168 The Political Economy of Resource Use 



prices, together with fortuitous changes in supply, works great and un- 

 necessary hardship on producers and consumers and, in the case of 

 internationally traded materials, creates foreign exchange difficulties 

 of serious magnitude. To many observers instability of prices and in- 

 comes constitutes not only a raw materials problem but the raw mate- 

 rials problem. ^2 



It will be remembered that I am using the word "problem" to mean 

 a set of consequences associated with the working of a free price 

 system that justifies public intervention to bring about what is gen- 

 erally regarded as a better result. Examples of government interven- 

 tion in the raw materials field are not difficult to find. They tend to 

 fall into two groups : those provoked by real or alleged surpluses with 

 the intervention ordinarily taking the form of supply limitation or gov- 

 ernment purchase; and those provoked by shortages with, typically, 

 government action in the form of price control or rationing. Even 

 when the real — as distinguished from the putative — purpose of the 

 intervention is stabilization of prices around a trend, the propelling 

 force is ordinarily a producers' or a consumers' group, which raises 

 the question whether the purpose of the intervention is to serve a spe- 

 cial or the general interest. But, of this, more later. 



The relative instability of raw materials prices as compared with 

 the prices of fabricated products is too well known to require docu- 

 mentation here.^^ The variation in incomes will, of course, depend on 

 quantities as well as prices. And in the minerals industries, where the 

 producers are mainly employed workers, incomes depend primarily 

 on the state of employment. Although some part of observed insta- 

 bility of prices and incomes may be laid at the door of misguided 

 interventionism, there can be no doubt that, in a free price system, 

 the special conditions under which raw materials are produced and 



^2 Cf., for example, Myron W. Watkins, "Scarce Raw Materials: An Analysis 

 and a Proposal," American Economic Review, June 1944, pp. 239-40. "We 

 may conclude ... (1) that there is a raw materials problem which in signal 

 respects is different from the general economic problem; (2) that the essence 

 of this raw materials problem is the peculiar susceptibility of these industries 

 to imbalance between supply and demand, both from the short-run and the 

 long-run standpoints; . . ." 



^^See, for example, two United Nations studies: Instability in Export 

 Markets of Underdeveloped Countries, 1952, II.A.l; and Commodity Trade and 

 Economic Development, 1954, II.B.l. 



