Speculation and regulation in commodity markets: The Keynesian approach in theory and practice

286 Pages·2012·5.925 MB·English

by  Marcuzzo, Maria Cristina (ed.)

M PRA
Munich Personal RePEc Archive
Speculation and regulation in commodity
markets: The Keynesian approach in
theory and practice
Maria Cristina Marcuzzo
Sapienza University of Rome
2012
Online at https://mpra.ub.uni-muenchen.de/44131/
MPRA Paper No. 44131, posted 2. February 2013 14:36 UTC
edited by
M.C. Marcuzzo
Speculation and Regulation in Commodity Markets:
The Keynesian Approach in Theory and Practice

edited by Maria Cristina Marcuzzo

TABLE OF CONTENTS

Introduction vii
Maria Cristina Marcuzzo
I. Keynes as speculation theorist and practical speculator
1. From speculation to regulation: Keynes and primary commodity markets 3
Maria Cristina Marcuzzo
2. Keynes’s activity on the cotton market and the theory of the ‘normal
backwardation’: 1921-1929 25
Carlo Cristiano and Nerio Naldi
3. Keynes’s speculation in the London tin market: 1921-1930 57
Nicolò Cavalli and Carlo Cristiano
4. An analysis of Keynes’s investments in the wheat futures markets: 1925-1935 79
Tiziana Foresti and Eleonora Sanfilippo
II. A methodological problem
5. Keynes and Sraffa on the concept of commodity rate of interest 109
Nerio Naldi
III. The theory of storage
6. Kaldor and the relationship between ‘normal backwardation’ and the theory
of storage 129
Carlo Cristiano and Paolo Paesani
iii
7. A new test of the theory of storage comparing historical and contemporary data 151
Giulio Cifarelli and Paolo Paesani
IV. From commodity markets regulation to the reform of the
international monetary system
8. Keynes’s commodity and currency plans for the post-war world 177
Luca Fantacci
9. Richard Kahn and the stabilization of commodity prices 207
Annalisa Rosselli
10. Back to which Bretton Woods? Liquidity and clearing as alternative
principles for reforming international finance 225
Massimo Amato and Luca Fantacci
11. Reforming the International Monetary System. A stock-flow-consistent
approach 243
Sebastian Valdecantos Halporn and Gennaro Zezza
iv
CONTRIBUTORS

Massimo Amato Bocconi University, Milan
Nicolò Cavalli Bocconi University, Milan
Giulio Cifarelli University of Florence
Carlo Cristiano University of Pisa
Luca Fantacci Bocconi University, Milan
Tiziana Foresti University of Rome, La Sapienza
Maria Cristina Marcuzzo University of Rome, La Sapienza
Nerio Naldi University of Rome, La Sapienza
Paolo Paesani University of Rome, Tor Vergata
Annalisa Rosselli University of Rome, Tor Vergata
Eleonora Sanfilippo University of Cassino
Sebastian Valdecantos Halporn Université Paris Nord, France
Gennaro Zezza University of Cassino, Levy Economics Institute
v

Introduction

The eleven papers presented here are the outcome of the research activity
undertaken by the participants in the project—The return to Keynes. Speculation and
stabilization policies: money and commodities—financed by the Italian Ministry of
Education in 2010,1 whose aim was:
to carry out philologically accurate analysis of Keynes’s views regarding regulation of
the raw material and money markets—to assess how relevant they are today in the light
of the proposals to regulate the financial markets and the international economic order
consequent upon the crisis that has broken out over the last few months, in a climate of
opinion where the ‘back to Keynes’ spirit is gaining ground. More specifically, we
intend to examine, not separately, as so often happens, but in close connection, two
issues which preoccupied Keynes throughout the whole of his theoretical and practical
activity: monetary reform and the stabilization of commodity prices. From the
methodological point of view we will not confine our attention to Keynes’s published
writings, but also take into account the unpublished material, at the level not only of
theoretical reflection but also of Keynes’s concrete experience as a speculator, mainly
on the futures markets for raw materials and money.
In accordance with the guidelines described above the research of the last two years2
focussed on four main areas of investigation: Keynes’s ideas on speculation, case
studies of Keynes speculative activity in selected commodity markets, measures of
commodity price volatility and proposals for stabilizing commodity prices in the context
of a wider macroeconomic framework.
In her paper Marcuzzo analyses Keynes’s ‘extremely wide practical acquaintance’
with organized market as a way to understand his practice as speculator and his
evolving views on speculation which eventually led him to argue against ‘unfettered
competition’ and in favour of regulation of commodity markets.

1 In fact, although launched in 2010, the formal denomination of the programme was PRIN (Programmi
di ricerca scientifica di rilevante interesse nazionale) 2008.
2 The preliminary findings and early versions of the papers collected here were presented in five
Workshops held at Bocconi University (October, 2010, October 2011, January 2012), University of
Rome, La Sapienza (April and September 2012) and in various conferences and seminars: at the
European Society for the History of Economic Thought Conferences (ESHET 2011, 2012), Storia
dell’Economia Politica Conferences (STOREP 2011, 2012), History of the Economic Thought Society
Conference (HETSA 2011), World Economic History Conference (WEHC 2012); seminars at Paris I
Sorbonne and London City University. We are indebted to our discussants and commentators for
helpful suggestions and criticism.
vii
He relied heavily on information relative to each individual market and commodity,
weighing up the quality and reliability of that information through calculation of the
relevant data, the advice of experts, and his own assessment of market conditions and of
other participants’ opinions. The grasp of ‘business psychology’ became an increasing
important element both in his investment strategy and in his views on speculation
His own investment philosophy seems to have changed in the early 1930s, following
heavy losses in the commodity market, the 1929 crash and possibly progress in his new
theoretical developments which culminated in the General Theory. The role of informed
opinion about the relevant data gave way to evaluation of market sentiment,
conventions and herd behaviour. In the end the ability of the speculator rested, for
Keynes, on individual judgment, as opposed to the average market view. In the case of
the commodity markets, which played an important role in sustaining or depressing the
level of effective demand worldwide, Keynes became increasingly worried about the
effect of adverse or excessively optimistic market opinions and ever more apprehensive
of the dire consequences of trusting them to ensure the smooth working of the economic
system.
In 1923, Keynes published the first formulation of the theory of futures contracts,
often labelled ‘normal backwardation theory’, which he later incorporated in his
Treatise on Money. This theory hinges upon the idea that speculators provide a
protection against price fluctuations and, on average, earn a risk premium determined by
the working of the market. In their paper, Cristiano and Naldi assess to what extent
Keynes, or any other speculator, could ever have used this theory as the guiding
principle of his investment strategy and how such an analysis may illuminate
speculative behaviour. They focus their attention on the case of the cotton market,
reaching the conclusion that:
During the period considered in this paper, the cotton market went through two main
periods, one of relative scarcity until 1925 and one of abundance afterwards, with a
peak of excessive supply in 1926-27. Throughout these two periods, Keynes very rarely
abandoned his strategy of staying long. However, it is only from 1921 to the spring of
1923, when the Manchester Guardian article appeared, that Keynes’s behaviour can be
taken as a good representation of the idea of routine speculation as risk-bearing as well.
When the scheme of sales and repurchases was abandoned after 1923, it seems that
Keynes made some attempts at using the information he had, adapting his strategy to a
changing outlook.
From 1921 to 1930 Keynes was also active in the London tin market and drew up
seven Memoranda on Stocks of Staple Commodities which included a section on tin.
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