This post from FSK is interesting.  FSK asks, “Is speculating immoral?”.

Suppose Farmer Smith, who lives in Farmville, observes the market in the winter.   Via forecasting, the farmer determines that peanuts will be a profitable crop this year, and plans accordingly.  He expects to get $1.50 for a pound of peanuts come harvest time.    If his peanuts fetch that price, he plans to invest in X and Y with that money to make improvements on his farm, buy new machinery, or whatever farmers do.    So the peanuts are planted in one of his fields.

Speculator Jones investigates the peanut market and forecasts peanuts will be worth $2/lb come harvest time.   He looks around and discovers Farmer Smith planted peanuts.  Speculator Jones approaches the Farmer and says, “I’ll offer you $1.75/lb for your peanuts come harvest time!”.

Farmer Smith, unsure of the market and thinking it is a good deal, agrees.  A contract is drawn up, reviewed, and both parties sign it as an honest contract.

Scenario 1)

Harvest time arrives.  Farmer Smith brings all the peanuts in from the field.  He goes home and checks the market price for peanuts.  To his shock, he discovers peanuts are selling for $1/lb.

He falls on his knees, calls for his wife, and both of them are overjoyed they had the wisdom and fortitude of signing the contract with Speculator Jones.  Sure enough,  Speculator Jones shows up and pays them the price of $1.75/lb of peanuts as agreed.  Speculator Jones is not happy.

Farmer Smith goes into town and at the local coffee shop, brags to other farmers how he slept well, secure in the knowledge his peanut price was guaranteed, because of Speculator Jones.  The other farmers congratulate Farmer Smith for his business acumen and remark, “Boy.  Speculator Jones sure is stupid!”.

Scenario 2)

Harvest time arrives.  Farmer Smith brings all the peanuts in from the field.  He goes home and checks the market price for peanuts.  To his shock, he discovers peanuts are selling for $2.50/lb as a shortage of peanuts occurred in the mid-west.

He turns purple with rage.  He forgets all of those restful nights of sleep he had as Speculator Jones transferred price volatility of peanuts away from Farmer Smith.  He shakes his fist at the ceiling cursing the day he entered into agreement – forgetting it was voluntary of course – with Speculator Jones.  Speculator Jones shows up, takes the peanuts, and pays Farmer Smith $1.75/lb, as agreed.  Farmer Smith is not happy.

Farmer Smith goes into town and at the local coffee shop, rages to the other farmers, “He ripped me off!  He exploited me!”. The other farmers commiserate with   Farmer Smith as Farmer Smith is regarded as a pillar of the community.  The other farmers remark, “Boy.  That Speculator Jones sure is a crook!”.

However, one farmer at the coffee shop decides to ask Farmer Smith a question or two:

Q) “Farmer Smith, did you enter the contract voluntarily?”

A – Farmer Smith is a bit taken aback but gruffly responds) “Yes.”

Q) “Did Speculator Jones honour the terms and conditions in the contract and pay you as agreed?”

A – Farmer Smith is getting offended now) “Yes!  What’s your point?”

Q) “What did Speculator Jones do that was wrong then?”

A) “STFU! He exploited me and ripped me off!  Don’t talk to me anymore about it and if you were wise, you wouldn’t deal with him either!”

The farmer remains silent as he effectively has been shut down, and he doesn’t want to risk the “pillar of the community” to make things difficult for him  in Farmville.

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