Re: hedging: good or bad?

[dhenwood@xxxxxxxxx (Doug Henwood)]

At 1:49 PM 4/17/95, pdavidso@xxxxxxxxxxxxxxxxxx wrote:

>The question of whether prices are flexible or not is not arbitrary o(or
>even depends on monopoly power. It depends on the organization of a
>contractual market and market makers.  All SPOT markets are, inherently
>in the nature of a SPOT market, price flexible markets -- unless there is
>a market maker who guarantees either a fixed price (e.g., The U.S. Bond
>market after WWII and before the 1951 ACCORD, or a market maker who,
>operating under the rules of the market guarantees that the market price
>changes will be "orderly". Thus, the Spot market for Crude Oil in
>Rotterdam (or New York) can move in an orderly manner-- despite the large
>monopoly oil companies and the OPEC cartel.
>
>A FORWARD market (where contracts are made today for delivery and payment
>in the future) obviously specifies a contractually fixed priced from the
>time of payment to the date of delivery -- independent of whether the
>market is competitive or not.
>
>In the absence of slavery, all labor is sold on a forward market basis --
>hence the money-wage contract is the fixed price anchor for production
>flow costs. Since production takes time, all production sales contracts
>must be on a forward contract (or to an inventory holder).  All of this
>is gone into in great detail in my POST KEYNESIAN MACRECONOMIC THEORY book.

That's all very interesting, but it doesn't answer the question - is
hedging good for the macroeconomy or not? Does stabilizing price from the
participants' point of view (i.e., if the gyrations mean nothing to a fully
hedged producer or consumer) put too much of the burden of adjustment on
quantity, as Newberry argued?

Doug

--

Doug Henwood
[dhenwood@xxxxxxxxx]
Left Business Observer
250 W 85 St
New York NY 10024-3217
USA
+1-212-874-4020 voice
+1-212-874-3137 fax