Don’t blame the speculators

If you’ve watched the news for any length of time you’ve probably heard mention of speculators and how they seem to be responsible for much of what ills us.  Last week, Japan’s Finance Minister Jun Azumi said that a massive intervention in the Yen market was necessary as there were signs of speculation.  Much of the price inflation in commodities over the last decade has been blamed on speculators.  And don’t forget Nixon closing the gold window in 1971, in order to protect the dollar from international speculators.

So who are these speculators and why have we not been able to rein them in after all of these years?  It’s difficult to find an agreed upon definition of a speculator.  Many seem to carry the same political overtones that are pushed by those who blame them.  But at its essence, a speculator is simply someone who attempts to profitably invest in an environment where some degree of risk is present.

If you’ve ever put money in a 401k, you are a speculator.  If you’ve ever bought gold to protect your savings, you are a speculator.  If you’ve saved your childhood baseball card collection because it might be worth something someday, you are a speculator.  Speculation is bad in the same way that seeking profit is bad.  They are both the driving forces that make a free market function.

The notion that speculators are bad is a fallacy generally used to draw attention away from the real problem. Nixon didn’t close the gold window because of speculators, he did it because the US got caught red handed writing bad checks to it’s trading partners and didn’t have enough gold to pay up.  Likewise, commodity price increases aren’t do to greedy speculators, but rather wealth fleeing paper assets that are failing as the inevitable result of a fiat money system.

So the next time you hear someone blaming speculators for a particular problem, don’t forget to take a closer look at who is pointing the finger.