As a way of securing wealth without engaging in real economic activity – the act of combining land, labour and capital to create something with exchange value in the market place – it’s been around almost as long as land rent. But unlike rent, the gains enjoyed by speculative investors arise not as a side-effect of legitimate economic activity, but as a result of a conscious effort by people with spare cash to subvert the natural workings of the economy. Speculative investment reduces the ability of the economy to meet it’s primary objective: enabling everyone to satisfy their basic needs through a process of mutual exchange.
Three broad types of speculation are worth considering here: speculation in land, in tangible commodities, and in the markets for money and other financial instruments.
Over time, land values rise because people are willing and able to pay more for the use of land. But speculators don’t generally make use of the land they own; they want it simply because it grows in value. And the act of speculative landholding itself causes land values to rise further. It drives up prices making it harder for people who need land to get access to it: some end up homeless, others unemployed.
The same happens with speculative investments in tangible commodities like oil or wheat. Again, speculators have no use for the commodity in question, but they drive up prices for those who do. We all contribute to the unearned wealth of speculators each time we put fuel in our cars. And in poor countries, hungry people pay with their lives when wheat prices are driven up beyond the means of governments to import sufficient to cover the shortfall in domestic production.
But screwing up the land and commodity markets is not enough for the ambitious speculator: speculation in the financial markets promises even greater rewards. Not only can currencies be played off against one another, regardless of the consequences for the citizens of countries so targeted, but there is no limit to the number and nature of financial ‘products’ than are invented, traded, and thus made subject to speculation. Among these are ‘naked’ Credit Default Swaps, whereby investment banks, hedge funds and institutional investors intentionally put themselves in a position to benefit from sovereign debt defaults, like the one about to overwhelm the people of Greece.
Financial market speculation has been compared to a casino, but the comparison doesn’t stand up. In a game of roulette or blackjack, the odds are stacked against the punter; these are games of pure chance. In the financial markets, the game is rigged in favour of speculators, who, through their financial power, are able to influence events so they win every time. The beneficiaries of speculative investment get wealthier, not because they work hard (or at all), but because financial wizards have devised ways for the rich to further enrich themselves at the expense of the rest of us.
If you accept speculation as an intrinsic and therefore legitimate part of the economic system it becomes hard to find grounds for regulating it. Given that it serves no useful economic purpose, perhaps it’s time we realised the world would be a better place without it.
One of the greatest social problems we face is the virtual debt prison, has the time now come for the masses to break free from the economy's debt vultures?