Notice how no oil ministers, presidents or prime ministers the world over, including here in Canada and in neighbouring United States, have spoken up in defence of the role of speculators in world oil markets.

The Saudi oil minister has recently blamed “market speculators” for what he finds to be too-high prices for oil, given “market fundamentals,” which he claims would alone dictate a much lower price. Oil has recently sold at all-time record highs, nearly breaching the $140 per barrel mark the last week. This unexpected development has prompted the world’s major oil producers and consumers to quickly gather for an extraordinary emergency meeting this week in Saudi Arabia to try to find a way to stabilize a tumultuous market in the world’s most critical natural resource.

The producers, lead by Saudi Arabia, claim that “market speculators” are to blame for rapidly escalating prices, and so that country is reluctant to bring more oil on to the market as a result. They fear those same speculative forces could just as easily drop the bottom out of the market and leave producers with no choice but to keep all the new and expensive spigots turned on full blast while going bankrupt as oil drops to $10 a barrel again, as it did only 10 years ago.

The big consuming countries, on the other hand, lead by the US, believe producers are restricting production to drive prices up. The US Congress is even attempting to sue Saudi Arabia for price fixing, dismissing the oil kingdom’s diatribes about speculators.

What has been noticeably absent throughout the unusual row is any defence of speculators, as though the only question is whether they are or are not to blame for high prices, while everyone seems to be agreeing with the Saudi proposition that they do bad things in markets when they do show up.

Speculators, however, are to capitalism as water is to life. The stock trading markets exist solely in order to facilitate daily speculation on minute rises and falls in the prices of nearly everything. Anyone who participates in any way with stocks is engaged in the act of speculation. That includes almost everyone in Canada now that pension funds, RRSPs and other householder investment tools have proliferated. Every purchase and sale of stocks, of which there are billions every day, is the result of two speculators with different speculations on what the price of something is going to do in the future. For the Saudi oil minister to blame speculators for the recent dramatic rise in the price of oil is tantamount to blaming capitalism itself for the price of everything. Yet no defender of capitalism—which includes virtually every head of government in the world today, most especially the Conservative prime minister of Canada and the Republican president of the US—has responded in kind to this charge.

Capitalism is a fairly recent innovation in the long history of the market. So prevalent has capitalism become, however, that it is widely believed to be synonymous with the market, as though all transactions of goods and services, an activity as old as humans themselves, is adequately described as “capitalism.” But in fact humans around the world engaged in market activities very successfully for eons before the advent of capitalism. Still, capitalism’s champions will accuse its critics of attacking the market itself, as though they are the same thing. It’s like accusing someone who professes a distaste for cake as being against food.

The primary difference between capitalism and most other forms of market transactions is the innovation of anonymously owned and incrementally cut shares of companies. Previously, a company would be owned by one person or a close-knit partnership of owners who all knew each other. Capitalism’s chief contribution to the history of the market was to introduce the concept of shattering companies into tens of millions of tiny shares and allowing them to be traded by tens of millions of disconnected investors none of whom would ever have reason to know anyone else involved in the company. The ease of trading shares with the creation of stock exchanges allowed investors to move into and out of companies on a daily basis, which meant “partners” in a company no longer needed to have intimate knowledge of what the company produced, let alone who else was invested in it. With the creation of widely-held pension and RRSP funds, householder investors generally don’t even know which companies they are invested in, and even if they did, their portfolio changes virtually on a daily basis.

The effect has been to narrow the focus of investors. Where once the average investor might have been motivated to buy a piece of a company for pride of ownership, for prestige of association or because they believed in the mission and prospects for success of the company, today the average investor is motivated strictly by the return on their investment in equity growth and dividends. As a result, investment fund companies that gather up large numbers of investors and pour their money into large numbers of companies, are evaluated by investors strictly on the profit the firms generate for them without any regard, or even knowledge, of which companies they invested in. Good returns are appreciated, and poor returns are criticized. There is nothing else for these large investment companies to do but to generate the best profits for their customers, wherever and however those profits are found. The entire market today has been transformed into a game of speculation solely, and this situation arose only in the particular milieu that capitalism—the endless divisibility of companies and the daily trading of those shares by anonymous and unaware investors—could create.

It has proven to be a very successful way of engaging in market activities. Companies with good plans can find themselves flush with money required to carry out those plans flowing in by tiny increments from all over the world, and the risk of the company failing is shared so widely that no one would be left terribly hurt if bankruptcy arrived at the end. Capitalism has also allowed the creation of massive companies that might not otherwise exist—companies that have to be very big to create the products we enjoy, like cars and ships. And because the prices of stocks in companies go up and down according to the assessment of the future performance of those companies conducted by millions upon millions of investors—that is, millions upon millions of speculators—the stock markets are reckoned to give a pretty accurate value to those companies, which is true.

So it is strange to see no one respond to the Saudi oil minister’s complaints about speculators driving up the price of oil with a shrug and a “yeah, what about it?” Of course speculators are the cause of heightened oil prices—speculators are the cause of the high and low prices of everything that moves through every stock exchange in the world. If speculators choose to purchase contracts for future deliveries of oil at $140 a barrel, then that must be what the collective wisdom of millions of investors in the stock markets have speculated is the correct price for oil. There is no “proper” price by which to gauge the accuracy of a stock market price for anything. The “proper” price is the stock market price. That is the chief article of faith capitalism’s defenders swear by, and indeed, anyone who doubts whether stock exchanges dictate accurate prices for anything is by definition a staunch anti-capitalist. By extension, anyone who doubts whether market speculators have found the correct price for oil is also strictly anti-capitalist by definition.

The reason no fans of capitalism have responded to the Saudi oil minister’s charges against speculators in this manner is because they all intuitively know two things: speculators make money not by producing anything but by cleverly ripping off someone by buying at a low price and ripping off someone else by selling at a high price; and, all of capitalism is speculation. Government leaders around the world might nod and assure citizens that they’ll look into this matter of speculators and oil prices and try to fix it. But that’s like the manager of a store that sells only sugar-saturated cookies responding to a customer complaint about sugar with assurances that he’ll look into the matter and try to fix it, when to fix it is to go immediately out of business. Of course it’s all just empty promises: to fix speculation in the market would be to end capitalism.

Likewise, to remove the role of speculators in determining the price of barrels of oils would be to remove the role of capitalism in the distribution of the world’s most crucial resource. It’s an ugly thing to defend, speculation. And that’s why no one publicly defends it. Yet, it must be defended if capitalism is to remain the dominant system of market interaction around the world, because capitalism is nothing but speculation.

The Saudi oil minister inadvertently touched a nerve when he pinpointed market speculators as the blame for very high oil prices. Watch for him to be severely reprimanded when the leaders of oil-consuming nations descend on his kingdom this week. Anti-capitalism, which used to take the form of socialism but increasingly takes the form of cooperativism today, is by far the bigger threat to those consuming nations’ oil ministers, compared to merely volatile and high oil prices.