I’m not against speculation – it’s like betting on the result of a horse race or football game. That’s all right, however there is one important thing that’s different: betting on the result of a game does not influence that result. The winner does not get an additional goal or additional points. And this is what’s wrong with index speculations. While in the betting office the losers pay the winners in the stock market the guys at the end of the chain, the guys who really need the stuff, are paying the additional profits of the gamblers.
Now you could say that only by those speculations the “real” value is defined. I disagree. Value per se is a virtual construct and it’s proven by all the crises that Smith’s invisible hand is a nice theoretical concept that may apply to some general views like Newton’s gravitation did in physics, however that there rarely actually is this general situation where everybody is “homo oeconomicus”. Subsidies and credits both distort the perfect markets, the human herd instinct and computed (high frequency) trading amplify market trends and of course for some commodities like crop there’s the need that has no price tag – life and death.
When the concept of value and money and the concept of stock markets were invented the common goal was to improve things for everyone, to improve trade. The goal was not to create a new class snatching profits without actually having any role in the production and processing. And while first the banks brought value for the market participants, the whole commodity trade perverted when gamblers started betting for profit without relevance for the market itself. As George Soros put it
Commodity index buying is based on a misconception. Investing in commodity indexes is not a productive use of capital.
Now I see an easy way out of that. Commodity trade should be allowed only for registered market participants that prove their role as production, processing, distributing or financing institution. Let the gamblers continue to bet their and maybe others money, but the stock and commodity markets are not the right place for that – it’s the betting office.