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April 13, 2007 - Freedomain Radio - Stefan Molyneux
37:01
707 Speculation in the Free Market

Everybody sing with me now: "Speeeeculation time - come on!"

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Time Text
Good morning, everybody. It's Steph.
Hope you're doing well. Sorry, we're back to the Zen Vision M, because my notebook is in the shop, and I'm having problems with...
The other notebook recognizes the microphone.
I guess it's Microsoft Bob, not Microsoft Mike, because the windows and microphones are not a happy pair, it would seem.
It seems to be quite complicated, unless you boot up with the microphone plugged in and turned on.
There is much woe.
Anyway, do you know what we haven't talked about in a little, little, little while?
Is economics. And I thought that we could start with the topic of speculation time.
Come on! Leaning on the esteemed Dr.
Walter Bloch of the Mises.
Well, he who speaks at the Austrian scholars conference at Mises.org.
You can pick up these audiobooks.
I'll pillage from him a little bit for this.
Leaning on Mr. Bloch, Dr.
Bloch. Um, I thought it would be worth having a chat about speculation within the, um, within the free market.
What service does it provide?
There is the movie, um, I think so two references come to mind.
One is the book Bonfire of the Vanities where one kid says, you know, so-and-so's daddy is a fireman and so-and-so's daddy is a doctor and so-and-so's daddy is a lawyer.
And she says to her own father who executes financial instruments, he's a trader, what do you do daddy?
And of course he can't really tell her.
But he gets paid an enormous amount of money for it.
And the other one, I think, is the movie...
Oh, there used to be lots of these in the 80s.
Well, Wall Street, of course, but Pretty Woman, where Richard Gere plays a guy who sort of buys companies, breaks them up, and sells their component parts for more value and so on.
And... This kind of problem that people have is sort of a two-level problem people would have with people who do this sort of financial speculation.
Whether it's Borski or other sorts of people who get involved in this kind of stuff, there's a huge negative connotation associated with this kind of stuff.
And this sort of works at two levels.
One is that, at the most simple level, It's that it's hard to understand the value that these guys provide, but they get paid a lot of money.
And people generally...
A lot of people resent those because they're economically illiterate, right?
They don't recognize the cost that it takes to get that kind of money.
And it's not an easy thing to do in any way, shape, or form.
So everybody wants to win the lottery, but nobody wants to work.
So there is that general resentment thing.
But far more fundamentally, the reason that people...
Cling to this idea of an unjust paycheck is so that they can diss capitalism, right?
Diss the free market. So when someone says, oh, so the guy...
Making the ships gets paid 20 bucks an hour, but the guy who just farts around in a suit buying and selling companies gets paid millions.
That's unjust. There's the guy who works, and then there's the guy who just manipulates all this financial excels, skullduggery, and he gets paid way more.
That's so unjust. Capitalism is so unfair.
By God, we need regulatory agency.
That's just inevitable. Now, of course, at a more self-interested and practical level, There are enormous business-entrenched interests.
I have not found the business heroes that Ayn Rand writes about in my sort of business career.
I have found an enormous amount of compliance and fear and some thievery, and some productivity, of course.
But I've not found these sort of iron-willed, full-of-integrity business heroes that Ayn Rand wrote about.
And of course, She may say from the grave, and also that there were dramatic characters not designed to be mistaken for people she actually met in real life.
I think she went through a pretty continual series of being disappointed by the people she met in real life who she'd actually based her characters on, such as Frank Lloyd Wright and so on.
But there's an enormous amount of entrenched business interests arm and arm with the state, and Guys who like to sail their yachts and play golf and do this, that, and the other.
And the problem is, of course, that when someone like Ivan Borsky comes along coldly eyeing the assets that they are currently managing and coming up with a plan to say, well, if I can get these assets away from these idiots who spend all their time sailing their mega yachts, then we can improve the profitability by 20%.
And these guys on their mega yachts don't like these sort of speculators, you could call them, or people who come in and want to buy up their assets and then resell them because they're basically misusing their assets.
Corruption doesn't require a state.
I mean, even in the free market, if you are very good at what you do and you make a lot of money...
It's easy to get lazy. It's easy to get distracted.
It's easy to get self-congratulatory and think that you are just all that and everything you touch turns to gold and so on.
It happens to lots of people in business and the free market has a great way of disabusing these people of their notions, right?
By somebody else coming in and saying, you know, if we just got this idiot out of the way, these assets, these people could all make a lot of money.
So naturally, In this situation, when you have what they used to call the junk bond kings, the moment that somebody puts the word junk in front of someone, you know it's good.
It's just natural.
You don't hear about junk welfare.
You only hear about junk bonds.
When you see a company that's being mismanaged, that has too many layers of executives, that has lost its drive to innovate, that's losing its most talented people, that has become too bureaucratized, that has lost its spark and its joie de vivre.
Then you sort of look and say, well, this management is doing a really bad job.
I'm going to raise money, buy the company out in a hostile takeover.
I'm going to buy the company out from under them.
We're going to fire everyone on the board.
And I'm going to put these competent managers in place and we're going to take this thing to town.
Because the alternative is that the company just continues to decay and turns into a sort of Wang-style self-implosion where things just go really, really, really badly.
And this happened at IBM. This happened at DEC, a digital equipment corporation.
I worked there, gosh, 15 years ago or so, when they had just lost the second largest loss in corporate history, $2 billion, compared to IBM's $5 billion in one year.
So these are ailing companies.
When you have an ailing company, there's an enormous amount of risk.
There's a huge amount of goodwill and intangible benefits that are built up during the creation and flourishing of a very large company.
It's a very, very damn hard thing to do, to build a large company, and so it's not something you want to just let slip through your fingers.
So when you have managers who have run this thing into the ditch, then you have a serious and significant question, right?
Which is... If these managers were capable of not running it into the ditch, of managing it well and giving a decent return on equity, then the question is why did they run it into the ditch?
If you have a surgeon who really botches up a surgery and does it ten times in a row, then you have to sort of ask if he's capable of doing a good surgery and based on his sort of historical Examples.
He's not, at least not consistently.
And the question is, well, why is he not producing these great surgeries?
Why is he botching up these surgeries?
And in a sense, it doesn't really matter.
Because there are always, you know, 500 surgeons in the wings with near-perfect records looking to take over from this guy.
And why would you take the risk?
Unless this guy is a total genius rainmaker, why would you take the risk?
You just want to get rid of this guy and get a better manager in.
And that sends a signal and it changes the culture and so on.
So, a change of management is pretty essential in a turnaround situation.
If the old managers could have, but didn't, then they're, like, bizarrely and sinisterly incompetent.
But if they can't manage this thing well, then you have to get...
Either way, you have... Even if they could do it well, but they didn't, or they can't do it well, either way, you have to get rid of them.
And in the former, it's almost more important to get rid of them, because then there's some bizarre malevolent laziness or other sort of motive that's in play.
Now, those who are CEOs and CFOs and CTOs, all the CXO suite guys, they kind of like the books and they like having CEO and their business guys.
A lot of vanity in business, right?
And nothing wrong with it. I mean, you know, as long as these people are producing, who cares, right?
I mean, other than a sort of moral level or philosophical level.
But at an economic level, you can have all the vanity you want as long as you can.
You know, models are famously vain, but they can still sell...
Junk by having it draped over their bodies and barely visible at the bottom of the picture.
So people like heaven.
They like the income. They like the money.
They like the wheeling and dealing. They like the private jets.
They love all this stuff. So when someone comes along and says, well, it's time for hostile takeover fellows, and they're rousing enough or getting enough investment and can convince enough people to give them money to do a takeover of a company, Why then the executives currently sitting in the C-suite get...
All of their entitlements get punctured and they get very angry.
And what they will have to do is run to the state, right?
And then you end up with these bizarre trials that last forever because nobody can understand what the hell is going on.
And you get this junk bond thing and you get all these portrayals in the media of, you know, predatory, lazy, bum-ish kind of speculators...
And everyone's like, oh yeah, speculators, they don't produce anything because the esteemed economist Tom Wolfe will write that and it seems true.
And so people don't understand what these traders are doing and futures and derivatives.
They don't understand. It just seems like theft.
It's not an honest day's work because you don't make anything or produce something.
Well, neither does a psychologist, right?
But it's an honest day's work.
So let's take a look at a simple form of speculation and see if we can't make some sense out of what is going on and why these guys might get paid a fair amount of time.
There's a saying in the stock market that says that the profits in a bear market are always extracted from those who've never been in a bear market before.
So a bear market, for those who don't know these cute animal metaphors, A bear market is one that mauls you.
A bull market is one that charges uphill and blah, blah, blah.
But a bear market is one that sort of chows down on your arm and leaves you with a stump and hopefully not spiraling down from a window somewhere.
Stocks are crashing. You can't make a penny and you're locked in.
It's a stressful ride of, like, when do I sell and so on.
And so if you've never been in a bear market before, then you don't know the shape and feel of it.
And your life will sell too soon or to sell too late or panic or whatever.
Your decisions aren't going to be good.
Now, once you've gone through one, then the next one's a whole lot easier and so on, right?
So there's all these people who are cycling in.
There's a general problem in the market.
And it's not a problem of the market.
It's a problem the market solves very neatly, which is experience, right?
All these old conjures who know everything about everything are constantly retiring.
And all these young Turks are constantly flowing in who know nothing about nothing and haven't been one myself.
I can attest to this.
There's a constant problem of reinventing the wheel in the free market.
And things like speculation, right?
Walter Block says that there's this old guy in his deathbed.
He's an old successful speculator.
And the young Turk speculator comes up and says, since you're dying anyway, what does it matter?
Give me the secret of speculating.
And the old guy says, okay.
And he says, lean forward.
He says, buy low, sell high.
And that's true. That's all that comes down to it.
But, you know, you see it's done, right?
So, there's knowledge and experience in the marketplace.
And the question is, how is that used in the marketplace to benefit individuals?
And of course, when things benefit individuals in the marketplace, it almost always ends up benefiting society as a whole.
So, how does this work?
Well, we're going to use the metaphor of sunspots.
And we're going to make up a situation.
Sunspot cycle, if I read rightly somewhere, God knows, a long time ago, every 11 years there's a sunspot cycle.
And let's say that you have figured out, because you're just that mathematically inclined, that wheat prices around the whole world follow the sunspot cycle.
So when sunspots are large, Wheat grows like crazy because the sunspots release all of the wheat juice that comes out of the sun.
I don't want to get overly technical, but I think you get the idea.
Actually, probably quite accurately about my knowledge of agriculture.
So when the sunspot cycle is positive, sunspots are large, you get wheat just grows like crazy.
There's just an excess of wheat.
But then 11 years later, there is a deficiency of wheat because the wheat juice exuders on the sun close up and then wheat is stunted and short of whatever, right?
And nobody's figured this out yet.
And let's just say for the sake of argument that nobody's figured out there's an 11-year cycle.
That could be a 111-year cycle.
It doesn't really matter, right? You figured it out.
There's a cycle. So the problem is, of course, that people who are buying wheat go through 11 years where wheat is like a buck a bushel.
And then for the next 11 years, wheat is like 10 bucks a bushel.
Let's just make up some numbers. Let me make it extreme.
It works at almost any level of gradation.
And that's not that much fun, right?
If you don't know how much stuff is going to cost in the future, it's really tough to plan.
It's really tough to plan.
So whoever can stabilize prices is providing an enormous value to the marketplace.
A huge value to the marketplace.
Of course, that's not why they do it, right?
They do it for reasons that we'll get into in a second.
But if you are a consumer, even prices is far higher.
I mean, assuming that the net total, right, say over 22 years you pay the same amount of money for your wheat, it's much better to pay $5 over 22 years, $5 a bushel, than it is to pay $1 and then $10.
Like, it's just dislocating, people misallocate resources, they don't see it coming, there's a sudden change.
It's just, it's gruesome, right, if you just don't know that this is coming.
So what does a speculator do?
You're Joe Sunspot guy's speculator, and you've figured out the Sunspot cycle and its effect on wheat production.
Now, let's just go over the basic supply and demand curve just to refresh ourselves from our constant complaints about M&Ms and other things.
Of course, when there's an overproduction of wheat, naturally we know that the price goes down, and some wheat is just wasted, and so on.
And when there's an underproduction of wheat, of course the price goes up.
So during the sunspot plus cycle, when the wheat growing juice is flaring out from the sunspots and landing all over Iowa, then you get a huge overproduction, in a sense, right, of wheat.
So the price drops like crazy.
Everybody with the wheat farmers are really happy.
And those who supply the wheat farmers and those who supply those who supplied the wheat farmers, it's not that simple, but everybody's pretty happy.
Because, you know, bread costs like, you know, five cents, so nobody's on the South Beach diet anymore, and there's a carp fish.
But what happens, of course, is that they say, gee, you know, that's great.
Wheat is only ten cents a bushel, bread is only a dime, and all the bread-related products, and this and that and the other.
So people, like, society sort of realigns itself.
To consume more bread.
So, people stop buying other things, right?
Which drives the price of those things down.
Because they can eat so much bread, so they don't need so much of, I don't know, other things.
Whatever is sort of related to bread, but it's wheat-based.
It's exactly barley. Scotch.
So, they say, gee, you know, wheat is so cheap, and we eat a lot of bread, so, you know, we can afford to build that addition to our house, we'll pay for it over the next 15 years, all this kind of stuff.
People make decisions based on cheap stuff, cheap wheat.
But then, of course, the sunspot closes up, the sunspots close up, and the price of the wheat production drops like crazy, and suddenly wheat is like 10 bucks a barrel, and it's like 2 bucks for a loaf of bread, and And then all of these resources charge all over the place.
And people experience significant dislocation because they could originally pay for that house, the sort of extension to their house, but now they can't because wheat is so expensive and it's caused all these problems.
So you don't want massive oscillations in price if you can avoid it.
Sort of a bad thing, right?
Now, things that are a bad thing are generally solved by the market in one form or another, right?
Shortages are solved by increased prices, drawing in more resources.
Excesses are called by dropping prices, driving out resources, and so on.
So the more stable prices are, in, you know, some ways and to some degree and in some circumstances, the better it is for economic planning, right?
I mean, that's why not so many people buy, like, mortgage rates that change minute by minute, right?
They like to buy 5 or 10 or 20-year mortgages so that they can plan, right?
They don't want to have all of this kind of stuff.
And, of course, the only reason they can do that, the only reason that you can have a 5-year mortgage or a 10-year mortgage is because of speculators, and we'll get to that a little later.
So if you figured out this sunspot thing, Then it's not that hard, you know, the old guy in the bed, buy low, sell high.
I mean, that's the mantra, right? So what do you got to do?
Well, all you got to do is when wheat is 10 cents a bushel, you buy it.
You buy the wheat and you store it somewhere, you know, hopefully not in your car, but you store it somewhere.
And maybe you have to grind it into flour or something like that.
You do something with it to make it more permanent and cheaper to...
It doesn't spoil and it's cheaper to store.
But you buy. You buy like crazy.
Because it's only 10 cents.
And you know. And maybe you do this in year 8 or year 9 or whatever.
Maybe you don't do it at all in year 11.
Just before the sunspots change.
Because that might not be as good.
But let's just say. You will do it earlier.
As long as the price of storing it for 11 years is less than the profit you'll make.
So if it's 10 cents to buy.
And it's 80 cents to store it.
For 11 years, but you can sell it for a buck on year 11, then obviously you'll do it because you'll make a dime and a dime is not bad.
But you'll buy it for less.
You'll buy it for 20 cents and then 30 cents as the costs of storing it go down or whatever.
And just using this doesn't occur so much in financial instruments, but in the case of wheat, I think it's a valid thing.
So what happens next?
Well, you buy all of this stuff.
Well, since you Are buying wheat.
When wheat is cheap, the price of wheat is going to go up.
Let's just pretend you're buying enough to drive the price of wheat up worldwide.
You're that big a big swinging dick in the financial terms.
You've got that kind of money, you're going to buy enough wheat.
But the price of wheat is going to rise.
Now, first of all, the farmers are very happy because they've got a high price to sell their wheat at.
So you're sort of providing a service to the farmers.
Of course, that's not what you're doing. That's not why you're doing it, but that's what the result is.
You're buying up all this wheat because you think you can sell it for more later on, and that drives the price of wheat up.
So, let's say that, I think, sorry, I keep switching between 10 cents and a buck, but let's just say it's a buck, and you buy it, and you buy so much that you drive the price to three bucks, because you've just got all this demand going on and so on.
This is more the case when people understand the sunspot thing and so on, but you drive it up to three bucks.
So, you know, the people who would buy their extension or would build the extension to their house, build the new wing, won't do it if bread is, I don't know, 30 cents as opposed to a dime, right?
So you save them a lot of hassle, right?
Because the price is going to go up and so on.
So the price has risen.
It means less wheat gets wasted because some of that wheat that a buck was just going to get was going to spoil and was going to get wasted.
Maybe it wasn't even worth transport.
There's marginal wheat, right? There's wheat at the margins.
I'm really making shit up here, but it's wheat that's grown in Alaska that's only worth transporting to New York City when the price of wheat is two bucks a bushel, right?
So when the price of wheat is a buck a bushel, they just toss it in the snow and let the polar bears eat it and it just rots away.
It just gets wasted. But at three bucks a bushel, they'll ship it down to New York City and make a buck, right?
So it's a good thing all around, right?
Except for the people who want ten cents, sorry, who want a buck A bushel or 10 cents a loaf of bread.
And, of course, all of the people who they would have bought goods from, an extra 20 cents or whatever, if they didn't save that money.
But overall, what you've done is you've used up excess supply and you've increased the price of wheat, therefore of wheat-derived products, from a trough when there's an excess.
And you store it in your magic wheat box.
And then, year 11, the sunspots close up, wheat production falls.
Wheat production really drops off.
You just get the stunted crap, and bread tastes pretty bad, and it costs like a buck a loaf, two bucks a loaf, or whatever.
All my economic examples appear to be from 1952.
It's not really too much about the prices, but I think you get the general idea.
And what happens is you open up your magic wheat box and lo, there floweth from your magic wheat box all of this flour or wheat or whatever the hell you've got in there that's potable and portable and unspoilable and so on.
And what happens, of course, is that you've got an additional supply of high-quality wheat when there is a deficiency of high-quality wheat, right?
So what happens? Well, the price of wheat...
Yea, it lowethly goeth down, which is a good thing, right?
You're sort of stabilizing things.
You're not doing it for that, right?
But if wheat is a buck a bushel, and you come in and say, well, I'll sell my wheat for 98 cents a bushel, and it's all, by the way, it's higher quality.
Oh, and by the way, it's already been pre-ground into flour, so it's easier to transport and so on.
You don't have that expense.
So, of course, everybody stampedes to you, right?
I mean, you're selling at two cents lower, and that's a good thing, and so on, right?
And, of course, you know, we're just dealing with one person here, but, you know, when there's lots of people who've got the wheat, they're all underbidding each other, and so on.
And so they'll bid the price of wheat down until they make a reasonable profit, because, of course, their wheat is storable, right?
So they have the advantage of time, because they've converted it to flour, put it in the magic sealed Ziploc box of wheat storage or whatever.
And so they don't have to sell, right?
If somebody's just going to pay them and it's going to break even, they're not going to bother, right?
Because all the time they spend planning and speculating and figuring these things out, it's then going to be time lost and so on.
So because it's, you know, they'll say, well, you know, I'll sell it in six months.
It doesn't matter to me, right? As long as I've got food to eat.
And of course I do. Why?
Because I've got a lot of wheat.
It's not that and like cocaine and, you know, that's the Freddie Mercury diet.
So... What's happening overall is that the speculators have achieved a number of things.
The first thing they've achieved, of course, is profit.
But how is it that they've achieved their profit?
Well, they've achieved their profit by giving people what they want.
By giving people what they want.
And what people want is wheat that is cheaper when it's more expensive.
When the market is priced at ten bucks a bushel, You'll sell it at nine bucks a bushel because you stored it for a while and you've already paid for it and you bought it a buck a bushel.
Then people will be, yeah, that's what they want.
They're happy with that. That's a good thing.
It's a double plus good thing.
Everybody's overjoyed with that kind of scenario.
And there's nothing coercive about it.
There's nothing wrong about it.
There's nothing negative about it.
There's nothing exploitive about it.
Anybody can do it.
And it's risky. I don't believe that the sunspot wheat phenomenon is quite as easy as I portray it, but it's risky.
And you've got to tie up a lot of capital, right?
You've got to buy stuff and sometimes hold on to it for years and years.
And it's hard. It's complicated.
And it takes a strong stomach, right?
You've got to have sort of nerves of steel to be able to pull this kind of stuff off.
It's not easy. So...
It's not something that a lot of people want to do, and it's something that's highly valuable.
It's something that's risky, something that requires a good deal of capital and intelligence and math skills.
So the people who can do it are kind of few.
And so naturally, but the profits to be made, of course, can be very large.
Was it Nick Leeson who bought down Barings Bank, speculating on currency, blew them away with billions of dollars of losses or whatever.
So there is that aspect of things that, you know, it's risky.
You can lose your shirt. You can lose your...
You can go over... Like, it's a real rollercoaster, right?
If you don't know what you're doing.
And even if you do... Because basically, you get into hedging and arbitrage and all this kind of stuff where you will think, well, the price of wheat is going to go up, but you'll also buy options if it goes down so that you limit your losses and so you don't get wiped out in one transaction.
That's just no good, right? So this is something that is...
It's very important. And when you think about a high multiplicity of people doing this, a high multiplicity of people doing this, then it's really, really interesting to see the effects.
And one of the effects that you can see is, you know, pig futures or pig feet futures, all this kind of stuff, right?
You'll notice that the price of your groceries doesn't fluctuate wildly, right?
The price of your groceries doesn't fluctuate wildly.
You don't go to the grocery store and like, you know, one month milk is like 10 bucks a gallon or a liter and then the next is 2 bucks.
It generally at least stays around the same.
I know that there's lots of government muckety-muck in this kind of stuff.
But just looking at it from a sort of general free market standpoint, there is people who buy stuff when it's really cheap and sell it when it's really expensive end up flattening out the pricing.
Well, they end up flattening out the prices.
This is actually a very good thing.
It's a very useful thing. It's a very useful thing.
But the problem is, of course, that they charge people.
Right? So everybody's real happy, though they don't see it, when the speculator is selling stuff.
Well, of course, when the speculator is selling stuff, To you, let's just say.
We're going to really eliminate variables here.
When the speculator is selling the wheat, the wheat is expensive.
Because he's only selling the wheat because the price of wheat has gone up, right?
Buy low, sell high. The speculator only sells stuff when the price is high.
Now, him selling that stuff drives the price down.
But people don't see the other theoretical price, right?
They don't see that other... They don't say, oh, that's great.
I'm getting wheat. At seven bucks a bushel.
Because, boy, if these speculators weren't around, it would be ten bucks a bushel.
So, oh, thank you, Mr.
Speculator, for saving me three bucks a bushel.
Nobody sees that. I mean, very few people do.
And, of course, nobody knows what the actual price would be without the speculators.
What they do say is they say, damn it, wheat used to be like a buck a barrel.
Now these speculators are around selling shit.
It's seven bucks. Wheat a barrel?
Sorry, I really should write all these things down, but hey, I'm driving.
Don't worry soon, we'll be in the studio.
So the psychological aspect is very important.
The psychological aspect is very important.
Speculators don't sell their wheat when wheat is a buck a bushel.
They buy, and the price is up, but nobody knows that the price is up because the speculators are out of the way.
But then when the price of wheat goes up, and not because of the speculators, right?
The speculators don't make the price of wheat go up.
I'm sure they'd love to, but they can't in a free market anyway.
They can keep buying it, but that's not what they want to do.
What they want to do is sell what they've already bought at a higher price.
So the speculators don't make the price of wheat go up.
That's the fault of the sunspots in the government.
Or just whatever drought.
But the speculators only swing into action When the price of wheat is high.
High enough that they can make a decent profit from the wheat that they stored.
That they bought and kept.
What's that great...
There's a great Steve Martin bit about cardboard.
I can't remember if I've done it before. I loved this when I was younger.
I first heard it when I was a teenager.
He's trying to impress this woman and he's like, yeah, so I got into that whole cardboard boom really early.
You know, it's quite a...
Quite a cash dropping away from me.
I bought it at three cents a ton.
It's now six cents a ton.
I bought three tons.
So that's...
Ah, you do the math.
And I got this amazingly special deal where I only have to keep two tons of it at my house.
That guy's really funny.
Or at least he was. Um...
So, the speculators only start selling their stuff when the price of that good, of this wheat, is already high for other reasons, right?
Whatever, and the sunspots have closed off.
But that's not what people see.
What people see is, now the speculators are selling it.
Like everybody, they get the cause and effect completely reversed.
They say, speculators are selling it And the price is high.
Therefore, the reason that the prices are high is because of the speculators.
Everybody gets economics backwards, who's not literate in economics.
Because it's not easy, right?
So you have to go a little bit beyond the obvious, like you do in the physical sciences.
Like, people always make this mistake, right?
Like they say, a hotel in...
New York City, downtown, it's very expensive because it's very expensive to buy a hotel, and therefore they have to recoup those prices, right?
That's the idiot's approach to economics, right?
That you have to pay, you know, 500 bucks a night for a decent hotel in New York because it costs, you know, it's very expensive to buy a hotel in New York and have to recoup those costs.
It's like, no, no, no, no, no. No, not at all.
It's a complete reverse, right?
They're expensive to buy because they generate 500 bucks a night.
That's why they're expensive to buy, right?
Buying a cup of coffee, as Walter Block points out in Times Square, you pay five bucks for a price of coffee, and they say, well, that's because the location of the coffee shop is so expensive.
It's like, no. The location of the coffee shop is so expensive because you can charge five bucks for a coffee.
People get this stuff all backwards, right?
Unless you study it, it's not easy.
So what happens is the speculators are making a killing.
So everybody thinks.
And the speculators, because they get the cause and effect reversed, they don't say, well, the speculators are selling because the price is high, and thank God they're selling, because otherwise the price would be even higher.
That would take some study and knowledge and sophistication.
What they say is, those bastard speculators are driving the price of wheat up.
And the truth is, they're driving the price of wheat down, and you should be thankful.
But that's not what happens, right?
And of course, there's all the assholes in the world who thunder from, you know, economically illiterate assholes in the world who thunder from their pulpits and from their columns and so on and say, well, you know, these damn speculators, you know, if it wasn't for them, the price would be X and instead it's X times 5 and there's damn speculators and blah, blah, blah, blah, blah. And then you get all of the people who want to make money by selling their wheat at 10 bucks a bushel and these damn speculators are driving the price down.
But the farmers want to sell it at 10 bucks a bushel.
Right? The farmers didn't thank the speculators for driving the price from one buck to three bucks earlier on.
But driving the price from ten bucks to seven bucks is a cardinal sin, right?
So the speculators piss everyone off.
And this is why they get a bad rap.
People just don't understand.
They don't understand what's going on.
They think they're just sort of manipulating shit, not making anything, and there's no productivity and so on.
But that's not the case at all.
Smoothing out The demand and supply curve is hugely valuable.
And the supply and demand works with supply and demand, right?
Basically what they're doing is they're buying and selling supply and demand.
Nothing wrong with that. I mean, it's a good just like anything else.
Like, everything is a good. So, it's time to have some sympathy for our good friends, the speculators, who get an enormous amount of bigotry and bad rap.
And, of course, you know, they're not any sort of altruists who are providing these fabulous social goods At their own conscience and cost, but that doesn't matter one bit at all, of course.
The fact of the matter is that they are just engaging in free trade, just like everybody else, and they provide an enormously valuable service.
They keep the vanity of businessmen from inflating to a completely stupid degree, and they smooth out the supply and demand curve, smooth out the pricing curve, drive the prices down when the prices are high, raise the prices when prices are low, and that's of course what people want.
what speculators had to offer.
These are not the ones who are associated with governments or anything.
But if people actually didn't want what the speculators have to offer, well, guess what?
There would be no speculators, right?
It's not that complicated.
If there are speculators, it's because they're providing a service that somebody values.
And, of course, everybody on the planet wants to buy things for less money, except for, you know, say, the Defense Department.
But everybody in the world wants to buy things for less money.
And because people are not trained on economics, they just don't understand these things, and they associate speculators with high prices because the cause and effect is not clear to them.
And of course it's very important for those in power to ensure that people's ire are focused on the capitalists and those who are working in the free market because otherwise people might actually get a sense of who is really screwing up the economy which of course is not those in the free market.
So I hope That this has been helpful.
It's been nice to get back to some economics.
I am planning on doing, when I'm doing this full-time, I am planning on doing an introduction to the economics series, which will doubtless get me the ire of many an economics professor, but I will do my best to get it all correct.
And, of course, I will have time to plan and really sort of make it a solid, I think, kind of presentation.
So, thank you so much for listening.
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