As the price of food soars skyward, a lot of people wonder what can be done. Is the price rise in rise and wheat, causing serious unrest and hunger in many parts of the world, a result of speculation? A knock-on effect of higher oil prices? Should we think of rising commodity prices as a reaction to negative real interest rates, as Jim Hamilton over at Econbrowser argues?
Instead of doing the hard work of getting to the bottom of today's problems, I did what I like to think I do better, and looked at what happens when you ban the speculators. In 1896, largely as a result of lobbying by the agricultural elites, the German parliament banned all commodities futures trading on exchanges. The reason was the opposite of today's -- they blamed speculators for the downward pressure on prices. American grain was invading Europe, making life hard for the estate-owning Junker of Eastern Prussia. I did a full-page article for the Frankfurter Rundschau on this particular piece of backlash against the world market [in German]. The punchline? It doesn't work. You can ban the traders, but it's equivalent to shooting the messenger. Speculation may be to blame, but it's near-impossible to stop.