Let Them Eat Cake!

 “Price Wars – How the Commodities Markets Made Our Chaotic World” by Rupert Russell, 2022

This is Russell's version of chaos theory – that beneath seemingly disconnected events is a pattern. He links the Arab Spring, mass migrations, the Russian invasion of Ukraine, Brexit, Venezuela and terror groups to the 'butterfly' effect of raw commodity prices. It's both a materialist theory and against post-modern ideas of confusing chaos. Feedback loops amplify small incidents, setting off a bigger, 'criticality' chain reaction, a 'phase' transition, a boiling point, a 'breaking of the camel's back.' In this case, commodity markets created human storms, much as added grains of sand create a landslide. Or in dialectics when quantity turns into quality. Let's see where he goes with this theory.

Arab Spring

In 2008 meteoric food price rises created riots in 48 countries on every continent. In 2010 the same thing happened. In Tunisia in 2010 what people wanted from the revolution against the corrupt Ben Ali government was a stable economy and affordable food, clothing and shelter. Afterwards they got nothing.  The Tunisian revolt spilled over into Egypt, Jordan, Yemen, Syria and Kuwait, first about wheat and bread prices. The food price rises triggered all the other issues of dictatorial bourgeois governments in these countries. Price was the most important 'grain of sand.'

Bread and wheat are the main ingredients of diets in the Middle East. Prices are mostly set by commodity exchanges in Chicago, New York and London. If there is no social / state control of prices, then any increase goes straight into the market price. The IMF had fought state price controls in the 1970s, killing or limiting them in exchange for loans. In 2010-2011 regimes with oil wealth survived - except for Libya due to NATO's violent intervention. As he notes, there was no connection between supply and demand at this time as there was plenty of grain. In the 2008 financial crisis a broad range of commodity prices shot up in various countries too, among them wheat, cotton, coffee, oil, nickel and natural gas. Why?

Commodity Exchanges

Russell found out that firms poured money into commodity index funds on futures that pushed up prices across 20 different sectors, no matter their real world price. Other commodity trading tactics - price 'trend following' and price 'contrarians' who short – were supposed to cancel each other out. They don't, leading to price booms and busts or worse. He details the familiar stories of Greenspan's libertarian '90s advocacy of getting rid of Glass-Steagall and instituting the Commodity Futures Modernization Act during the Clinton years – which succeeded. The former exposes the whole banking system to speculation; the latter deregulated derivatives and increased betting on commodity futures and prices. The collapse of Hayek/Friedman's Efficient Market Hypothesis in 2008, which postulated 'perfect information,' also died when the mortgage, CDO and credit default swap markets collapsed. Instability in prices is 'priced in' for all commodities due to they're being dominated by capitalist financial markets.

Daesh, Brexit, Trump, Green Gold

Russell surveys the rubble and ruins of Mosul, Iraq after Daesh (ISIS) was driven out of the city. Daesh was funded by its capture of the small Syrian oil fields and recruited out of the food riots. To Russell, those food price hikes led to this civil war, leading to further 2014 spikes in the oil price - a perfect feedback loop. Traders told him that speculators had piled into the oil market at that moment, though Daesh had no real control of significant oil fields. It was not an issue of 'supply and demand' but of price betting by trend followers. Russell goes into how stories, social games, cult behavior and algorithms drive bubbles and market prices, not rational evaluation of perfect information. DJT - Truth Social stock - is just the worst example.  This nonsense holds the world hostage.

Russell looks at 2016's Brexit vote and notes that the 'Leave' vote was centered in specific working class and middle-class areas where house prices were rising higher than incomes, or where prices were falling. The petro-dollars from speculation over the wars in the Middle-East boomeranged into higher property prices in London and across the country, leaving some areas depressed. Government austerity also contributed. As he puts it, house prices are like a thermometer for economic health in an advanced bourgeois society, even for renters and HOA residents. It is a key part of the bourgeois 'social contract.' A similar situation was noted prior to the 2016 election in the U.S. for house prices in the U.S. Finance capital speculators were buying up homes across the nation, raising prices in some areas and making prices in other areas tank. According to the chart, those with the worst price situations voted Trump. Another kind of land grab was going on across the world, as 'green gold' – agricultural and mineral land and infrastructure - became targets of finance, sovereign wealth funds and the Chinese Belt and Road initiative, also driving up local prices.

Resource Curses

Russell finds himself traveling in the Donetsk 'People's' Republic after 2014. He is driven through the bombed-out ruins of Donetsk City, almost as bad as Mosul. He thinks the 1989 fall of the USSR was due to weak Soviet grain harvests, falling oil/gas prices and heavy loan debts to western banks and the IMF, all of which undermined Gorbachev's state. He suggests that the 2014 seizure of Crimea and the 2022 invasion of Ukraine by Putin was spurred by the discovery of a vast trillion-cubic meter gas reserve in the Black Sea off of Crimea and southern Ukraine – on Ukraine's side of the sea border. He does not mention the existence of valuable wheat and coal land in eastern Ukraine. Among other things this gas field would give Ukraine energy independence from Russian gas. He notes that oil speculation has floated the Russian economy for years. Russell cites charts that show a parallel between rising gas prices and the increasing odds a petro-state will resort to some kind of military action. Boom!

Russell visits Venezuela and depicts the dire poverty he sees as oil prices crashed in 2014 – the other side of the resource curse. He acknowledges that the 2017 sanctions embargo on Venezuela by the U.S., which sequestered millions in government' funds and everything else, was a final nail in its cross of poverty. Venezuela never escaped a major reliance on oil even though Chavez had wanted to end it. He claims that much of the early oil money went to shoring up support among the middle-classes, not the workers and peasants, but there are figures that show the opposite. 400,000 deaths, mass poverty and 5 million people migrating is the result of this oil price drop and sanctions.

Kibera, Nairobi

Climate Shocks

Russell visits a tribe in Kenya defending their shrinking cattle-land from another tribe with AK-47s. He visits Nairobi which contains the biggest shanty-town in Africa, Kibera, full of climate migrants where a small price rise in corn flour creates huge problems. He shows a graph that tracks conflict to periods of too much water (flooding) or too little (drought). Russell rejects a neo-Malthusian approach, as a lack of food, housing or clothing is not the problem – in fact there are massive amounts available. The real issue is the market 'price' problem and the 'wage' price problem, the latter which he mentions only tangentially. He does not understand that labor power is 'priced' and a commodity too.  Nor does he look at how commodity markets run small U.S. farmers out of business.

Russell interviews a major institute that forecasts harvests of many different foods through satellite data and AI. They tell him that, oddly, what buyers, brokerages, commodity traders and finance firms want is what the government report will say about harvests, not about the actual harvest. This is because government reports move markets, not facts on the ground. 75-80% of commodity futures trading is now done with computer program algorithms, while real producers are dropping out, so the market is now data vs. data. The other price he talks about are those of external costs to the environment, which are never included in capitalist market calculations.

Russell speculates that heavy climate shocks will be able to sink the whole world financial system, making Mad Max a reality. In his visit to Mogadishu he finds out that warlords and groups like Al-Shabaab, Boko Haram and others attract poverty stricken locals with food, housing and a small 'wage.' Al-Shabaab uses food as a weapon by ambushing relief convoys, taxing travelers and confiscating cows. They also make money smuggling charcoal and sugar into Kenya without import fees. It's an arbitrage business he concludes. In Guatemala coffee prices crashed due to hedge funds shorting coffee futures. This created empty villages and migrants heading north as coffee rust, the price of fungicide and excessive rain killed their crops. The crisis on the U.S. southern border is mostly a price crisis according to Russell. It is certainly blow-back!

He finishes the book with a mini-history on the role of prices in various crises, starting with Louis XVI in the late 1700s who followed the advice of an early libertarian named Turgot and allowing bread prices to 'freely' operate. We know how that turned out in 1793. The hedge fund masters and private equity pooh-bahs know a massive 'black swan' event they engineer will put their own heads at risk too.

Louis XVI after letting bread prices 'free.'  

A Working Class Solution

The socialist solution is a near fixed or low price for the necessities of life – transport, food, healthcare, clothing, housing, education, etc. Another is adjusting the social wage price and the labor wage price. Russell has no solutions, content to journalistically describe the world as it comes apart at the seams. His reductionist, one-size-fits-all narrative is limited, especially just focusing on finance capital, but it does reveal something fundamental. The narrative indicts capitalist markets as a creator of chaos, as capital is a violent, disruptive and unstable force. Stability is what people most want in their lives – not disruption, leaving their homes, unemployment, poverty, crime, war, starvation or climate extremes.

The Marxist idea of prices under capitalism is that they reflect the socially necessary labor time involved in the exchange value for all commodities, not just the work involved in getting raw materials like oil, grains, copper, hogs, etc. The price includes surplus value robbed from the worker and from nature. However Russell is concerned mostly with raw materials. Speculation and 'the market' make the commodity price, the 'money-form,' variable, tradable, pliable and almost imaginary. It is not a straight expression of value or price or labor or nature, as one day a barrel of oil is worth $50 and the next $100. Russell would agree that this is one of the roots of chaos.

Prior blog reviews on this subject, use blog search box, upper left, to investigate our 17 year archive, using these terms: “Ubiquity – Why Catastrophes Happen,” “Deep Survival,” "Can History Predict the Future?" “The Death of the Nation and the Future of the Arab Revolution” (Prashad); “Diaries of an Unfinished Revolution,” “Saudi Arabia Uncovered,” “Capitalism in the 21^st Century,” “How Will Capitalism End?” “Debt, Prices and Credit,” “Mad Max – Fury Road,” “Venezuela,” “Central America,” “What is the War on Terror,” God is Not Great.”

May Day Books has many volumes on economics from a Left perspective.

And I got it at the Library!

Red Frog / April 16, 2024