The Speculator’s Edge

The Speculator’s Edge

The next few blog posts has to do with a generic way to approach the markets in general. The material is from a terrific book published back in 1989 by Albert Peter Pacelli called the Speculator's Edge. The book mostly pertains to the Futures market but has applications for any market..

Basic Economic Concepts essential to Speculation

1) The Economics of Scarcity

Let’s begin with a few simple observations. First of all, our world is, in some respects, imperfect. Specifically, we live in a world of scarcity – one in which unlimited supplies of everything are not accessible to everyone.

Our second observation is that we live in a society, in which labor is divided. This is so obvious the alternative seems impossible to us, but it is probable that for most of human history, man produced exclusively to meet his own needs (i.e, Fred not only hunted, but made the club he hunted with, the tiger-skin loincloth he wore while hunting, etc.). Human beings who produce goods for the consumption of others will behave in a manner different from those who produce solely for their own consumption. For one thing, these humans will trade.

A society with scarce goods and divided labor has several problems. It must decide what will be produced, who will produce it and how, and who will receive it. Various systems have been tried. The one our society selected is called a market economy.

In our society, private ownership of property is permitted and the means of production and distribution of goods are, at least in major part, left up to individuals. This is what we mean when we say that ours is a free market system. Our system stands in sharp contrast to others in which production and distribution are directed by the state.

The Speculator's Edge,

Albert Peter Pacelli