Ukraine, Keynes and commodity prices

In 2012 an article by four professors in Italian universities entitled ‘Speculation and buffer stocks: The Legacy of Keynes and Kahn’ was published in the European Journal of the History of Economic Thought. It made the interesting point that some of Keynes’ policy recommendations, and in particular the buffer-stocks scheme, were grounded in his experience as a speculator. It is tempting to see his speculation as a hobby on the fringes of his work as an economist. In fact, speculation in commodities, Keynes argued, required hard work in order to know the market conditions for each commodity traded. It also led him to study policies which would help to counteract large fluctuations in the prices of raw materials and foodstuffs, especially wheat.

From 1926 to 1943 Keynes repeatedly advocated government storage of foodstuffs and raw materials. At the World Food conference held at Hot Springs in May 1943 the British delegation presented a document entitled ‘Buffer Stocks’ which was based on Keynes’ plan. However, the conference on trade and employment in Washington in autumn 1945 at the end of the war took a position against the idea of buffer stocks.

After Keynes’ death his former pupil Richard Kahn tried to carry forward his ideas. He was invited to work as a consultant for the FAO (Food and Agriculture Organization) which in 1952 showed interest in stabilization schemes for commodities.  Kahn signed a contract to produce a monograph on buffer stock techniques by the end of 1952, but he didn’t meet the deadline. He complained about lack of FAO funds to support the work. In any case, it ended up unfinished and in December 1959 he finally gave up the project.

The essence of Keynes and Kahn’s proposal was the stabilization of commodity prices through the creation of an international buffer stock, managed by a group of experts, which dampens price fluctuations by selling the commodity when the price rises and replenishing the stock when the price falls. As the article puts it ‘public intervention today does not mean the introduction of rigidities against the market, but artful activities in the market.’ The buffer stock scheme is a middle way between unfettered competition and planning and the same mixed nature characterizes its management which must behave partly like a private speculator and partly like a public body, combining public interest with the need to make a profit in order to survive. In other words, Keynes the speculator was merging with Keynes the public servant.

Over the past 50 years, the article notes, buffer stock schemes have virtually disappeared from the international agenda. The idea of establishing Public Storage facilities at an international level was completely abandoned in the 1980s in the wake of a growing trend towards deregulation and globalization. However, in the past couple of years, ‘the dogma of unfettered competition has been shaken by the global financial crisis.’  It might have been shaken, but it was certainly not toppled. And now the war in Ukraine is producing an even more severe ‘shaking’ in its effects on the prices of food, energy and raw materials.

The article concludes that it may be possible ‘to reconsider proposals for the international regulation of primary products.’  We, at ACTION for Food Reserves, would certainly agree.

Luca Fantacci, Maria Cristina Marcuzzo, Annalisa Rosselli & Eleonora Sanfilippo (2012) Speculation and buffer stocks: The legacy of Keynes and Kahn, The European Journal of the History of Economic Thought, 19:3, 453-473, DOI: 10.1080/09672567.2010.501109

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