The effect of futures trading on price variability in the market for onions

Conclusion

This paper is in part a study of the operation of futures markets. The empirical evidence presented suggests that futures markets do reduce price fluctuations of traded commodities. Despite these facts, Congress eliminated futures trading in onions at the request of onion growers and shippers. As is often the case with political actions, the losses from the law are spread over a large number of individuals who do not have the incentive to become informed or to lobby on the matter, while the gains accrue to a smaller group with sufficient interest to lobby. Thus, in addition to shedding some light on the operation of futures markets, this paper is also a new illustration of an old maxim in political economy. Over 200 years ago, Adam Smith [11, p. 128] noted, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” With the government becoming a larger and larger influence on the economy, producers are finding it to be more in their interest to organize with the assistance of the legislature.