Development and Underdevelopment in the History of Economic Thought

Keynes as a Trader in Commodity Futures

Marcuzzo Maria Cristina, Sapienza, Università di Roma
Sanfilippo Eleonora, Università di Cassino e del Lazio Meridionale

While Keynes is known for his theory of normal backwardation in futures markets, he is less known as a trader in these markets. The question arises whether his theory acted as a guide to his trading activity, or rather, whether it was his trading activity that shaped his theory. Backwardation was not viewed by Keynes as a permanent feature of futures market, but rather a situation which comes about only if prices do not increase by more than the risk premium and only when supply and demand are balanced. For the speculator it will not be sufficient to pursue a constant strategy of being systematically long, as it would be the case if backwardation was the norm. Keynes’s activity shows that he did not act upon the assumption that backwardation was “normal”, but he engaged actively in collecting market information and assessing supply and demand conditions acting as an informed trader. But knowledge and information are by definition limited and this may explain why his performance in commodity futures was not as stellar as is commonly believed. We provide evidence of his behaviour, looking at his dealings in wheat, cotton and tin which were the commodities in which he traded mostly.


Keywords: Keynes, commodities, future markets, speculation