups. Thus, OPECs royalties are determined as a share of such specific
monopoly rents.17
Note that the American floor price of production also includes, besides the usual
elements of costs of production, the royalties received by the ( generally private and
numerous) owners of American oil resources. This royalties are an absolute rent
determined by relative bargaining power of the owners in relation to the extraction
industry, a bargain that is directly affected by various aspects of the American
government´s overall energy policy.18
Note that when market prices for oil are oscillating around this american floor price of
production, production of oil in other countries and regions where the costs of
production (including politically determined royalty rates, as in most cases the
ownership of the subsoil resources is public) are lower than in the U. S. , even if higher
than that of the OPEC members, does generate classical differential rents for these
countries.
But the american price of production is just the floor of the price of production of oil.
When the trend of the world demand for oil increases sufficiently, beyond OPEC
output and the productive capacity of American and other intermediate cost regions,
production becomes viable in regions of the world where the costs of production
(including absolute rent taken as State royalties) are much higher. And the actual price
of production of oil in these high demand conditions, is given by the cost of production

17
See Serrano (2004). Adelman has for decades been making has made the crucial point that middle East
oil is not scarce (Adelman (2004), Adelman & Watkins (2008)). Roncaglia (2003) provided a very
interesting analysis of the relationship between OPEC members, big oil companies and the USA but
unfortunately his argument that this could be seen as a case of a “trilateral oligopoly” obscures certain
issues. First, there is no such thing as oligopoly in classical competition theory, where is the degree of
capital mobility and not the number of firms that is the relevant measure of the degree of competition.
Second, and more importantly, the idea of a trilateral oligopoly leads to a misunderstanding of the
superficially puzzling behavior of Saudi Arabia which reflects their special political relationship with the
USA and is therefore not the result of an autonomous notion of Saudi national interest. Rutledge (2003)
drew attention to the crucial issue of the coordination between OPEC and the USA in order to prevent the
price of oil from falling below the american “floor supply price”.
18
As shown by Ravagnani and Piccioni (2001) and Ravagnani (2008). Note that Fratini (2009) draws
attention to the fact that absolute rent, which should be taken as given as a share of the gross output or the
value of the product is not the same thing as a monopoly rent (that appears, in our view, as the difference
of an exogenoulsy given price of product and its cost of production). For an excellent discussion of the
different types of rent in both the old and the modern classical surplus approach see Fratini (2008 ).
 14

of the productive capacity that has to be activated to meet the world demand.19This
higher price of production, generates further differential rents for all other lower cost
regions, even if their costs are above those that set the american floor price. Just to
give a curious example, in 2008, when the demand for oil was growing fast and the
market price for oil reached record levels, there were reports that in South Africa ,
extremely high costly and highly polluting coal was being used to produce synthetic oil,
something that seems to have been last done in germany towards the end of World War
II.
Equipped with this view of the structure of the world oil market, we can now turn to
the increase in market prices in the last decade. Dollar market price for oil began to
rise from the historically record low prices reached in 1999. Those market prices were
initially substantially below the floor American price of production described above and
seriously threatened both OPEC rents and royalties and the viability of the American oil
industry. Then some members of OPEC , in particular Venezuela and Saudi Arabia,
made an effort to coordinate all OPEC members and restrict both current output and
investment in new capacity, in order to reduce the massive unplanned spare capacity
both in OPEC and other higher cost producing countries.20
This reduction was quite successful and market prices began to recover at fast rates.
Later, as demand also began to grow faster after 2003, and OPEC has skillfully
managed not to increased its production in pace with it21, average market prices began
to rise and most of the new production to meet the rising world demand had to come
from regions that had higher costs for technological, geological and environment and
regulatory reasons, such as the tar sands of Canada , which seem to be setting the
American floor price of production nowadays. Over time, exports to meet the world
demand came even from very high cost of production regions , such as offshore oil
from Brazil .
This process of rising dollar prices of production and rents has been generally
misunderstood as being either the consequence of the always predicted, and always
missed, impending world peak of total oil production or, more plausibly, as an

19
Both Schefold (2001 ) and Kurz & Salvadori(2009) draw attention to the importance of productive
capacity constraints on the extraction of minerals being one important precondition to use differential
rent theory in the case of non renewable natural resources.
20
See Routledge(2003).
21
See Davidson(2008).
 15

indication that “all the cheap stuff has gone” with some analysts expressing doubts as to
the true level of remaining reserves even in the OPEC countries.22
In many non OPEC countries a very important element of the rising prices of
production of oil seems to have been instead a substantial revival of natural resource
nationalism as a large number of developing countries, in most regions and even in
Africa, seized the opportunity of rising market prices to renegotiate contracts with
international private oil companies on more favourable terms. This process has
increased the state control of oil reserves and substantially raised the royalty rates and
thus the absolute rent component of the price of production of oil. This movement
stands in market contrast to what had happened in the 1990s where a subservient
attitude of the States of oil producing countries was the international norm as
exemplified , for instance, by the contrast between contracts made by the Russian state
under Yeltsin and under Putin , or by the changing attitudes of latin american and
african governments in their relations to multinational oil corporations.23
IV.2 Metals
Differently from the case of oil but similarly with the case of coal , in the case of many
metals due to the very fast growth of world demand the potencial supply in terms of the
ratio of current deposits to current production has indeed decreased for many products
over the 2000s. Indeed, ratios of reserves to current production decreased between 2000
and 2007 for products such as bauxite, iron ore, nickel tin and zync, while these ratios
increased somewhat for copper and lead (World Bank(2009)).
One, however, must be very careful to note that the size of the mineral deposits used for
the indexes mentioned above have to do with existing mining areas and not with the
actual total fixed and finite physical availability of the metal in the earth´s crust. In fact,
there is not much interest in searching for new mining areas when existing ones have
deposits that can last many decades, at current rates of production . For instance while
the ratio of iron reserves to current production has fallen from 132 years equivalent
production to 79 from 2007, the estimate of how much iron ore was actually available
on earth in the mid 2000s amounts to about 120 million years of equivalent production ,
and about 2.5 billion years in the case of copper.24 Thus, what really matters on the

22
See Lynch(2006) and Davidson(2008) for a critique of these views.
23
On the fall and rise of natural resource nationalism see Medeiros(2011).
24
See Tilton (2009). Tilton adds for the sake of comparison that our solar system is about 5 billion years
old and will not last more than 10. Again as in the case of oil, this abundance of the resource only makes
 16

supply side is amount of existing productive capacities and their extraction costs of
production. As in the case of oil, increases in the productive capacity in mining take
long lead times (some estimate more than 5 years on average). Because of that, large
unexpected changes in the trend of growth of demand may leave the mining industry as
a whole stuck with large amounts of unplanned spare capacity, which often lead to the
complete shutdown of production in the higher cost mines when demand decreases.
Conversely, if the growth of demand accelerates unexpectedly, market prices rise to the
point that it becomes viable to operate mines under high or rising extraction costs
for long periods of time, generating differential rents for the producers with lower costs
Over longer periods of time this tendency towards increasing costs may be, and has
historically been, checked by major improvements in extraction technology and
technical progress in general. Also, similarly to oil , mining deposits often pay royalties
as an institutionally and conventionally determined absolute rent for the private or
more often State owners of subsoil rights.
Let us now turn to the fast increase in metal dollar prices in the 2000s. In spite of fast
growth rates of demand since the mid 1990s , driven by the acceleraton of chinese rates
of infrastructure investment and also of the increase in energy costs driven by the fast
recovering market price of oil dollar prices of metals only start to grow fast after 2003.
From then on dollar metal prices increased even faster than energy prices after 2006.
The explanation for the initial period of very low dollar prices seems to be connected
with the very high degree of spare capacity for low cost producers that came as the
metals intensity of world demand fell over the period from the mid 1980s to the mid
1990s. Over time, as the demand continued to grow fast , spare capacity fell and at the
same time new capacity has been growing slowly due to the long lead times and the
further massive acceleration of demand after 2003. This process made viable the
operation of higher cost producers and increased differential rents. The market situation
strengthened the bargaining power of the State in may developing countries specially in
relation to multinational private firms. This contributed to the success of the marked
revival of natural resource nationalism that has been observed in mineral producing
countries in South America , Africa and in Russia and parts of Asia. These governments

even more unlikely that the negative environmental externalities associated with mining , which can be
substantial, would ever be reflected in the market prices of minerals.
 17

have successfully increased royalties and thus the absolute rent component of the price
of production of many metals.
Therefore, among the main causes the boom in dollar metal prices after 2003 are the
combination rising energy costs , productive capacity constraints for lower cost
producers, rising extraction costs and natural resource nationalism.25
IV.3 Food Prices
Dollar Food prices increased much less, and much later than oil or metal prices. In fact,
the supply in agriculture can respond to increases in demand much quicker than it is the
case for minerals. On the other hand , due to its dependence on weather conditions, the
food output can change erratically over short periods. Thus, in the case of food, not only
the demand grew relatively slowly but also there has been no clear sustained need to
produce under increasing costs. Of course, different qualities and quantities of specific
types of land are scarce and coexist with production in lands with higher costs,
generating differential rents but , contrary to what many believe there is no inherent
tendency towards decreasing returns in this sector.26 Technical progess also appears in
general to have been faster in food production than in mineral or oil extraction.
For all these reasons the trend of agriculture prices is much more clearly dominated by
events on the supply side.
Indeed, during the recent boom , the current supply conditions as expressed by the stock
to use ratios remained fairly stable (with the exception of the case of wheat where the
ratio fell ) pointing to the fact that production in general grew in line with demand.27
Agricultural dollar prices seem to have increased first because of the effects of the fast
rising oil prices that affect food prices both in terms of energy and fertilizer costs. Apart
from that, for some specific crops, the energy policy of the USA and the Eurpoean
Union appear to have had a strong impact.
The sudden very rapid increased in the demand for biofuels in these regions after 2006
seem to have strengthened the link between the oil price and some agricultural he food
prices. For it created a mechanism of opportunity cost in such a way that when the
price of food that can be used as biofuel falls below a certain level determined in
relation to the oil price, it is more profitable to divert the crop to meet the large and

25
For recent evidence see Gopinath (2011).
26
Pasinetti (1999) explains very well how, even in Ricardo, the assumption of increasing costs in corn
production was an historically contingent empirical assumption instead of the result of a general or
natural law.
27
see Baffes& Haniotis(2010).
 18

rising demand for biofuels rather than allow the market price to fall further. 28 Given this
link increasing oil prices increase the floor below which the prices of these crops do not
fall.29
V. General Costs Aspects: the role of exchange rates

V.1 Decoupling of growth under financial integration under the floating dollar
standard

While the devaluation of the dollar relative to the key currencies of advanced economies
does not seem to have played a major role in the rise of dollar commodity prices ,
perhaps the devaluation of the dollar relative to the currencies of the set of
commodity exporting countries appears to have been an important element to explain
the trend of rising dollar commodity prices. For the revaluation of these currencies
relative to the dollar increases the unit costs of production of all types of commodities,
measured in dollars (though the effect seems to be particularly strong on food prices for
which labour costs are more important). But in order to understand this effect we must,
however briefly, discuss some key aspects of the balance of payments position of the
commodity exporting countries during the 2000s.

After the series of balance of payments crisis of the late 1990s and early 2000s many
developing (or “emerging”) countries, including both industrial exporters and a large
number of commodity exporting countries reacted by adopting a deliberate policy of
reducing the external fragility. These countries made a huge effort to pay back their
foreign debt (both private and official), accumulate foreign exchange reserves and many
set up large sovereign stabilization funds. Most also adopted heavily managed floating
exchange rate regimes to mitigate speculative pressures. When the world economy,
international capital flows and commodity export volumes and dollar prices started
growing fast after 2003, with international trade expansion pulled in good part by the
fast growth of international trade that came together with the fast expansion of internal
markets in the major industrial exporting developing economies in Asia, these changes
in macroeconomic policies allowed many of the commodity exporting countries to

28
Fratini(2008) mentions that such cases should be taken as further evidence of the existence of absolute
rents. He may well be right but we think that it seems more appropriate to take these opportunity costs as
yielding a type of differential rent, reserving absolute rent only to those rents that are determined directly
by bargaining and political and institutional forces (and not by differences in cost or prices).
29
for empirical evidence on the boom in agricultural prices see Baffes & Haniotis(2010) and World
Bank(2009).
 19

grow without incurring major current account deficits and external debts. This, together
with the better management of the exchange rate and short term foreign capital inflows
led to drastic reduction in the interest rate spreads for commodity exporting countries
and thus a major, and unprecedented , improvement in their balance of payments
postion. The combined result of this was that the external fragility of these economies
decreased markedly and no serious currency crises originating in the commodity
periphery occurred ever since.

This allowed room in a large number of developing countries in many regions

(including Africa and Latin America) to practice of both anti-cyclical macroeconomic
policies and more importantly allowed an increase in their trend growth of both external
and internal markets, investment and productive capacities.

Led by China , the socalled South-south trade grow at very fast rates in most regions.
These trends led to a parcial decoupling of the trend rates of growth of large group of
developing countries in the 2000s relative to the (slow) rate of growth of advanced
countries, though trade and financial integration has made the cyclical fluctuations
around these higher trends very strongly correlated to that of the fate of world economy
as a whole and hence with the cyclical fluctuations of the advanced capitalist
countries.30 This process of decoupling of growth rates had been anticipated in part by
Lewis. In his Nobel lecture (published as Lewis(1980)) Lewis argued that it would be
possible for developing countries to grow fast, even in the light of a slowdown in the
trend of growth of advanced capitalist countries, if the south-south trade among
developing countries grew fast enough. This required that larger countries should
expand both their internal markets and imports at fast rates and acted as growth
locomotives.

However, as correctly pointed out by Akyuz(2012) this decoupling of trend is only

partial because in spite of the improved policies and management of capital inflows the
growth of developing countries in the 2000s still depended very much on these massive
capital flows from the advanced capitalist economies. There has been a growth and to

30
For data on these trend and cyclical relations see Yeyati & Williams (2012) and Akyuz (2012).
 20

some extent trade31 decoupling but certainly not a financial decoupling (see also Yeyati
& Williams (2012)).

Indeed, this marked change in the international economic order has been very dependent
on a particular element of continuity of this same order: the floating dollar standard. The
fact that the U.S. dollar remains the dominant international currency means that it is still
the American central bank that sets the basic international interest rate and that
American monetary policy and developments in the U.S. (and to a much smaller extent
European) financial markets have a key role in the dynamics of the pricing and
32
quantities of international capital flows towards developing countries.

Notwithstanding the much improved management of these international capital inflows

by developing countries in general and by many important commodity exporting
33
countries in particular , the situation of relatively low public and private american
rates of interest was absolutely crucial in creating the favourable conditions for the large
amounts of capital flows of all kinds directed towards the developing world and the
experience of the 2000s cannot be understood without taking into account these
elements that are of course, completely beyond the control of the developing countries.

V.2 The Devaluation of the dollar relative to “commodity currencies”

While the macroeconomic policies of commodity exporting countries have (with a few
exceptions) been successful in spurring growth while preventing large current account
deficits, and the massive capital inflows allowed the continuous build up of foreign
exchange reserves, what really matters to us here is that a tendency towards the
appreciation of the real exchange rate of these countries as a whole gradually set in. In
some countries it came as a gradual trend towards nominal appreciation which were
accommodated in order to control domestic inflation. In a few of those it came as a
tendency towards fast growth of money wages relative to productivity due to much
better conditions in the labour market and more nationalist, populist or progressive

31
Akyuz(2010, 2012) argues that China´s growth is still very heavily dependent on exports. For a
different view which puts more emphasis on the Chinese internal market than Akyuz does see
Medeiros(2006), Anderson(2007) and Kotz & Zhu(2010).
32
See Rozada, M. & Yeyati, E. (2011) in particular for evidence on the overwhelming importance of
American long interest rates on public debt and the yield of American high risk domestic assets on the
spreads charged on “emerging” markets.
33
As shown by Frenkel & Rapetti(2011) due to their improved balance of payments situation emerging
market spreads have fallen, for the first time ever below the spread of high risk american assets around
2004 and remained so ever since, including in the turbulent period after the world crisis of 2008.
 21

governments (such as Russia, Argentina and Venezuela, for instance) . Some other
countries had some combination of both tendencies. In any case , due to this general
tendency towards a real revaluation of the national currencies of commodity exporters
relative to the U.S. dollar, since 2003 there has been a general trend towards a relatively
fast increase in the labour unit costs in dollars of most commodity exporting countries.
Thus, the revaluation of the “commodity currencies” relative to the dollar has been
another of the important neglected elements affecting the dollar cost of production and
dollar prices of most commodities (particularly food but also minerals) during the recent
boom.34

The importance of the balance of payment position (and hence of the exchange rates) of
the commodity exporting countries in general as a main determinant of the terms of
trade of the “periphery” in earlier cycles has been explicitly emphasized by
Patnaik(2002)35 and by Ginzburg and Simonazzi(2004 ), where the connection between
the exchange rate devaluations and falling real wages of the commodity exporting
countries is made clear. It is also most likely that the strong correlation between the
world growth of demand and relative non oil commodity prices over long periods found
by Erten & Ocampo(2012) may be reflecting the fact (stressed by Ginzburg and
Simonazzi(2004 )) that in periods of fast world growth both because of trade and
capital flows the nominal and real exchange rate of many of the periphery countries
tends to appreciate and during world slow growth and crisis periods are marked by a
series of devaluations in the commodity exporting periphery. It is the peculiarity of the
cycle of the 2000s that such devaluations during the world crisis where sharp but
quickly reversed since the balance of payments position of developing commodity
export countries has improved drastically relative to earlier commodity price cycles.
Note that in this interpretation, although financial speculation is not seen as a direct
determinant of the trend of commodity prices, international financial developments
matter a lot , since the international capital inflows and their management by
commodity exporting countries are both seen a crucial aspect of the improved balance

34
In the recent boom strong evidence that the nominal revaluation of commodity currencies (currencies
of a few key commodity exporters) actually preceded increases in dollar price of commodities can be
found in Chen, Rogoff & Rossi(2010) (though interpreted not as cause of the boom but as a rational
expectation of future commodity prices).
35
Patnaik(2002) however interprets and criticizes Prebisch´s views on the terms of trade as if for him
those were determined in the long run by demand. We do not agree with that and interpret Prebisch theory
differently as it will be seen in the next subsection.
 22

of payments position of these countries , which ultimately explains the course of their
exchange rates.
VI. The change in the trend of relative prices of commodities
VI.1 The China-Cost Effect
The various elements discussed in the three previous sections, seem to have been the
main determinants of the sustained increased in dollar commodity prices of the different
types of products.
These large increases in nominal dollar prices in the end transformed themselves into
large increases in relative prices, because non commodity tradable industrial goods
international prices in dollars grew at moderate rates and domestic rates of inflation of
most countries (which depend on prices of non tradable services) were kept low.
The fact that in spite of the commodity price boom inflation did not accelerate in
advanced countries allowed the boom to last much longer than it had been the case in
earlier cycles. On the demand side, the moderate inflation prevented governments from
thinking they had to pursue contractionary policies, that if adopted would have cut
down the world demand for commodities and brought down commodity prices with it.
On the side of supply side, the absence of persistent inflation prevented the occurrence
of drastic increases of prices of other goods and services as a reaction to fast growing
dollar commodity prices , reaction that, had it happened and been big enough, could
cancel the increase in relative commodity prices.
The ultimate reason for this low inflationary impact of the commodity boom seems to
be the unusually low bargaining power of industrial workers on most advanced
economies. The strong competition from low dollar labour cost industrial exporting
developing countries such as China appears to have been one of many key elements
that have weakened the bargaining power of the workers in advanced economies.
We can then see that although the China effect on the demand has been greatly
overestimated, another type of “China effect”, this time in terms of costs , has had an
important role in the increase in the relative price of commodities that has not generally
been recognized.
The low level and slow rate of growth of dollar unit labour costs of exports of more
sophisticated manufactured goods in China, Mexico and many other industrializing
developing countries seem to have ultimately played an important role on sustaining the
large change in the relative price of commodities. This has been due a peculiar
combination of relatively low growth of money wages, very fast growth in labour
 23

productivity and a deliberate attempt by governments to prevent or at least minimize

the appreciation of the currencies of industrial exporting developing countries relative to
the U.S. dollar (which in fact generally revalued much less than the currencies of most
commodity export countries).
VI.2 Singer-Prebisch, Singer 2 and Lewis
As it is well known, Singer(1950) and Prebisch(1949) attributed the long run trend of
decline in the relative price of commodities to the fact that real unit labour cost in the
central industrial countries tended to remain fairly stable, even if the rate of
productivity growth of the manufactured good exported by the centre was much faster
than that of the commodities produced by the periphery. This, according to them,
reflected the strong bargaining position of the workers in advanced economies. This
bargaining power made both money and real wages grow more or less in line with
productivity. In the periphery with its low productivity in food and virtually unlimited
supply of labour , unit real unit labour costs of the exported commodities tended to fall
as real wages in the periphery did not grow in line with the growth of productivity.
Lewis(1978) also argued that the level of the terms of trade between the center and the
periphery depended on the levels of the relative real wage in these two regions and not
really on the type of product that was exported.
As in the 1960s and 1970s a lot of developing countries began to industrialize and to
product and even export simpler industrial goods. Singer (1999) noted that this had
not changed the terms of trade in favour of the periphery. He then formulated what he
called the Singer 2 hypothesis according to which the key question was that the
periphery continued to export unsophisticated goods of low unit value and low
technological content, implying a “commodification” of those industrial goods.
However, since the 1990s a number of low wage developing countries, especialy in
Asia have started to export massively more sophisticated industrial goods and even
some services (as shown the information technology services exports of India).
Contrary to the models of Singer-Prebisch, Lewis and Singer 2 these developing
countries now export many (but not all) of the same products as the advanced central
countries. Thus, neither the Singer- Prebisch nor the Lewis or the Singer 2 hypotheses
would seem to retain their full validity in the explanation of the recent trend of relative
commodity prices. In fact Lewis (1976) himself anticipated in 1976 that if low wage
countries , besides commodities, started also to export large quantities of sophisticated
industrial goods then the level of terms of trade would turn against the latter. This
 24

possible Lewis 2 hypothesis seems to have become relevant in recent years, since
productivity has tended to grow much faster in industrial goods (specially in
electronics) than in the production of commodities and nowadays neither in the old
countries of the center nor in the new industrial exporting periphery real wages are
growing in line with productivity, the real unit labour costs of industrial goods would
tend to fall relative to those of commodities.
In our view, what he have called the China cost effect shows that Lewis 2 intuition was
right and that for the moment that secular declining trend of terms of trade has been
reversed. For now real wages do not grow in line with productivity growth in the central
countries too, partially because of the fierce competition from low wage workers in the
periphery that now export sophisticated industrial goods. Moreover, as we saw above,
this movement towards a trend of higher relative prices for commodities is intensified
by the tendency of the exchange rates of commodity exporting countries to appreciate
relative both to the dollar and the currencies of the industrial exporting developing
countries. This seems to be leading to faster increases in real and dollar wages in the
commodity export countries and stagnant real wages in the advanced industrial
countries, the latter constrained by not only by the lower wages but also the much faster
rate of productivity growth of developing industrial exporting countries such as China
(and others mainly in East Asia).36
VII. Final Remarks
As we have seen, most analyses of the recent boom in dollar and relative commodity
prices overestimate the role of the growth of demand in general and the role of the
growth of demand and the internal markets of China and other fast industrializing and
urbanizing developing countries in particular as a direct determinant of the rise in
prices as opposed to the crucial influence of these factors in the parcial decoupling of
the growth rate of gdp of all developing countries in the 2000s, compensating for the
sluggish growth of most advanced capitalist countries. Others rightly point out the
importance of speculation and the role of financial markets in it for the observed
extreme volatility of commodity prices but again overestimate the impact of speculation
on the trend of both dollar and relative commodity prices. We have argued above that
supply and cost considerations have been very important in the increase of dollar prices.

36
See ILO(2010) for data on trends of real wage growth in the 2000s that seem to be consistent with the
above interpretation. Real wages grew fast in high productivity growth developing industrial exporting
countries, very fast in some commodity exporting countries and rather slowly in the advanced industrial
economies.
 25

As for relative prices, we consider that material cost aspects such as rising exploration
and environmental regulatory costs for oil and metals and fast productivity growth in
industrial sectors should be part of the explanation of this new trend of higher prices.
We think that we must also take into account the distributive variables related to the
revival of natural resource nacionalism and money wage and exchange rate dynamics
in commodity exporting developing countries in what regards the rise in dollar prices
of commodities, and of the money wage, producitity and exchange rate dynamics in
developing countries that increasingly export sophisticated industrial products , which,
by putting a ceiling in international dollar prices of these products have enabled the rise
of dollar prices of commodities to become a more permanent increase in relative
prices. The analysis presented here is very broad, stylized and (inevitably for such a
wide topic) superficial. Our sketch of an interpretation of the changes in the trend of
relative prices of commodities is admittedly controversial and obviously tentative. We
have just pointed out some deficiencies of the received explanations and suggested a
different way of looking at the problem. But if the discussion above draws some
attention to and eventually stimulates others to take a closer empirical examination of
the possible impact of cost and distributive variables on the trend of commodity prices,
as emphasized both by the old classical and modern sraffian surplus approach and by
the classical pioneers of development economics (as Lewis), our (limited) purpose here
will have been fully achieved.
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