What's the Austrian position on this? It seems like simply suppy and demand in the futures market. Also, just because the CEO says it should be at $70 doesn't mean it would - it doesn't automatically make it so.
http://www.forbes.com/sites/robertlenzner/2011/05/14/exxon-mobil-ceo-says-oil-price-should-be-60-70-a-barrel/
As soon as he can convince OPEC to unpeg the price of oil from gold we'll see about that.
The Austrian position is that CEOs(or anytone) do not and should not arbitrarily dictate prices because the prices reflect not only the time & effort into creating goods, but the demand for the goods by the market.
This is a tough one so many economic fallicies in one short article, here are a few: 1. If the CEO of an oil supplier says the price should be something then he contolls this completely and could set the prices for the oil of his company to be $65 or whatever. Then he would take all the market share away from his competitors. The reality is that prices are determined through the interractions of consumers and producers both of which have the hand of government intervening in their behavior ON the quantity of the good available at the time of sale. So the CEO has no more knowledge of the price of a barrel of oil than you or I do. And if he did then he would glady make billions in futures contracts. This leads me to 2. 2. Speculators do not control prices. Prices are determined at the time of sale. Speculators are simply placing bets on the future price of something. Those bets only affect current price through suppliers taking product off the market and putting it in storage for the future. Speculation is a zero some game where the supplier and speculator split the value of a resource in the future minus a commission. If every speculator decided the price of oil was 1,000,000 then the price of oil may change in the near term (Obviously at this high of a price it would change quickly.) but then come back to the interractions of producers, consumers and govenrment. 3. Futures speculation is absolutely critical to supply markets. It allows suppliers to store product virtually instead of having to build storage facilities that cost real money. It also allows them to perform that most critical of tasks which is to make investments in production by selling future output. 4. OPEC has very little ability to set the price of oil world wide. The oil market place is giant and OPEC is in competition from a number of not-OPEC suppliers: Canada, Russia, Mexico, etc and some large ones in natural gas fuel: USA, Russia, Brazil, Australia, Mexico, etc. Combine all of this with the huge number of other systems involved and what looks likes this OPEC monolith is really a paper tiger. Besides the largest petroleum supplier to the USA, other than the USA itself, is Canada followed by Mexico. OPEC has no control over that. 5. Big oil is absolutely interested in getting as much government involvement in the business as possible. Most oil extraction in the USA is done by folks not in the largest integrated oil companies. So any govenrment intrusion can only help the big integrated companies at the expense of smaller less integrated competitors.
Bogart:Speculators are simply placing bets on the future price of something.
Really Bogart? Speculators are placing bets?
Yes, to the speculator the contract is gambling. Speculators buy a futures contract which is the right to buy or sell something at a fixed price in the future. How is that different from placing a bet on a black jack table where your purchase of chips is a contract at the beginning to convert the total number of chips at the end into cash by selling them back to the casino? The contract for the futures is nearly the same as the purchace agreement for chips. The mechanics are different granted but that does not change speculation to anything other than a zero sum game.
Now to the asset holder or future supplier a futures contract is not gambling. The person is trying to get paid now to either make investment in the future production or relieve themself from the burden of storing the good.
Bogart:Yes, to the speculator the contract is gambling.
And if to the speculator the world was flat, it would make it so?
Bogart:How is that different from placing a bet on a black jack table where your purchase of chips is a contract at the beginning to convert the total number of chips at the end into cash by selling them back to the casino?
Casino games obey the mathematical laws of probability. Speculation on the market does not!
Gambling is theory of probability applied. Speculation is theory of entrepreneurship applied.
If you're not convinced, then you should be able to demonstrate how you can calculate the probability of making a "winning bet" on this or that "futures contract" or whatever....
Bogart:The mechanics are different granted but that does not change speculation to anything other than a zero sum game.
How so? Both buyer and seller made the exchange voluntarily. Ex-ante both made a gain. Not so for zero-sum games, by definition.
I think he meant risk...
Malachi:DD5, youre being needlessly pedantic. Futures contracts and options are frequently described as bets by people who actually buy and sell them.
Well if one uses the terms "gambling" and "bets" in this context in a metaphorical sense, and it is well understood that this is how it is used, then you would have a valid point. However, Bogart came back and confirmed my suspicion that indeed, speculators are literally placing bets, i.e., gambling like in black jack. Now, this is entirely false. Is pointing out a fallacy in an argument still fair game on this forum? or is it now considered to be too insensitive to do so?
Well if one uses the terms "gambling" and "bets" in this context in a metaphorical sense, and it is well understood that this is how it is used, then you would have a valid point.
However, Bogart came back and confirmed my suspicion that indeed, speculators are literally placing bets, i.e., gambling like in black jack. Now, this is entirely false.
Is pointing out a fallacy in an argument still fair game on this forum? or is it now considered to be too insensitive to do so?
Malachi: ok, explain to me how its false
The "risk" associated with of Human Action, more accurately termed as uncertainty by Austrians, does not conform to the theory of probability. It is a matter of what Mises called case probability as oppose to class probabililty. I suggest you go over Ch 6 in HA and understand the difference between the two types of probabilies. This will help explain to you the differece between speculation and gambling. The two are entirely different.
http://mises.org/humanaction/chap6sec1.asp
Malachi: Are you suggesting that the MIT blackjack team wasnt actually betting at blackjack because they were actually speculating, and the individuals playing next to them were betting?
I don't know what you're talking about here.
The "risk" associated with of Human Action, more accurately termed as uncertainty by Austrians, does not conform to the theory of probability.
Malachi: you must not be aware of the phenomenon of betting on events, such as sporting events and animal contests, that are uncertain but non-probabilistic. Are you suggesting that betting on a football game or horse race isnt really betting?
No, I'm suggesting that you are conflating betting with speculation (in the context of market activity). The stock market is indeed just a "casio" if we follow your assertion to its natural conclusion.
Definition From HA: A bet is the engagement to risk money or other things against another man on the result of an event about the outcome of which we know only so much as can be known on the ground of understanding.
Now, this is not just a matter of semantical definitions because the very act of speculation (which is essentially every human action on the market!) is an entirely different type of engagement then stated in the above definition suitable for all type of gamings, i.e., casinos, horse races, etc.......
Market activity is not men betting against each other as bogart had suggested (regarding at least some types of exchanges he referred to), where you always have a loser and a winner. But that's what you are essentially implying by equating betting with speculation. This entire argument should have ended once the false assertion was made (perhaps carelessly) that speculation is a zero-sum game (as is the case for gambling), which revives the old fallacy that voluntary exchange is a zero-sum game.
No, I'm suggesting that you are conflating betting with speculation (in the context of market activity).
In essence they are the same, I'm not sure why you're having such a hard time getting this.
What exactly about this definition do you believe is in conflict with what is meant by "speculating"? Look at dictionary.com's definitions:
speculate: to engage in any business transaction involving considerable risk or the chance of large gains, especially to buy and sell commodities, stocks, etc., in the expectation of a quick or very large profit.
bet/wager: a pledge of a forfeit risked on some uncertain outcome; something risked or staked on an uncertain event
So again, what fundamentally do you believe is so different here between the two?
This entire argument should have ended once the false assertion was made (perhaps carelessly) that speculation is a zero-sum game (as is the case for gambling)...
Who says that gambling is a zero-sum game?