In Defense of Speculators

Dwight Lee's defense of speculation is a good read always, but especially now in light of skyrocketing commodity prices. (Also read the followup). Read it, and then read this defense of why $120 a barrel is good. Here, Dwight explains how risk and speculation work itself out in gambling games versus farming:

A crucial difference between the risk of playing craps and the risk of speculating on the price of wheat is that the game of craps creates a risk that otherwise would not have existed. Creating risk for the enjoyment of people who like to take chances is the purpose of gambling games. Of course, some people also enjoy the risks of “betting” on the future price of wheat in speculative markets. But speculative markets do not create risks. The risks associated with speculative markets are inherent in the act of growing crops and are necessarily borne by someone. If speculative markets were outlawed, farmers would have to take the risk of “betting” that the cost of planting a crop today is less than the unknown “payoff” from selling it at harvest. Only those who hate gambling more than they love eating should criticize the risks associated with speculative markets. Actually speculative markets lower the cost of unavoidable risks.