Bless the Speculator::By John Stossel

http://townhall.com/columnists/JohnStossel/2008/06/25/bless_the_speculator

It's clear McCain does not understand how markets work or why they are good. He certainly doesn't understand the role of speculators and other middlemen. He's not alone. Speculators are among the most reviled people in history. When they were members of ethnic minorities, they have been easy targets for economically illiterate people who were jealous of their success.

McCain wonders "whether speculation has been going on." He needn't wonder. Speculation always goes on. Speculation means to take a risk on what the future holds in hopes of making a profit. The world's stock and commodities markets are based on this principle. Sen. McCain must have meant it when he said, "I know a lot less about economics than I do about military and foreign policy issues".

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In fact, the hated speculator is a good guy because his buying and selling reduce volatility and uncertainty in an unpredictable world. He may only be out for his own profit, but that doesn't matter. As Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest".

The prices of commodities often change unexpectedly, making business risky. The speculator brings a degree of certainty to otherwise risky ventures. When supplies of a commodity are plentiful and prices low -- but speculators expect the price to rise later -- they buy -- cushioning the collapse of prices. When supplies become scarcer and prices rise, they sell -- easing the shortage and lowering the price. Also, speculators may agree to buy a commodity in the future for a price locked in today. This reduces the risk for an oil producer or farmer who fears investing because he doesn't know what price his product will sell for next year.