Commodity Futures have been called "The Last Great Frontier of Capitalism". A characteristic of frontiers is that they produce interesting people. But while we know a good deal about the interesting people in other industries - Bill Gates in software, for example, or Peter Drucker in management consulting - until recently the public has heard little of the human side of the futures business.
A few years ago a remarkable book was published by the options trader Jack Ritchie called God in the Pits - Confessions of a Commodities Trader. The book had much to say about author's spiritual journey and little about the financial markets in Chicago, but he described his motivation for writing the book as follows: "...the common stereotype is that integrity and commodities trading go together like Al Capone and Mother Teresa. While they are seldom accurate, neither are common sterotypes completely erroneous".
Escape to the Futures goes a long way towards dispelling that stereotype, and therefore is a most overdue book. It is the memoirs of Leo Melamed, a former Chairman of the Chicago Mercantile Exchange (known in the commodities world as simply "the Merc") and one of the more important figures in the Chicago financial markets. As well as being better known than Ritchie, Melamed has more to say about his industry. One comes away from the book with an impression of the heroic qualities of the markets as well as an appreciation for the pioneering men who made this new frontier possible. The book's title refers to Melamed's origins. Like that other well known investment figure, George Soros, Melamed is of European Jewish extraction - he was born in Poland. His family managed to escape the Holocaust by fleeing, first to Lithuania, then, barely escaping the Nazi occupation of that country, emigrating to the United States via Japan (pre Pearl Harbour) after a long train ride across the Soviet Union. The twists and turns of this exciting story hints at the origins of Melamed's succ! ess. As Soros has said, describing his experience in the Budapest of 1944: "I learned the art of survival...that has had a certain relevance to my investment career"
Like many careers prior to the arrival of post-industrial society, Melamed's began by accident - he answered an advertisement for a "runner" for what he presumed was a law firm but was in fact a member firm of the Merc. He quickly fell in love with the market: " I was enthralled with the open outcry system of buying and selling contracts, with the speed at which things happened, with the colorful players in this arena of capitalistic hope and sweat." (p.88). This appreciation of what Keynes called the "animal spirits" of capitalism seems to be decidedly lacking these days. In the 1990s, if one want's to be a "player" in the financial markets, the correct route seems to be via a bachelor's degree in business followed by some high-priced graduate study, an MBA or something. Contrast this with the advice the young Jimmy Rogers got in the 1960s: "Go short some beans and you'll learn more in just one trade than you would in two years at `B-School.' "
Now, reading Escape to the Futures will not give you many trading "tips". Great traders are not going to give away their secrets like that. What it will give you an insight into is how an industry gets built. Melamend himself illustrates the phenomenal growth of the futures business in his preface to the book: "In 1971...14.6 million contracts traded on US futures exchanges. Twenty years later, in 1991, the total transactions of futures and options on US futures exchanges was 325 million contracts." How did it happen? Your average B-School guy would attribute the growth to the US dollar de-valuations of 1971 and 1973, to the commodity price booms of the 1970s, and the financial de-regulations of the 1980s. What he is missing is the role played by men like Melamed who had a vision about what they wanted to achieve with thei! r organisations. Reading his book one is struck by how his working days were more those of a politician rather than a trader.
But I use the word politician to mean "statesman", or "leader". One characteristic of such men is vision. Look, for example, at the Merc's International Monetary Market, the futures market for currencies: "Of one thing I was certain by the mid-1970s: agriculture was never going to be the future. But finance was. If the Chicago Mercentile Exchange had any future, it was on the back of the International Monetary Market. But that was something I couldn't prove in 1975 because the currencies and financial futures still had a long way to go. One had to believe" (p. 242).
One of the downsides of financial statesmanship is that you don't get to concentrate as much on making money yourself. For instance, Melamed would show delegations of visitors to the Merc how a trade was executed, but the trade lose money! It is no surprise to learn, at the end of the book, that Melamed is now concentrating more of his efforts these days on building up his own firm, Sakura Dellsher.
In Melamed we get a picture of a man who allied vision with an ability to persuade people of the virtue of his ideas, who knew how to cultivate relationships with people, and who knew how to effectively use his time and resources to achieve his organisation's goals. I commend this book to everyone interested in capitalism as people and not as abstract concepts as taught in the textbooks. Like another great book written by a trader but not about trading - Bernard Baruch's My Own Story - you will get an idea of how one man made things happen..