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The Government of Markets pp 279–299Cite as

Palgrave Macmillan

The Legacy, Causes and Relevance of Interwar Futures Market Regulation

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Part of the book series: Palgrave Studies in the History of Finance ((PSHF))

Abstract

This chapter concludes the study by (i) summarising the innovations in institutions and governance that took place in the interwar years, (ii) outlining what the private archival record demonstrated to be the key causes of said evolution, (iii) detailing the legacy of the interwar years and (iv) proposing a few possible applications of the findings here to the current debate concerning post-crisis financial regulation. That the regulatory regime during the 1920s and 1930s can be called polycentric and had varied influences—even if always centred around the US government—behoves policy-makers to include a role for both government and all market participants in regulatory conversations leading to any new legislation. Successful regulation leading to efficient financial markets is likely impossible without both government and markets.

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Notes

  1. 1.

    CME III.23.3. Transcript of CBS news report, 8 July 1937.

  2. 2.

    J.A. Pattern and Boyden Sparkes, “In the Wheat Pit,” Saturday Evening Post (Reprint Curtis Publishing Company, 1927).

  3. 3.

    See, for example, Michael Dotsey and Jed DeVaro, “Was the Disinflation of the Early 1980s Anticipated?” Federal Reserve Bank of Richmond Economic Quarterly 81 (1995): 41–59; James D. Hamilton, “Was the Deflation During the Great Depression Anticipated? Evidence from the Commodity Futures Market,” The American Economic Review (1992): 157–178.

  4. 4.

    Todd E. Petzel, “A New Look at Some Old Evidence: The Wheat Market Scandal of 1925,” Food Research Institute Studies 1 (1981): 127.

  5. 5.

    Thomas A. Hieronymus, Economics of Futures Trading for Commercial and Personal Profit (Washington, DC: Commodity Research Bureau, 1977), pp. 336–337.

  6. 6.

    US Commodity Exchange Administration, Report of the Chief of the Commodity Exchange Administration (Washington, DC: Government Printing Office, 1937).

  7. 7.

    Ibid.

  8. 8.

    Special 1937 Edition of American Journal of Agricultural Economics, American Farm Economics Association, Chicago, 28 December 1936.

  9. 9.

    Peck agreed with Samuelson that Holbrook Working was the father of the EMH in Anne E. Peck, “The Economic Role of Traditional Commodity Futures Markets,” in Futures Markets: Their Economic Role, ed. Anne E. Peck (Washington, DC: AEI Press, 1985), p. 71; Paul Samuelson, “Mathematics of Speculative Price,” SIAM Review 15 (1973).

  10. 10.

    Holbrook Working, “Futures Trading and Regulations: Discussion by Holbrook Working,” Journal of Farm Economics 19 (1937): 309–312. Speculative hedging was identified as a major problem in analysing markets in Holbrook Working, “Speculation on Hedging Markets,” Food Research Institute Studies 2 (1960).

  11. 11.

    Scott H. Irwin, “Futures Markets and Speculation: Lessons from the Past for Today,” Chancellor’s Lecture-University of Illinois, Chicago, Illinois, October 18, 2012. http://at.pscdn.net/008/00102/videoplatform/kv/121018aceskv.html. Accessed 1 March 2017.

  12. 12.

    James D. Hamilton, “Was the Deflation During the Great Depression Anticipated? Evidence from the Commodity Futures Market,” The American Economic Review (1992): 157–178; Frederic S. Mishkin, “Can Futures Market Data Be Used to Understand the Behavior of Real Interest Rates?” The Journal of Finance 45 (1990): 245–257; and Michael Dotsey and Jed L. DeVaro, “Was the Disinflation of the Early 1980s Anticipated?” Economic Quarterly-Federal Reserve Bank of Richmond 81 (1995): 41–59. See Rasheed Saleuddin and D’Maris D. Coffman, “Can Inflation Expectations Be Measured Using Commodity Futures Prices?” Cambridge Working Papers in Economic and Social History 20 (2014) for an example of reintroducing the historical observations into the debates.

  13. 13.

    Holbrook Working, “New Concepts Concerning Futures Markets and Prices,” The American Economic Review 52 (1962): 431–459, p. 434.

  14. 14.

    Ibid.

  15. 15.

    Harold S. Irwin, “Seasonal Cycles in Aggregates of Wheat-Futures Contracts,” Journal of Political Economy 43 (1935): 34–49.

  16. 16.

    Holbrook Working, “Futures Trading and Regulations: Discussion by Holbrook Working,” Journal of Farm Economics 19 (1937): 309–312, p. 312.

  17. 17.

    John Maynard Keynes, “Some Aspects of Commodity Markets,” Manchester Guardian Commercial, Reconstruction Supplement (1923) in John Maynard Keynes, The Collected Writings of John Maynard Keynes, Vol. 12, eds. Elizabeth Johnson and Donald Moggridge (Cambridge: Cambridge University Press, 2013), pp. 255–266.

  18. 18.

    Anne E. Peck, “The Economic Role of Traditional Commodity Futures Markets,” in Futures Markets: Their Economic Role, ed. Anne E. Peck (Washington, DC: AEI Press, 1985), p. 27.

  19. 19.

    John H. Stassen, “Propaganda as Positive Law: Section 3 of the Commodity Exchange Act (A Case Study of How Economic Facts Can Be Changed by Act of Congress),” Chicago-Kent Law Review 58 (1982): 635–656, p. 635.

  20. 20.

    John H. Stassen, “Propaganda as Positive Law: Section 3 of the Commodity Exchange Act (A Case Study of How Economic Facts Can Be Changed by Act of Congress),” Chicago-Kent Law Review 58 (1982): 635–656, p. 636.

  21. 21.

    David Greising and Laurie Morse, Brokers, Bagmen and Moles: Fraud and Corruption in the Chicago Futures Markets (New York: Wiley, 1991).

  22. 22.

    See, for example, Martin Wolf, The Shifts and the Shocks: What We’ve Learned—And Have Still to Learn—From the Financial Crisis (New York: Penguin, 2014).

  23. 23.

    Martin Lodge and Kai Wegrich, “The Regulatory State in Crisis: A Public Administration Moment?” Public Administration Review 70 (2010): 336–341.

  24. 24.

    Ibid.

  25. 25.

    Ibid.

  26. 26.

    Stephen Craig Pirrong, “Self-Regulation of Commodity Exchanges: The Case of Market Manipulation ,” Journal of Law & Economics 38 (1995): 141–206.

  27. 27.

    Stephen Kent Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca: Cornell University Press, 1996); Karl Polanyi, The Great Transformation: Economic and Political Origins of Our Time (New York: Rinehart, 1944); Max Weber, Peter Lassman, and Ronald Speirs, Weber: Political Writings (Cambridge: Cambridge University Press, 1994); and Adam Smith, Wealth of Nations, 1776, esp. Vol. 1, Ch. 5.

  28. 28.

    See John H. Stassen, “Propaganda as Positive Law: Section 3 of the Commodity Exchange Act (A Case Study of How Economic Facts Can Be Changed by Act of Congress),” Chicago-Kent Law Review 58 (1982): 635–656, for examples of support for futures markets by Congressional leaders. For two examples of the exchanges being pro-regulation, see Hill v. Wallace 259 US 44 and G.O. Virtue, “Legislation for the Farmers : Packers and Grain Exchanges,” The Quarterly Journal of Economics 37 (1923), p. 701.

  29. 29.

    Marver Bernstein, Regulating Business by Independent Commission (Princeton: Princeton University Press, 1955). For a post-GFC modern example, see Charles Goodhart, “A Ferment of Regulatory Proposals”, in The Social Value of the Financial Sector: Too Big to Fail or Just too Big?, eds. Viral Acharya et al. (Singapore: World Scientific Publishing Company, 2014).

  30. 30.

    William E. Leuchtenburg, Franklin D. Roosevelt and the New Deal, 1932–1940 (New York: Harper, 1963); Arthur N. Schlesinger, Jr., The Crisis of the Old Order, 1919–1933, Vol. 1 (Boston: Mariner Houghton Mifflin Harcourt, 2003); and Melvyn Stokes, The State of U.S. History (London: Bloomsbury Academic, 2003).

  31. 31.

    Melvyn Stokes, The State of U.S. History (London: Bloomsbury Academic, 2003).

  32. 32.

    Roberta Romano, “The Political Dynamics of Derivative Securities Regulation,” Yale Journal on Regulation 14 (1997): 279–406, pp. 292–294.

  33. 33.

    Ibid., p. 307.

  34. 34.

    This is best argued by Jerry W. Markham, “Manipulation of Commodity Futures Prices—The Unprosecutable Crime,” Yale Journal on Regulation 8 (1991): 281.

  35. 35.

    John H. Stassen, “Propaganda as Positive Law: Section 3 of the Commodity Exchange Act (A Case Study of How Economic Facts Can Be Changed by Act of Congress),” Chicago-Kent Law Review 58 (1982): 635–656, p. 655.

  36. 36.

    Joseph Stiglitz, “Government Failure vs. Market Failure: Principles of Regulation,” in Government and Markets: Toward a New Theory of Regulation, eds. Edward Balleisen and David Moss, 13–51 (Cambridge: Cambridge University Press, 2009), p. 129.

  37. 37.

    Ibid.

  38. 38.

    Karl Polanyi, The Great Transformation: Economic and Political Origins of Our Time (New York: Rinehart, 1944).

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    Rasheed Saleuddin

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Saleuddin, R. (2018). The Legacy, Causes and Relevance of Interwar Futures Market Regulation. In: The Government of Markets. Palgrave Studies in the History of Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-93184-5_6

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  • DOI: https://doi.org/10.1007/978-3-319-93184-5_6

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