Second silly question of the day

Speculation in food\’s bad, M\’Kay?

So, err, why was Lord Keynes such a fan of speculating in food then?

In this paper we address the subject of Keynes as a speculator. We look first at the primary sources of information, which are in the form of unpublished letters and broker’s statements. Secondly, we look at the theory Keynes sparingly presented in his writings, but which nevertheless is grounded on his first-hand knowledge of speculative behavior. Thirdly, we examine the focus on speculation in commodities, which had great weight in his portfolio, and have chosen a particular commodity -wheat- for our investigation. In particular, we examine some of Keynes’s dealings in wheat futures with the aim of shedding light on the underlying investment strategy.


8 thoughts on “Second silly question of the day”

  1. “Speculation” is the wrong word, I have no idea why it is used.

    Most commodity futures deals never result in an exchange of goods, this is little more than gambling on the price. You cannot state that betting on a horse makes it run faster or slower, so the claim that “speculation” on non-existant goods alters the price is hard to quantify.

    The only other “speculation” is buying commodities and storing it somewhere until the price changes in your favour, perhaps his Lordship had a few large grain stores stocked up somewhere on his estate.

    Otherwise, if you really are buying wheat futures that you intend to make bread with it isn’t really speculation.

  2. Keynes was a proponent of national,then international buffers stocks, by which surpluses are stored in one year( in all those grain elevators )when prices are low then released in another season when prices are high. Privately held buffer stocks rather undermine the “speculation is good per se” argument because the speculator can make the wrong call by bidding high for some commodity only to have to take delivery in a glut. With adequate means of storage the speculator can turn this potential loss round by waiting to sell in times of comparative dearth.Grain elevators were objects of People’s Party wrath in the late nineteenth century America when small farmers were very keen on co-operative ownership.
    Keynes must have learned a lot from his own experiences speculating on the markets. The idea that Keynes had only one idea (Keynesian demand management) seems very wide of the mark.
    He seems to have wanted huge restrictions on import /export such as restricitions on non-essential manufactures; state trading for commodities etc. Not that I have read anything by him to this effect but right -wingers level these as charges against him.

  3. Ian said: “You cannot state that betting on a horse makes it run faster or slower, so the claim that “speculation” on non-existant goods alters the price is hard to quantify.”

    Enough people betting on a horse does change the odds though.

  4. “perhaps his Lordship had a few large grain stores stocked up somewhere on his estate”: no, he famously proposed to store grain in the chapel at King’s College.

  5. @Ian,
    It doesn’t do to argue over analogies but the case of Casela Park being heard before the British Horseracing Authority this week does show that speculative activity is sometimes blamed for horses going slower then they ought to.
    Though I agree with the rest of what you’re saying.

  6. Further to dearieme’s excellent bit of information about Keynes and Kings College chapel: the Net seems to concur that he did n’t just propose filling the chapel with grain,having been caught with the stuff having not” closed out”the deal , but actually moved it in.Though some people say it went in the crypt.
    There is plenty of info about Keynes’ commodity and other trading on the Net ( and about a recent trader who moved into futures after inventing the card-counting system for winning at blackjack)

    Tim adds: One more story of doubtful provenance. He was playing golf and his playing partner pointed him to a ship carrying his future into port. How could he take delivery? Oh, don’t worry about that, I’ll just call for an investigation into the quality and while that’s going on close out the position.

  7. It’s not speculation right or wrong. It’s how much and of what sort. Paul Volcker, that notorious anti-free marketeer, recently disapprovingly noted: “The creation of derivatives has far exceeded any pressing need for hedging”. The UN in their sorry report may not have clarified this point but I would expect Timmy to do so.

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