For a study of the distribution of raw material see the article PHYSICAL RESOURCES.
It is rarely the case that rich sources of raw materials coincide with the industrial equipment and the con suming power requisite to their utilisation. They must, as a rule, seek distant markets, and therefore assume an important place in international trade. This trade is marked by serious fluctua tions in both demand and supply. The production of raw mate rials of mineral origin is subject to shrinkage from the exhaustion of deposits and to expansion due to the discovery of new de posits. Raw materials of vegetable and animal origin are subject to serious fluctuations under seasonal influences. The demand for many of these products is peculiarly responsive to the alternations of prosperity and depression in the centres of industry and popu lation.
Because of the wide fluctuations in the demand and supply of raw materials, rapid price fluctuations are characteristic of the whole field. In the case of raw materials that are relatively imperishable, like the textile fibres, metals and other minerals, the fluctuations are somewhat evened out by the accumulation of stocks in plethoric times, to he gradually released to trade in times of scarcity. This involves a complicated organi sation of finance for carrying the stocks and for distributing the risks of price fluctuations. The physical aspects of the problem involve grading and storage—technically complicated processes, but seldom occasioning serious issues of policy. The financial aspects are more difficult, involving as they do the question of speculation.
In general, it may be said that the carrying of raw material stocks is inherently speculative. Where the producer holds the raw material until he can dispose of it directly to the manufac turer, he carries the risk of price fluctuations himself. Where the manufacturer accumulates large stocks for future use, the risk rests on him. If speculative markets are well developed, much of the risk may be transferred from the producer of raw materials to a specially trained body of men, whose business it is to study all the possible sources of supply and form forecasts as to the future. Where such markets exist the manufacturer who makes a contract for the future delivery of goods, may safeguard him self against fluctuations in raw material prices through buying "futures"; a manufacturer who is producing for the general market may safeguard himself against a fall resulting from falling prices of material by "hedging," or selling futures for an equiva lent volume of raw material.
From time to time the belief gains currency that the specula tive markets are themselves responsible for price fluctuations in raw materials, and laws are passed for curbing their operations. While there are numerous instances of price manipulation through "corners," the weight of experience seems to indicate that specu lative operations which do not conform with underlying conditions of demand and supply are doomed, as a rule, to disaster. It also indicates that price fluctuations are most disastrous in those materials for which there is no organised speculative market.
The principal markets for dealing in raw materials are situated at the financial centres that were originally most closely related to the points of assembly and primary distribution. London has long been the predominant market for an extensive list of raw materials. Alongside of the London market, independent markets are established wherever the business of handling materials becomes important. The various markets are closely interrelated. No very wide difference can long maintain itself in the prices on the London and the New York copper markets, for example. The initiative toward price changes may arise in either market ; it will soon be reflected in the other. Chief influence, however, rests with the market which represents the greater aggregation of trained speculative abilities combined with financial power. For this reason a market might retain its dominant position long after the immediate cause of its establishment, the concentration in the vicinity of material stocks for consumption, has disappeared.
The World War brought to the at tention of the governments and the public the remarkable depend ence of modern industrial countries upon the international move ment of raw materials. For the tremendous consumption of war the ordinary supplies of many raw materials were inadequate.
Accordingly every belligerent nation adopted measures for con serving, rationing, stimulating the production or importation of, or preventing the exportation of, various raw materials. Raw materials occupied the centre of wartime economic policy (see