Early reflections on the democratization of organized speculative markets
The early scientific literature which developed with the emergence of organized speculation on financial and commodity markets in the second half of the 19th century built on the identification of several categories of traders, from professional and amateur speculators to rentiers and members of the Haute finance. Based on analysis of the interaction between these agents, this literature recognized the advantages of professional speculation (price discovery, risk hedging) as well as the problems posed by the widespread presence of amateurs. Reflections on these themes were closely connected with debate on the advantages and disadvantages of instruments which made it easier for inexperienced traders to access the trading floor. The aim of this paper is to reconstruct these debates, which took place in Europe and the United States, involving Proudhon, Weber, Ehrenberg and Marshall among others. Our reconstruction aims to show how opinions hovered between two poles. On the one hand, expert observers identified enhanced liquidity and diversity of view as the main advantages deriving from widespread market participation. At the same time, the stock exchange appeared as a means to empower the middle class, offering opportunities for economic progress to all. On the other hand, as the number of traders increased, so did the share of amateurs and the incentive for professional speculators to reap profits by “fleecing” them, with destabilizing effects on the market. Seeking the right balance between these two poles raised interesting regulatory problems, not devoid of ethical considerations, which this work aims to reconstruct. In doing so we will be able to go back to the origins of current debate on the possibility and merits of the democratization of finance and their social implications, a problem that economists and regulatory authorities have been grappling with to the present day.
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Keywords: Speculation, futures markets, democratization of finance