Last week President Obama gave a speech in which he blamed “speculators” for the high gas prices that are causing so much pain for the middle class. The purpose of the speech was to divert voters’ attention from the Obama policies that have restricted our access to the fuel we need.

In making oil market speculators the villain, the President was either showing profound ignorance of both economics and history, or he was counting on the American people to be ignorant about those subjects.

“We can’t afford a situation,” said Obama, “where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit.  We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick.” 

What hogwash.

America has a long, proud history of successful speculators, and there is nothing dishonest about speculating. Speculating is simply buying something whose value you expect to increase. George Washington, to name one honored example, made good money buying and selling real estate. There is nothing manipulative in buying a piece of land and waiting for the value to increase.

Ultimately it is the law of supply and demand, not market manipulation, that determines what an item is worth. This is especially true in the case of a fungible global commodity like oil.

Today, like every day, people will buy and sell oil (or oil futures). Those who buy are expecting market forces to drive the price up. Those who sell have different expectations. Both parties are entitled to do what they think best in a free market system. When a speculator buys too much oil, and pays too high a price, his speculation works out badly and he loses money. If a speculator guesses right, he can hold his oil for a while and sell it at a profit.

 The myth of speculators “manipulating” commodity markets goes back to the nineteenth century, when transportation and communications were no where near as sophisticated as they are today, and a cagey speculator could sometimes manage to buy up the entire supply of a needed commodity within a limited geographic area (“corner the market”).

But the idea of doing that in today’s global oil market is ridiculous. The world’s oil supply isn’t sitting in a big tank somewhere, it’s gushing out of wells all around the world every day, by the billions of barrels; and even a slippery and unscrupulous billionaire like George Soros would not be able to corner that market.

 And even in the nineteenth century market manipulation was a dangerous game. In 1869 stock market shark Jay Gould tried to corner the market in gold bullion in and around New York City. Edward Renehan tells the story in his gould biography, Dark Genius of Wall Street.

Gould’s machinations caused a lot of market turmoil, and many investors were hurt financially. Gould’s name became infamous; he was the “speculator” who manipulated the market to the detriment of honest investors. For decades leftists used Gould’s gold corner as the textbook example of an unscrupulous investor cheating the Common Man.

But Gould and his partners actually lost money on their attempt at cornering the gold market. The only people who came out ahead were those who had sold gold to Gould when he was over-paying. Even in those relatively primative days market manipulation was not as easy as President Obama wants voters to think it is.