ECONOMIC

CHAPTER 4Energy and AgricultureFOR THE BASIC RESOURCE INDUSTRIES, 1973 was an unusuallyeventful year. Prices in all major categories of these industries—agriculture,energy, timber, and minerals and metals—rose sharply, even in relationto the rising average level of prices. In some cases additional suppliescould not be obtained even at the higher prices. These conditions reflecteda worldwide state of affairs.The growing scarcity of resources in 1973 was a significant departure fromthe long-term trend. Since World War II prices of basic resources have increasedmuch less than prices generally. Wholesale prices of crude materials,for instance, increased only 13.6 percent from 1947 to 1971, compared to a53.4 percent increase in wholesale prices of finished goods. During the sameperiod the consumer price index rose 81.3 percent, and the GNP deflator forthe private economy 78.2 percent. Prices of basic resources thus declined bya considerable amount relative to prices in the entire economy throughoutmost of the postwar period.This downward trend of relative prices began to be reversed in 1972,and in 1973 it changed significantly. Some have interpreted this reversalas an early indication that along with the rest of the world we are enteringa new era of increased scarcity of basic resources, during which prices forthese materials will rise faster than prices for other products. Others haveattributed the reversal to the coincidence of essentially temporary factors.Neither generalization can be conclusively supported at this time.With the exception of energy, basic resource demands and prices tend toexhibit strong fluctuations. The demand for timber rises when housingconstruction accelerates, and housing construction is highly cyclical. The demandfor minerals and metals is tied closely to the cycle of economicactivity, and the agricultural sector is influenced heavily by weather conditionsand its own production cycles. Thus the unusual price pressures onbasic resources in 1973 are to a significant extent explained by an exceptionalcombination of economic fluctuations that impinged upon all basicresource industries in the context of high total demand and output.The reduction in oil exports by several Arab nations focused attentionupon a severe shortage of energy resources. But in recent years the marketdemand for energy has been growing faster than our capacity to produce110