So to think about the price of say iron ore today, it might make sense to consider the cost of steel

carried by the troops of William and Mary in the Glorious Revolution of 1688.

Or for that matter, the price of French guillotine steel a century later, or the expensive casting canons

when Bismarck unified the German States in 1871.

A little too much perspective perhaps. Focusing on the twentieth century then.

And the price of commodities through a period of industrialization, wars, development, and globalization.

In that context, the recent experience for commodity prices looks like the third big bubble for raw materials.

The first peaked early in the 1920s; the second came after the oil shock of the 1970s.

And the most recent as China moved a large proportion of its population into cities,

going from a closed economy to the world's second-largest.

As growth in China has begun to slow, well, prices for raw materials have collapsed.

You can see this also in our second chart, which shows the relationship between the oil price and inflation over time.

It's a logarithmic scale, but as you can see, ultimately the oil price tends to come back to inflation.

The point of the history lesson is to realize the collapse so far is incomplete.

BCA research have compared a basket of the the commodity prices against consumer prices since 1680.

And over time, the two did not fundamentally diverge, at least for long.

Demand for what is pulled from the ground has risen dramatically at times.

But this merely serves to send geologists looking for more.

Technology improves as well, as does the productivity of extraction, transportation, and manufacturing.

So a decade when price rises much faster than inflation, well, that caused new mines to be dug, wells sunk and shell to be fractured.

To bring commodity prices back into line with consumer prices now, well, that's going to require another fall

by as much as forty percent, estimated BCA.

In terms of the oil price, think 30 dollars a barrel as a reasonable estimate of what the long run suggests.

But also remember, prices can overshoot on the way down as well as the way up.