Two years after the fall of Soviet Communism, a visiting Russian official seeking to learn about how free market systems worked, asked the Cambridge economist Paul Seabright "Who is in charge of Bread Supply in London. He was astonished by the answer: "No-One".
No-one has starved in a free market system since the Potato Famine in Ireland in 1740-41, which happened because of the failure of a staple crop, and despite significant Government initial efforts to alleviate it. The free market failed there, for a huge number of reasons but that remains the only example, and much has been learned since. Many of the other famines in what were nominally free-market systems, like the Bengal Famine of 1943 can be put down directly to interventions in the markets such as the (democratically elected) Punjabi Government preventing the export of food to Bengal, whose other major source of food, Burma, was having a little local difficulty which became known to history as World War 2. Because of this intervention by the Punjabi government in the market in response to shortages, and subsequent inaction by the Indian Government, over a million people died.
The oil price rose throughout the '00s in response to the rise of Chinese demand, lower interest rates and increased car use in the developed and developing world. Then people started to hurt. Oil price protests rocked the world. The cost of maintaining subsidised petrol in the non-petro-state middle-east is one of the sparks that lit the 'Arab Spring'. In the west, cars got more efficient as the price (and taxes on petrol) rose. People bought smaller and more efficient cars. Highway speeds fell, as cars started to have 'fuel economy' displayed on the dashboard and people realised how much more it cost to drive at 90mph than 70. People changed their behaviour and drove less: 'Peak car' was in 2005 in the USA.
Meanwhile, engineers went looking. We had long known about 'Tight oil' (oil soaked into porous shale or tar-sands), but it was expensive to produce, and uneconomic to extract, until the prices rose. And when they did, engineers sought means to improve production efficiency. And they were successful. The spike of Oil prices in response to cheap money and the recovery from the credit crunch led to an enormous explosion of production in Texas and North Dakota in particular. The USA became the world's largest oil producer in 2013. Cost of tight-oil production in Texas is around $40 and falling. In much of the traditional reserves in the North Sea, it's $35.
There is the equivalent of five Saudi Arabias worth of reserves in the Eagle Ford shale in East Texas alone. (1.25tn Barrels of Oil Equivalent vs 255bn BOE) . And it is ALL economically viable to extract so long as oil remains above $50 per barrel. And there's the Bakken in North Dakota and others. Peak Oil? Um... no.
So the response to a temporary shortage of Oil was for people to use gradually less in response to a price signal, and for people to go looking for more, in response to the same price signal. And the result is the glut of Oil the world is currently enjoying as oil that was prospected when the price was $120 is now hitting the market. My guess is we can expect $45 or so and then stabilisation around $50-70. Having got used to Oil at twice that price, it will feel like a tax cut for the world. (Except Nigeria, Venezuala, and Russia...).
What is true of Oil - the price goes up when demand exceeds supply - is true of wheat, and pork bellies, and olive oil, and corn or Tea. And the substitutes, barley, chicken, rape-seed oil, Sorghum, coffee, and so forth get used instead. People economise and substitute. So long as the market remains, it will become increasingly profitable to move stock from places of low value to places of high value where things are scarce.
Even the much-maligned speculation, or what used to be called 'hoarding' helps, by creating a reserve in anticipation of higher prices to come, to be released onto the market in response to shortages. Hoarding ensures the commodity is always available at a price. And so no-one starves.
And the lessons: how to grow crops or burn fuel more efficiently, cannot be unlearned. So when supply returns, prices often collapse, the speculators often get badly burned, but the economy as a whole is richer as a lot is being done more efficiently.
Ah... I hear you say... but what about Africa: how can Africans pay the same prices as Europeans? But 21st century famines in Africa are almost never SUPPLY problems, but DISTRIBUTION problems. This isn't about cash-crops being removed even as people starved, like Ireland in the 18th Century. We in the rich west are not taking African food because we can pay more, indeed quite the opposite. There's often plenty of food, grown in the region or supplied as Aid, but due to poor infrastructure or more often, war and banditry, it cannot get to where it is needed. Where the rich west is holding Africa down is by preventing much of the continent from developing a cash-crop economy. The Africans are actively prevented from supplying our markets with cheap food by rich-world Farm subsidies, So roads aren't built, and when the crops fail, food cannot get in from outside, either in response to rising prices or even Aid. Aid which often as a by-product, destroys the livelihoods of local farmers by undercutting them.
The European Union, USA and Japan, to name the most egregious examples have their boots on the face of Africa, keeping him down, but not in the way you'd think. African farmers cannot compete against our heavily subsidised farmers and so cannot invest or develop their production, even if they wanted to. The market for the end product isn't there. Without that bottom rung, the rest of the development ladder is much harder to climb. Then, by demanding Africa opens up their economies to everything, except the one thing they have a comparative advantage, African economies struggle to compete and struggle to develop.
The fact Africa now contains some of the Fastest-growing economies on earth is a testament to the triumph of the human spirit in the face of adversity. Imagine how much better it'd be if we'd not retarded African development by to appease French farmers' selfishness. Every famine since 1740-41, everywhere in the world is BECAUSE, not despite a Government somewhere intervening in the market. And the same is true of poverty. The African governments and their trade partners who've worked this out are doing well. But it took millions of lives, and is still not widely understood.
Rising prices are merely the means by which no-one starves and the pumps still have petrol. Would you rather we ran out occasionally?