When I was recording this
Gold is breaking out. Silver is breaking out. The dollar is losing ground.
And now it’s OIL
You’d think this would be a good moment to revisit the only serious proposal ever written for how a government should actually manage commodity surpluses. Do not speculate on them. Manage them.
Benjamin Graham wrote it in 1937. Almost nobody read it.
Here’s the problem he identified, and it hasn’t changed in ninety years.
If you fix individual commodity prices below “normal,” you get catastrophic rigidity. The market moves, the price doesn’t, and everything breaks. But if you allow flexible price adjustments to avoid that rigidity, you’ve just handed some committee an impossible task — determining, in real time, how the historical relationships between hundreds of commodity prices should shift to reflect new conditions.
Graham’s verdict: no human and no mathematical formula can do this reliably. And that was before hedge funds spent a million dollars a year on weather-modeling experts trying to solve the same problem.
The open market exists precisely because nothing else can aggregate that information. The market is the market. Don’t fight the trend; that’s not just trading wisdom, it’s institutional design.
But here’s where it gets interesting. Graham wasn’t saying governments should stay out of commodities entirely. He was saying they should intervene differently.
His solution: the composite price mechanism.
The state acquires surplus commodities as a group, applying a fixed buying price to the basket as a whole. Inside the basket, individual prices float freely. You preserve market signals at the micro level while anchoring the macro level. The state doesn’t pick winners between wheat and copper. It buys the whole bench.
And then critically it waits.
No dumping. The surplus doesn’t get pressed for sale until genuine demand develops. Hold it until it’s needed. This is a conservation program for future use, not a speculative operation for future sale.
That distinction — sale versus use — is the whole argument.
The historical record on the “sale” side is brutal.
Brazil’s coffee valorization. The Federal Farm Board’s wheat and cotton operations ended in a $300 million loss. These weren’t rounding errors or bad luck. They were structurally unsound because they depended on rising future prices for their success.
They were best dressed up as policy.
Now look at today. The Ivory Coast government tried to support cocoa prices by buying up the supply. The farmers refused to sell on the open market. A slight shortage developed. Prices spiked. That’s not policy — that’s a corner that got away from the people trying to manage it.
Then there’s Scott Bessent and Argentina. Treasury made money on that loan. Which proves Graham’s point from the other direction: it can work when the motivation is right, and the people managing it understand what they’re doing.
The current administration is full of very successful investors. Which is precisely the problem. Successful investors are trained to think about future sales. They’re not trained to think about conservation programs for future use. That instinct — to monetize, to extract, to time the market — is exactly what Graham said would blow these programs up.
If the government doesn’t make money, what’s the alternative? They inflate it away. That comes out of your pocketbook regardless.
Graham’s final line on this is worth sitting with:
“The state can always afford to finance what its citizens can soundly produce. ”
Not what it can speculate on. What its citizens can soundly produce.
Sound production justifies the program. The moment it becomes a bet on future prices, you’ve already lost — you just don’t know it yet.
Gold and silver are telling you something right now. The question is whether anyone in Washington is listening to the right argument.
This is part of an ongoing series on Benjamin Graham’s lesser-known work, Storage and Stability (1937). Two pages at a time.
