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Wall Street has been gearing up to meet demand: a survey by Options Group, a recruitment consultant, found that the hiring rate of commodity traders is up by 33% on last year.The recent credit crunch may have given commodities a further lift.
However, economic theory suggests that in response to higher prices on normal goods, i.e., decrease in real income, rational consumers would either reduce purchases of given commodities, substitute for the cheaper ones or maintain the same level of consumption at the expense of other products.
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In the long run, the price of any given commodity should revert to the cost of producing an incremental unit of supply.
At the center of the debate are rules that would place a cap on how many financial contracts traders can accumulate for any given commodity.
In an effort to stem speculation, regulators are going to start enforcing position limits on traders, restricting the number of contracts that can be held in a given commodity.
The new rule adopted on Tuesday would enforce spot-month position limits, or limits on the contracts closest to expiration, prohibiting traders from acquiring more than 25 percent of the deliverable supply for a given commodity.
The commission's proposal for spot-month position limits, or limits on a contract closest to maturity, would prohibit traders from acquiring more than 25 percent of deliverable supply for a given commodity.
This system is known as the price mechanism and is based on the principle that only by allowing prices to move freely will the supply of any given commodity match demand.
In "Speculators Get a Break in New Rule" (Fair Game, Sept. 25), Gretchen Morgenson noted how Senator Bill Nelson, Democrat of Florida, was objecting to a Commodity Futures Trading Commission rule proposal regarding how many financial contracts traders can accumulate for any given commodity.
But the reduction of use-value to exchange-value is only problematic on two conditions: (1) if the use-value and exchange-value of a given commodity diverge; and (2) if the commodification is in itself problematic.
The first condition under which the reduction of use-value to exchange-value is problematic is if the exchange-value of a given commodity diverges from its use-value.
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