292

p Continuous fluctuations of prices in bolii international and home trade are characteristic of tiie capitalist economy at all stages of its evolution. In the period of free competition they reflected the spontaneously formed market mechanism of supply and demand, through which the law of value operated and which ultimately levelled out world prices in accordance with the international cost of production.

p In the monopoly stage, with the rise of a system of monopoly prices, price formation hecame a much more complicated business. The dominant position of finance capital in the world economy gave it the chance to raise the prices of some commodities arbitrarily and to depress the prices of others. While such arbitrariness was more or less levelled out through the competition of monopolistic groups, the export prices of the output of economically and politically dependent primary producers were in practice formed out of their control on the world market.

p The objective patterns of the levelling of average rates of profit and prices of production remained the main regulators of price formation at that stage, but for the goods of the most monopolised industries (mainly manufacturing) prices acquired a tendency to rise above the international price of production, which became, as a rule, their lower limit. In contrast to that the prices of unmonopolised industries (mainly primary commodities) displayed a tendency to oscillate at a level below the international price of production, a situation that could not help having a detrimental effect on the economies of industrially backward commodity producers.

p A special UN study of the long-term trends in the movement of world prices of primary products exported by underdeveloped countries concluded that

In general, price fluctuations have resulted in less-favourable terms of trade for under-developed countries. The secular trend in prices of primary commodities relative to prices of manufactured goods was downward from the latter part of the nineteenth century to the eve of the Second World War.  [292•1 

293 Fig. 21 Dynamics of the price indices of industrial goods and primary products (mean annual price level for 1886-90=100)

p Sources: League of Nations. Industrialization and Foreign Trade (Geneva, 1945), p 157.

294

p The prices of primary commodities were particularly unfavourable compared with those of manufactured goods when the economic situation deteriorated, as is clearly indicated by graphs based on League of Nations statistics (see Fig. 21). The considerable, steady fall in prices in prewar years was a reflection of the worst cyclic crisis (1929-33) in the history of capitalism and the ensuing protracted depression.

p It would be wrong to see the mounting effect of the monopoly price mechanism on world market prices, however, as a
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Table 38 Terms of Trade: Manufactured Goods to Other Primary Goods (Unit value indices: 1963 = 100) Year Terms of Trade Year Terms of Trade 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 115 109 106 103 103 100 103 105 100 97 93 90 93 93 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 144 123 107 105 95 102 100 100 102 128 146 155 152 136 133 122 113 138 Note: The terms of trade were obtained by dividing the unit value Index of exports of manufactures (f.o.b.) by the corresponding unit value Index of the prices of all other goods ( Industrial and agricultural primary products, fuels, and food). Source: UNCTAD. Handbook of International Trade nnd Development Statistics 1972 (United Nations, New York,’1972), p 43.
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constant deterioration of the terms of trade for primary commodities and a steady lowering of their prices in 295 relation to finished goods, a conclusion confirmed by estimates of the ratio of the prices of manufactures and primary products in international trade (see Table 38) in the early decades of the century.

p Because of concrete circumstances of one kind and another, the terms of trade were more favourable in separate periods for various types of primary commodity and food, or for this whole commodity group in general, compared with manufactures. On the eve of World War I, for instance, the ratio of world prices was relatively more favourable for primary commodities than at the beginning of the century. Before the 1929 crisis the terms of trade also tended to be in their favour compared with the early 20s.

p As a rule, however, these relatively short periods were again succeeded by years of a protracted deterioration of the state of the world market for primary commodities; this deterioration was particularly distinct in years of a general decline in the prices of all the main commodity groups, including manufactures. At the end of the 1930s the average unit world price of exports fell, on the whole, by roughly a quarter compared with the early 1920s.

p This tendency toward a general decline in prices in international trade, we must stress, can hardly be considered a specific feature just of the interwar years. The facts indicate that it was also displayed earlier in one way or another. Its effect, of course, was extremely uneven for the various commodity groups and was repeatedly interrupted. The separate periods of a marked rise in the first decades of the twentieth century, during cyclic booms and bursts of military rivalry, still did not play a fundamental long-term role in international trade.

p The processes traced in Fig. 22 will be even clearer if we take the initial period of the transition from free competition to monopoly as the base for our calculations. World prices of manufactured goods in 1911-13 were only slightly above the average level in 1876-80, while those of primary commodities were correspondingly a little lower. According to the League of Nations data, the average price index for all types of primary product in 1936-38 was about half the level of 1876-80, and that of manufactured articles "almost a quarter below.  [295•1 

296

All that provides ground for the following conclusion: during the long evolution of monopoly capitalism, right to the outbreak of World War II, a tendency prevailed for the most part in international trade toward a certain lowering, rather than an increase, in world prices, especially those for primary commodities.