Speculators, Money Changers, and Money Lenders

“Speculators” are a favorite scapegoat of conspiratorialists with the economic understanding of kindergarteners. They imagine these villains glomming ill-gotten profits by driving up prices of commodities like oil, solely to line their own pockets.

 If only money-making were so easy.

A speculator bets on a commodity’s future price. Obviously, he must bet with someone – who thinks he’s wrong. Sometimes he wins. Sometimes not. It’s a risky business.

The Hunt Brothers tried to corner the silver market in 1979-80. They actually seemed to succeed for a time, and silver’s price rose vertiginously. Then it collapsed, and with it the Hunts’ fortune. (I made a fair bit buying and selling silver coins through the run-up, and sold off my biggest stash the day before the peak.)

Speculation serves a legitimate, in fact useful, market function. The whole thing started with farmers needing money to finance the next crop. They could do so by selling that future crop in advance. That’s a futures contract. If you believe prices will rise, you might profit by buying one. Of course, again, you’d have to buy it from someone – someone less optimistic. Every bet has a loser.

But the virtue of such speculation is to lubricate commerce, through incorporating future expectations into today’s prices. If you expect higher prices, why sell now for less? That, absent futures trading and speculation, can paralyze markets. Further, speculation transfers risk from those less willing to bear it to those more willing. By selling his crop in advance, the farmer locks in the price and no longer has to worry about prices falling. The speculator has bought that worry.

Oil is again the perennial poster boy. But if oil prices rise, it’s not because speculators can somehow force them up so their bets pay off; instead, they are making bets on likely future price levels based on all relevant available information, affecting supply and demand. Thus, insofar as speculation moves prices to incorporate perceived economic reality, that’s a good thing. And if speculators turn out to be wrong, they take a beating.

Demonizing “speculation” has a long history, too often linked with anti-Semitism. I’ve just been reading about how Jewish bankers, financiers and commodities traders were vilified in nineteenth century Europe for their market activities. Further back, we read of Jesus chasing the “thieving” money changers from the temple.

This is yet another moral issue the Bible simply gets wrong. Who were these money changers? Just like those little shops today where you can exchange Dollars for Euros. They provide a service; they charge a small fee, to cover their overheads (rent, wages, etc.) and make a tiny profit. Without that, who would provide the service? So – like almost all business and commerce – it’s win-win. Why does anyone think it’s somehow immoral to be paid for a service?

 Yet Biblical people did resent paying for something they couldn’t see or touch, and that ignorant mentality still infects economic attitudes. Another example is charging interest, which Biblians also hated. If you like borrowing, do you think it should be free? Who would make loans? Isn’t charging interest a perfectly reasonable compensation for the use of the money while you have it, and the risk of nonpayment? Yet the senseless ancient prejudice against charging interest endures; Muslim financial institutions tie themselves in knots structuring loans to pretend no interest is incurred (as if Allah would be fooled).

We also hear of “obscene” interest rates charged by “payday” lenders “preying” on the poor. A modest fee on a one-week loan equates to a big annual percentage. But how about the overheads, especially for security, for a business stockpiling cash in a dangerous neighborhood? And the obvious risk of nonpayment? Bottom line: do they make huge profits on their supposed predatory loans? Of course not. It’s a highly competitive business; they earn just enough to stay in business – and provide the service. Would the poor be better off without the opportunity to purchase this service? Of course not.*


Athenian Tetradrachm; from Classical Numismatic Guild

And as for those Biblical money changers, they faced another business risk: getting stuck with a phony coin. That’s why so many ancient silver coins bear chisel marks, to assess purity. Those money changers too were making an honest living by providing a valuable service. It’s Jesus who should have been chased away.

*A mindset of concern for the poor, when coupled with hatred of business and disregard of economics, actually hurts the poor.

5 Responses to “Speculators, Money Changers, and Money Lenders”

  1. Anonymous Says:

    Very interesting and insightful. I have recently begun to appreciate how little I, and many others, understand economics. Thanks for your thoughts.

  2. Harry Husker (@Harry_Husker) Says:


    1) Speculation is looked down upon because it has zero social contribution. It’s a zero-sum game, there is a winner and a loser and no additional value comes of it. Nobody says you can’t fleece your buddies in poker night after night, but nobody is going to pat you on the back for it. It’s not particularly admirable “winning” at the expense of another’s loss.

    2) Again, your posts tend to throw up these straw man arguments that lack context. Nobody is crusading against speculation in some vacuum of history. Currently we’ve just witnessed one of the greatest fleecings of society by banker’s who speculated with absolutely NO downside. They profited off all their wins and taxpayer’s backstopped all their losses. I think that’s worthy of all the demonization and villification that comes its way, and more.

    The point is, while speculation may have its uses it will never be one of society’s favored activities, nor should it be. Furthermore, any that choose to engage in speculation should be accountable for the risk that they choose to take on and be systematically prevented from taking on an amount of risk that imperils our economic system or social well being.

    [FSR comment: You make some valid points. But it’s not a “straw man” when in fact there is plenty of condemnation of speculators in the argumentosphere. Indeed, you do it yourself in your comment. And, for the reasons I tried to carefully point out in my posting, it is simply wrong to say that speculation “has zero social contribution.” It may indeed be zero-sum between the two sides of the bet, but the opportunity (for, e.g. farmers) to lay off unwanted risk is beneficial, as is the societal effect of incorporating more information into prices.
    I would agree with you that AIG, for example, which made bad bets, should have been forced to face the economic consequences. Unfortunately, that would have wrecked the entire economy, leaving the government with a choice between two evils. I think they made the right choice.]

  3. Borys Says:

    Jesus threw out the changers of money not because they were changing money, but because they were doing it in God’s temple. See John 2:16.

    [FSR comment: Thanks. You are correct. I was taking a bit of liberty, for rhetorical purposes. Maybe he should better have chased the priests out.]

  4. John P. Dunn Says:

    “It’s Jesus who should have been chased away…” Oh my, what would Sister Ausunta (7th grade – my last clerical educator) have said? I imagine…”Robinson, you devil on wheels, the earth will open up and swallow you!” Sounds like a good segue for an alternative history where a miffed JC goes on to open his own coin-changing service, undercuts all the opposition (he should be good at just about anything), and ends up making Crassus look like small potatoes…

  5. Cvecara Beograd Says:

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