Here’s a letter to a frequent e-mail correspondent:
Mr. Aaron the Aaron
Dear Mr. the Aaron:
You disagree with my Café Hayek post on Sen. Ben Cardin’s baseless charge that speculators are artificially and unjustifiably driving up the price of gasoline. Specifically, you accuse me of being “misleading” when I compare gasoline speculators to gasoline retailers. “Retailers,” you say, “perform the service [of] making it easy for consumers to buy gas in convenient locations…. They [the retailers] profit from saving consumers the hassle of driving to refineries to buy gas…. Speculators perform no beneficial services.”
You correctly identify a valuable role played by gasoline retailers. What you miss is that gasoline speculators play an equally valuable role - a role that is essentially the same as that played by retailers. Gasoline retailers profit by transporting gasoline across physical space, from locations where consumers value each gallon less (distant refineries) to locations where consumers value each gallon more (neighborhood stations). Gasoline speculators profit by transporting gasoline across time, from times when consumers value each gallon less (before expected supply disruptions occur) to times when consumers value each gallon more (when supplies are actually disrupted).
Because you clearly see that the profits earned by successful gasoline retailers are a reward for a valuable service performed for consumers, you should see, with the same clarity, that the profits earned by successful gasoline speculators are also a reward for a valuable service performed for consumers.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
See also here.