Tuesday, April 8, 2008

That's Capitalism

The Cooking the Books column from the April 2008 issue of the Socialist Standard

In the February Socialist Standard, in an article on the price of bread, we commented on the fact that under capitalism a basic foodstuff such as wheat was “a world commodity traded on world markets and so subject to international speculators betting on its future price going up or down”.

At the end of the month the news broke that a “rogue trader” called Dooley working for a firm called MF Global had lost his employers $141.5 million. Rather foolishly, it might be thought, he bet that the price of wheat would go down. But it went up:

“He had bet on the price of wheat declining by entering into about 4,000 futures contracts, which would require him to deliver about 20 million bushels of wheat at an agreed time and price. The greater the decline in the price between agreeing the contract and delivering the wheat, the cheaper the cost of satisfying the delivery and the larger the profit Mr Dooley stood to make. But instead, the price of wheat kept on rising . . .” (London Times, 29 February)

It should not be thought that MF Global is in the business of delivering wheat. It doesn’t run a fleet of ships or trucks. It is a financial institution specialising in speculating on how the price of wheat – and anything else – moves. When the delivery date of, in this case, wheat comes near they pass the contract on to a shipping or delivery firm.

As Marx once pointed out, the capitalist is not interested in any particular product. All they are interested in is profit and they don’t care whether they make it from producing and selling bibles or producing and selling whisky. Firms like MF Global, with no connection with actual production, illustrate this point well.

Wheat is not sold to individual consumers. It is sold to capitalist firms with money invested in milling it into flour, who, in turn, sell this on the other capitalist firms with money invested in baking it into bread. These intermediary firms are not happy with the rise in the price of wheat which has doubled over the past year. The head of one of them, Sir Michael Darrington, lashed out at wheat speculators on the occasion of his retirement as managing director of Greggs, the high street bakers:

“There are stocks of wheat and grain in the world, and crops are growing at the moment but funds are being set up as speculators see an opportunity to make some short-term money and someone has to pay for it. It’s really sad for people in the developing world where food can account for 70 per cent of the family budget. Wheat is predominantly grown in America, Australia, Europe – the wealthier areas – and people in under-developed countries are hurting the most”.

The (London) Times (12 March), reporting this, said he added:

“I suppose that’s just capitalism but it’s jolly disappointing. If society looked down on these funds then perhaps it would make a difference”.

It is indeed a powerful indictment of capitalism that firms like MF Global speculate on the price of wheat while at the same time millions throughout the world are suffering from a lack of food. Proof, as if any more were required, that capitalism is a system geared to profit-making not the satisfaction of human needs.

But would it make any difference if MF Global and other speculative funds were “looked down on”? It is probably true that most people in the world do already look down on them, including a decent-minded capitalist like Sir Michael. But they can’t do anything about it. After all, investing money to make more money is what capitalism is all about. MF Global and the other funds are just applying the profit motive.