> as it allows them to use profits from good seasons to hedge against bad seasons
It allows corn farmers to grow wheat instead, because he is selling it right now and wheat is more profitable right now.
The main reason why it doesn't go astray and make people hungry is because people that isn't involved in any way can go, study the factors that make wheat more profitable to corn, do their predictions of what will be the case at the point of delivery, and if they predict correctly that the price is wrong they can go and adjust it making a lot of money on the process.
I'm not sure how this is related to my post so perhaps I was unclear. I'm not talking about individual corn farmers and the choices they make, I'm talking about how we as a society and an economy allocate our resources. I'm saying that derivative financial instruments have value, for the reasons I suggested and the others described by sibling commenters, but that the finance sector is larger than that value warrants.
I'm not sure why I'm being downvoted, as I didn't think this is all that controversial. Historically, finance was a much more boring and less lucrative field than it is now, and consequently much smaller. "I'm a super smart 18 year old and I want to get rich, so obviously I should go into banking" is a relatively recent phenomenon. I agree with everyone else here that the industry has value, so presumably its recent explosion in size has brought some additional value, but it's very hard to believe that value is large enough to offset the opportunity cost of a generation of ambitious geniuses not going in to science or industry or becoming entrepreneurs.
It allows corn farmers to grow wheat instead, because he is selling it right now and wheat is more profitable right now.
The main reason why it doesn't go astray and make people hungry is because people that isn't involved in any way can go, study the factors that make wheat more profitable to corn, do their predictions of what will be the case at the point of delivery, and if they predict correctly that the price is wrong they can go and adjust it making a lot of money on the process.