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mCD)IT' July 6, 1 979 Food for Crude "Cheaper Crude or No More Food!/1 A Bushel of Wheat for a Barrel of Oil!" Pop tunes and bumper stickers express Middle American resentment at renewed OPEC aggressiveness following the Iranian revolution. I am reminded of Tom Lehrer's "Folksong Army" about the Spanish Civil War, "They won all the battles but we had all the good songs!" /I Pop tunes and slogans combine and confuse two issues which should be kept separate. One issue is the old-time populist preference for direct barter over buying and selling. (Elderly Californians remember Upton Sinclair's EPIC End Poverty In California - plan to employ the unemployed in closed-down factories and trade the products with each other.) The other issue is American organization. and leadership of a cartel of oil buyers and grain sellers, first to bargain collectively with and eventually to wreck the OPEC cartel of oil producers. This would be economic warfare, and economic warfare is serious business. Barter pure and simple Any first-year course in Economics explains the need for money by the infrequency of "double coincidence of wants" under barter. But when "double coincidence" does exist, as between the U.S. and OPEC in grain and petroleum, barter pure and simple seems a reasonable device which might even save brokerage fees and middlemen's profits, not to mention taxes. But the disagreement between OPEC and ourselves is about "reasonable, just, and fair" prices (whatever these may be) for oil. It will not evaporate when we argue in bushels instead of dollars. 1/ A bushel of wheat for a barrel of oil" approximates the relationship of the early 1 970' s. Present (june 1979) and anticipated relative prices are more like five or even six bushels of wheat for a barrel of oil, and why is one set of "barter terms of trade" more or less equitable than the other? Trade bargaining and economic warfare So what the pop singers and bumper decorators want is not barter but pre-1 973 terms of trade. How can these be secured, if at all? The answer, if there is one, has much more to do with collective bargaining and economic warfare than with barter as a substitute for money. A conceivable first step might be to centralize U.S. oil imports and/ or food exports under control of a public agency, to represent American oil consumers and food exporters vis-a-vis OPEC as the United Auto Workers Union represents all its members against Ford or General Motors. Such an agency would have to control (ration, tax) not merely oil imports from and grain exports to the several OPEC cou ntries, but would have to do the. from and to the entire world. This is because, when n6n-OPEC countries like Canada or Mexico raise their oil prices under protection of the OPEC umbrella, it is easy to disguise the origin of the oil they export. It should be even easier for OPEC countries to import U.S. grain through third countries, unless the U.S. imposed a police system such as it did against the Axis Powers in World War II. Over and beyond the national level, international agreements may be required among the world's principal oil importers and also the world's principal grain exporters. This would be absolutely necessary if, as I think likely, OPEC as a whole (or at least its Arab members plus Iran) were to interpret our individual centralization efforts as acts of economic warfare and respond to any fP iJf ti·lf: FS\)drci t,':iltr'iC' darity, and sentimental charity in the face of under-nourishment of innocent women, children, and old folks in OPEC countries wi" come into play against any grain boycott. Furthermore, authoritarian socialist and "non-al igned" regimes all over the world wi" also be important in making up OPEC's food deficits, even at the cost of domestic suffering in those countries themselves. (Recall Count Sergei Witte's "Starve but export" wheat policy during Czarist Russia's own "economic miracle" of 1880-1900!) potential "buyer's strike" by a 1 973-model boycott. Were the U.S. alone to stop buying OPEC oi I, or suffer an OPEC boycott, American factories and farms would suffer relative to European, Japanese, and other competitors whose oil supplies would surely increase and possibly also fall temporarily in price. American farmers would also suffer a second blow, this time relative to Canadian, Argentine, Australian, and French competitors on important Middle Eastern and other OPEC markets, if their exports were also boycotted. We find it consoling to think of liThe West" as organized, advanced, civilized, cooperative, and what have you, while OPEC is a motley collection of under-developed camel-drivers and Darwinian men from the Harvard Business School. But in matters of effective international action, the shoe is on the other foot. OPEC membership seems a more effec;tive basis for alliance than any "Rich Man's Club". Compare the American reluctance (documented by Yvonne Levy in the May 25 issue of the Weekly Letter)to export Alaskan oil to Japan with the probable Saudi reactio"n to -food running low in Abu Dhabi or the probable Algerian reaction to food running low in Libya -or even Nigeria! Prospects for anti-OPEC co-operation Nor is there any certainty that effective antiOPEC alliances could be organized, let alone maintained, among either petroleum importers or grain exporters. In the absence of large oil supplies already in storage, important industrialized countries would begin to suffer acutely from energy crises long before any important OPEC country became acutely short of food. This is more true for countries I ike Japan, without important domestic oil resources, than for the United States or Britain. And thus Japan has been not merely averse but actively hostile to any anti-OPEC action whatever during the entire post- 1973 period. (France has also been recalcitrant, primarily because of close economic ties with Algeria, a leading OPEC "hawk.") After the summit The summitteers at the recent Grand Economic Summit at the Tokyo Ceihinkan included the U.s., U.K., France, West Germany, Italy, Canada, and Japan, but no member·of either OPEC or the Soviet bloc. On the food front: Resentment of Western domination, sentiments of Third World soli- 2 Dollars C:ump:lrati\"(; Prices u.s. Wheat (bushel) official-OP EC and OPEC-member prices in periods of summer vacations or winter chill. Oil was the major focus of attention, but Summit or no Summit, nobody was out to challenge OPEC's unorthodox interpretation of Supply and Demand _"I f you cut demand, we'll cut supply." No more than the Third Reich orthe Mafia is OPEC either invulnerable or invin Cible. It cannot, however, be starved out overnight, over a long-weekend, or over a month or two by Americans brandishing pop songs and bumper stickers while demanding trade on terms more favorable to themselves. Even international Organizations of Petroleum Importing or Grain Exporting Countries (OPI C, OGEC) had best wait until we obtain substantial petroleum reserves, solar or nuclear power, or major changes in our life style. Martin Bronfenbrermer "Food for Crude" is not on the agenda. True, individual Congressmen are drafting bills along that line. More importantly, I suspect, the Sudan and possibly other Moslem countries are soliciting additional OPEC aid to irrigate themselves into the position of OPEC granaries in case we try something of the sort in the future, or perhaps to discourage our thinking in this direction. A recent upsurge in Soviet purchases of wheat futures may be designed for export to OPEC countries as well as for domestic insurance against' a poor crop year. The Western summitteers will be lucky to mount i;ln effective and coordinated buyers' strike against the current propensity of spot oil prices to surge above (The author, Professor of Economics at Duke University, is Visiting Scholar at the Federal Reserve Bank of San Francisco this semester.) Conference ProceedingsAvailable Copies are now available of the Proceedingsof the 1 978 West Coast Academic/ Federal Reserve Economic Research Seminar. The Proceedingscontain six papers (with discussion) on various aspects of monetary policy, both domestic and international. The Proceedingsare aimed primarily at an audience of financial analysts and academic economists . . . Free copies of the Proceedingsof the 1 978 conference -as well as the Proceedingsof an earlier (1976) conference -can be obtained by calling or writing the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 941 20. Phone (415) 544-2184. 3 U018U!4SPM.4Pln• uo8aJO • ppPl\aN• o4PPI !!PMPH P!UJoJ!IPJ puozPY P>fSPIY "J!It!':> IO)SpUt!'J:I ut!'S lSL 'O N (JI Vd :I!)V ISOd @AJJ@<§@CQI 's'n llVW SSV1:> 8ANKING DATA-TWELFTHFEDERAL RESERVE DISTRICT (Dollar amounts in millions) SelectedAssetsandLiabilities large CommercialBanles Loans (gross, adjusted) and investments* Loans (gross, adjusted) - total# Commercial and industrial Real estate Loans to individuals Securities loans U.s.Treasury securities* Other securities* Demand deposits - total# Demand deposits - adjusted Savings deposits - total Time deposits - total# Individuals, part. & corp. (Large negotiable CD's) WeeklyAverages of Daily Figures MemberBankReserve Position Excess Reserves (+ )/Deficiency (-) Borrowings Net free reserves (+ )/Net borrowed ( - ) Amount Outstanding 6/20/79 127,530 104,933 30,401 37,979 21,950 1,835 7,661 14,936 42,552 30,302 29,906 50,272 41,553 17,257 Weekended 6/20/79 Change from 5/16/79 - Change from year ago@ Dollar Percent 729 987 183 242 114 241 20 238 220 923 2 436 485 389 + 17,632 + 16,961 3,145 + 8,113 + NA NA 668 1,339 + 1,742 + 1,336 + 431 5,247 + 6,132 + 159 Weekended 6/13/79 9 17 26 + + + + + + + + + - 16.04 19.28 11.54 27.16 NA NA 8.02 9.85 4.27 4.61 1.42 11.65 17.31 0.91 Comparable year-ago period 8 165 173 55 . 131 76 FederalFunds- Sevenlarge Banles Net interbank transactions [Purchases (+)/Sales (-)J Net, u.s.Securities dealer transactions [Loans (+ )/Borrowings (-)J + 250 + 739 + 311 + 184 + 125 + 170 * Excludes trading account securities. # Includes items not shown separately. @ Historicaldataarenot strictlycomparable dueto changesin the reportingpanel;however,adjustments havebeenappliedto 1978datato removeasmuchaspossibletheeffectsof thechanges in coverage. In addition,for someiteITis,historicaldataarenotavailabledueto definitionalchanges. Editorialcommentsmaybe addressed to theeditor(WilliamBurice) or to theauthor.... Freecopiesof this andotherFederalReserve publications canbeobtainedbycallingor writingthePublicInformationSection, FederalReserve Bankof SanFrancisco, P.O.Box7702,SanFrancisco 94120.Phone(415)544-2184.
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