No Theory? No Evidence? No Problem!
7 Pages Posted: 29 Jun 2010
Date Written: June 29, 2010
Policymakers in Congress and at the Commodity Futures Trading Commission are currently considering placing tight restrictions on the buying and selling of commodity futures. They worry that the growing trade in these contracts represents “speculation” that affects the price of commodities to the detriment of consumers. This concern conflicts with long-settled economics and law on commodities, which have determined that the buying and selling of such futures cannot affect the price of those commodities for consumption. This paper examines both the current and traditional view of commodities and argues that the traditional view is correct - not only does futures trading not harm consumers, but restricting that trading could reduce firms’ ability to hedge against detrimental changes in commodity prices.
Suggested Citation: Suggested Citation