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Speculation

 

Speculation is the trading of goods (or other objects of value) without doing anything with it, except for ‘making money’ through price fluctuations that occur over time. These days speculation is big business. According to expert Ann Berg, the revenue of the so-called futures market (where people try to make profits or mitigate risks related to future price fluctuations) today is about 1 trillion (1 million times 1 billion) dollars a year.

 

Volume of speculation

 

Reports by, among others, Food Watch (summary) make it plausible that the current volume of speculation leads to price increases of the products that are traded on the futures market.

The profits of speculators on the futures market are being estimated at tens of billions of dollars each year. Of course, these costs are passed on to the final price paid for by the consumers. We all, as consumers, support the livelihoods of the speculators’ class. So much speculation takes place that the demand for grain, corn, coffee and sugar has substantially risen, and prices have increased as well.

 

Deregulation

 

During the 1990s, speculation was deregulated and since then it has seldom reached any peak. Several decades ago, a speculator was allowed to own contracts for a maximum of 75,000 tons of corn. By mid-2011, this had increased to 3 millions of tons. Even though it is known who the big speculators are – banks such as Goldman Sachs, J.P. Morgan and Deutsche Bank are big players when it comes to speculation in raw materials – it is impossible to find out who speculates in what, at a given moment  and for how much. And speculators like to keep it that way.

 

Function of speculators

 

Even critics of speculation think that some speculation isn’t a problem; it could even be useful for society. Let’s take a big farmer who has sown many hectares of corn and is not sure what the harvest will bring. By selling the corn to a speculator far in advance of the harvest, he will receive real money. The speculator will sell his corn to a processing company after the harvest, since the company only pays for a successful harvest after the fact. This way, the speculator is said to offer a real service to both the farmer and the processing company.

 

However, this view is incorrect. In an associative economy, prices are not determined by the free market at a given moment in time, but through associative talks between producers, traders and (representatives of) customers. The foundation for pricing is the basis of a farmer’s income. In the course of a year, he can produce a certain amount of corn and he needs a certain amount of money to do so. The price of a kilogram of corn is based on this. If consumers are prepared to pay that price, the farmer can start working. In an associative economy, it is much easier to work with pre-financing, so farmers do not have to turn to credit providers.

 

Of course, a harvest can fail. But speculation is not the way to cover those risks. To do that, we should think of e.g. setting up an insurance, temporary income support using tax payers’ money or, in an associative economy, a mutual arrangement between associations.

 

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