1 Comment

Its my impression that a public body would provide the financing capital to businesses and speculators would make future contracts on these goods. And the decision on whether to finance a business would be based on its private and public benefits. The government determines investment while the commodity market determines prices.

Yet it seems self-defeating. Any underpriced commodity caused by favorable government finance (and underpriced due to its spillovers) would be bought up by commodity traders and sold for a profit; the product would reflect the market price rather than the public price. Financiers already do 1 and 3, but the private commodity market will undercut 2.

Why not use direct subsidies to do 2? Public choice theorists would not buy that the government body would only do 1,2 and 3. Insiders and speculators have a clear incentive to game the system.

Expand full comment