The Bear’s Lair: Apocalypse now?

With 35% of the world’s grain supply subject to the disruption of the Russia-Ukraine war, it seems likely that the next six months will see a disruption in global food supplies, in some areas causing famine. If so, that will complete the set of evils supposedly unleashed upon the world by the Four Horsemen of the Apocalypse from the Revelation of St. John the Divine (War, Famine, Pestilence and Death.) As post-Enlightenment thinkers, we are not used to expecting the Biblical Apocalypse. Were we wrong?

The effect of blocking food supplies from Russia and Ukraine, or in some areas of preventing agricultural activity from taking place, is not a new question. Indeed it was one of the first questions addressed by the emerging economics profession, in the form of the pioneering quantifiers Gregory King (1648-1712) and Charles Davenant (1656-1714). The King-Davenant Law, promulgated in Davenant’s “Essay on the Probable Methods of Making the People Gainers in the Balance of Trade” in 1699, estimates the rise in corn prices from a given shortfall in the harvest; for example a 40% shortfall in the harvest could be expected to raise corn prices by 280%.

So why are we not taught the King-Davenant Law in high school, promulgated as it was some 80 years before Adam Smith? The reason is quite simple; it was derived by close observation and measurement, rather than from highfalutin theory, and it applies only to a closed economic system. In the 1690s, Britain had relatively little opportunity to import grain from abroad in a famine year, because communications were so poor and shipping so limited. This meant that several extremely poor harvests in the 1690s, caused by a cold and wet summer even by the standards of the climatic “Maunder Minimum,” brought widespread starvation to the poorer districts of Britain, with Scotland suffering the “seven ill years” and considerable mortality. King and Davenant were contemporary observers of this period and derived their law from measurements of grain prices during the worst years.

However, after 1700 harvests improved and so did communications. In the 1730s and 1740s, better agricultural techniques brought bountiful harvests and low grain prices. Then after 1750, as British population began to increase, the global trading system became more efficient and imports of grain from Prussia and Poland became practicable. By the dearth years of the 1790s and 1816-19, these were a standard recourse when prices rose; thus the “Corn Laws.” (The one year when the system did not work was 1816, when the “year without a summer” caused by the Mount Tambora volcano brought poor harvests all over the northern hemisphere.) After 1870, Britain’s import capabilities grew to include the Americas also. With so many places to import from, Britain was no longer a closed system, and the King-Davenant Law was no longer valid – global harvests vary much less than those in a single country.

The world as a whole, however, is a closed system – we have no possibility of importing grain from Mars. Normally, the world’s harvest would not vary enough to bring the King-Davenant Law seriously into play. However, the Russia-Ukraine war now raises that possibility. Between them, the two countries account for about 35% of global grain output. If, in an extreme case, that were all lost for 2022, then according to the King/Davenant Law, interpolating between their 30% and 40% shortfall figures, the global grain price could be expected to rise by about 210%, in other words slightly more than trebling.

If world grain prices treble, we will see famine. Not as such in the affluent West, though the knock-on effect on food prices and other prices will be very considerable, pushing the U.S. inflation rate towards 20%, but in the overpopulated, under-resourced cesspits of the Third World. Egypt, with eight times the population it had 100 years ago, is almost wholly dependent on Ukrainian grain, as is the even poorer Sudan. The world will experience for the first time the terrible consequences of unlimited population growth, which has trebled the global population within my lifetime, with nothing like a comparable increase in the production capacity for anything useful, as distinct from tech rubbish. Thomas Malthus was wrong in 1798, because of the glories of the Industrial Revolution, but a 35% shortfall in global wheat production would prove him all too accurate a prognosticator today.

It is however questionable currently whether we will see a full 35% decline in global wheat output. The Russia/Ukraine war may be a short one, and while it is likely to limit severely production from Ukraine, much of Russia is well beyond its orbit. Only if the West adheres to foolish sanctions and attempts to limit Russia’s war-making capacity through throttling its exports, will the full effect of a production shortfall be seen. It should however be noted that the West is still importing Russian oil and natural gas (India has increased its imports, to make up for shortfalls elsewhere) so the final global grain shortfall may be far short of 35%. A 20% shortfall, for example, implies only an 80% price increase from normal levels, which should not be devastating given appropriate increases in Western aid to the worst affected countries.

One further U.S. and EU policy that would alleviate the shortage would be to remove the absurd mandate for 10% or 15% ethanol in automobile fuel, a policy made more absurd by the United States’ refusal to use sugar-based ethanol from Brazil, which is environmentally far more efficient. By freeing up the grains currently used for this expensive and pointless boondoggle, world supplies could be substantially enlarged and genuine starvation in poorer less foolish countries alleviated. However, I would not put any money on the environmentally cuckoo Biden administration doing this.

If the more serious crop shortfall occurs, it will obey not one but two 17th century sources of wisdom: the King-Davenant Law and the Book of Revelation, whose best-known King James version was published in 1611. Chapter 6 of Revelation foretells four horsemen of the Apocalypse: War, Famine, Pestilence and Death; a famine as a result of the Russia-Ukraine war will complete the set. Whether this leads to the remaining Revelation prophecies, notably the Apocalypse itself and the Second Coming, remains to be seen.

However, at least the Apocalypse, in the sense of a total collapse into ruin and starvation of our beautiful industrial civilization, cannot entirely be ruled out.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)