I have to warn you. This is a resource rich article and it may take time to read, but to sum it up, mercantilism is causing the food crisis led by investment in inefficient corn and wheat and rice biofuels and coupled with protectionism that prevents us from getting food from the US to where it needed and increased gas prices that are also based on mercantilistic markets and not supply and demand. If you have time and are interested in the world food crisis, it is worth the time it takes to read. Food crises are not new. Throughout the 1860's Ireland suffered one of the most devastating food crisis ever recorded. Almost a million people died according to most of the books on the The Great Hunger.
Today's food crisis is no different. It is an Irish style famine in mass and effecting the poorest people in the world.
Is it a crisis of capitalism? No, not really, capitalism when it works correctly capitalism should provide markets to fill in the void so if one country is short of food another country is in a position to sell it food from its surplus. As usual in any food crisis, like the one in Somalia these are a crisis of mercantilism for the benefit of a technocratic elite over the workers and productive elements in an economy.
It is mercantilism that has failed yet again.
This time corporate mercantilism from Monsanto, and Cargill and a few others who have moved farmers in Mexico and other regions off the land and have caused Indian farmers to commit suicide at an alarming rate. As a result, rising food prices have concerned just about everyone.
Mercantilism as a political philosophy regulates the markets for some, and ensures protectionism for others, and manipulates the markets to benefit those with a political, social and economic interest and investment and who demand benefits that is why for example, large scale political relief for the consumers of clearly predatory loans from banks do not get any relief, while the banks themselves received over 200$ billion in relief. They have more paper invested in the system. While the poor homeowner is not connected to the decision makers.
As Peter G. Klein erroneously asserts:
"The stock and bond markets, not the labor or product market, are the hallmark of a capitalist economy. The capital markets are the key, which is why a socialist economy cannot work. There are no markets for productive factors, i.e., no financial markets."
Of course what is missing in this, is that people are in fact the productive power of the system. Financial markets are not independent of human beings and their welfare within the system. But this piece of wisdom comes less from his training in the Austrian school and more from his attempt to synthesize it with the Chicago School of Economics whose empire building and regulatory structures are to blame for the current world food crisis and resulting political instability.
Some people think that capitalism is the root cause of these problems, but is it? Not necessarily. It is a kind of capitalism regulated for the benefit of one class against another that invariably always causes these problems. That is mercantilism. And it is speculation in paper and future assets that drive 1. Bubbles in the various markets and periodic cycles of investment inflation and deflation, 2. fluctuations in basic economic goods. According to most economists it is what is driving the food crisis.
So if you are paying more for milk, you should know it is not because of price controls or supply and demand, but because of speculation in paper markets on wall street. There is no need to blame cows for not producing enough when the real problem is a group of brokers on wall street. The World Bank has tried to call for food assistance, but met with resistance from the same group who control access to capital and paper markets.The same is true with oil.
Brazil just discovered an additional 33 billion barrels of oil in a large reserve off their coast. But this has not stopped unregulated speculative markets from driving the prices of oil up to over $114.5 per barrel. There is no oil shortage. But creating the atmosphere of one will give corporate Titans a reason to drive prices on speculative and "un-free" markets higher for their own benefit.
Now on to the food crisis, the driving force behind the food crisis is the belief that corn, wheat and rice can be used effectively for bio-fuel and the speculation in futures markets for biofuels is driving the base prices for these staple commodities up.
By that I mean when you go to the store in India to buy rice, it once cost 200 rupees per kilo, it now costs between 400 and 600 rupees per kilo. This crisis started in 2005-2006 but it is only being reported now that things have reached critical mass.
These prices represent a disaster and noticeable price increase for a family living on 1200 rupees a month. But this speculation, moves forward.
In Thailand it can be even worse where farmers have taken to guarding rice crops.
This does not only affect Indian people, in Haiti there is food on the shelves, but there is no regulation to ensure that people can buy it. In Haiti the situation is very similar to the Great Hunger in Ireland, where the English dumped pork into the sea to increase prices in England, we see a huge amount of waste in markets that have preferential trade agreements; while in countries that do not have preference like Mexico, and Haiti are left without enough food and for the US, this typically leads to immigration of newly displaced farmers and workers to the US and recruitment opportunities for the Zeta's and other drug cartels.
They become the first targets of predators on both sides of the border.
In Thailand this has meant a restriction on the trade of rice in the foreign markets to meet its own needs. This, coupled with a resurgence of the Thai Rak Thai (Thais love Thais) political party. Not only that, but protectionism of regional food supplies has been going in Russia since 2003, and in Kazakhstan and the former Soviet States since last year. In Mexico, rising food prices have outstripped the ability of part of the population to feed itself due largely to biofuels.
For the first time In my life, I have seen the editors of the Economist magazine, agree with Fidel Castro. This landmark event is remarkable given that the Economist has called Cuba a "failed state" more times then I can remember.
In a sense, the political mechanisms that drive globalization and require "free markets" and open exchange, are doing neither. Instead they are providing managed mercantilism and driving up the prices of commodities based on speculative markets for a select class, that is the investor class.
In the end this means, people in countries that have not benefited from globalization, like Bangladesh, parts of India, Part of South East Asia, Parts of China, Parts of the United States will find increasing inflation and decreased access to normal consumer staples like rice, beans, milk, as the global hyperinflationary investment trend continues.
We often think and make the mistake that capitalism is based on raw products being transformed into things for material consumption. This is of course simple capitalism, the kind that works. So where there is a demand the market steps in to fill a need. In a complex mercantilist system, this is not the case.
Supply and demand are both manipulated for the benefit if a specific class, and against other classes of people within a highly regulated and managed system. In effect the result of this regulation drives up commodity prices through speculative investment in paper or derivative markets.
Each of these markets are then subject to inflation through bubbles and later deflation once people are invested in the market causing losses, that they manipulate the system to trickle down while demanding a "bail out" to keep the system afloat for the "winners" who in this sense are defined as those with access to halls of political control and the "losers" who are defined as the mom, evicted from her high priced home, who cannot afford gas to go to work or milk for her kids.
None of this represents capitalism as understood by Adam Smith, rather it represents a direct and conscious manipulation of capital markets in favor of the investing class and against the saving classes. End result is that if you save you are punished, if you spend you are punished, and unless you are very well connected politically you are excluded from the overall prosperity of the system.
In India, Haiti, Bangladesh, the Philippines, and Latin America this leads to starvation as one class invests in biofuels and drives up speculation, and for middle class consumers in the US will lead to increases in the price of rice, beer, beans, and meats. And states like the Philippines must provide for their own food security against conglomerates.
So while you are enjoying your chili and beer, remember that the inequitable distribution of markets on wall street are evaporating the hope that you are are going to be paying low prices for goods you are enjoying. It is also evaporating the hope of millions of people around the world that they will be able to buy food for their family.
It only happens in India, Asia and Latin America first, but soon it will filter through to your Sam Adams.
This is the recipe and how mercantilistic markets create poverty, inequitable distribution of wealth, lack of ability for more people to produce for the market, and causes food crises and starvation.
Without addressing the ethics of this market, two solutions are clearly available, 1. nationalization of food reserves and planting two acres of food producing area for every one planted for biofuels or 2. a return to simple capital free markets and away from inefficient multinational mercantilism. Protection of family farmers and increases in their productive capacity are necessary to offset prices while barriers to unrestricted trade from surpluses must be dropped to ensure that the market works correctly.
Otherwise we can expect to see the specter of Thomas Malthus and the idea that people need to starve to death to live on earth, to continue indefinitely while the distribution of resources maintains itself in a grossly uneven system. That is how we are doing business in the global world- better at least face up to it even if our leaders decide it is more morally comfortable to let how ever many billion people starve to death or lose in an unequal and rigged system of un-free and unfair competition.
In short, it is a rich market for some, a very poor market for many.
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