Monday, October 20, 2014

How come there's no Peking Duck Exchange, Moscow Mercantile Exchange, or Havana Cigar Exchange?

It will come as a surprise to most that a company so stiff and humorless as CME Group currently is, once used to run an aggressive and somewhat jingoistic ad campaign in the mid 1970s for the purpose of celebrating free markets.  As I recently obtained a second set of these somewhat rare prints from a retired former CME marketing employee, it's worth taking a deeper look into the story behind them.

I've always been fascinated by the ad campaign because my travels allowed me to see the stark difference firsthand between free markets and controlled economies.  Among the places I've visited are the mausoleums of Lenin, Mao, Ho Chi Minh, Kim Il-Sung (took a second trip to DPRK as Americans weren't allowed inside in 2005 but in 2008 we were), Ayatolla Khomeini, a couple days in Cuba which doesn't have a mausoleum planned to Fidel...yet, Zimbabwe in the midst of their collapse last decade and Turkmenistan months before Turkmenbashi died.  Although the citizens of each country showed a lot of warm hospitality to this American, I couldn't escape feeling pity towards how they were born into a system which didn't allow them to be masters of their own destiny.

Capturing a similar sentiment, the inspiration for the CME to create these prints came from a speech which Leo Melamed gave to a Senate committee hearing on legislation that created the CFTC as an independent agency in 1974.

"Mr. Chairman, there are no commodity exchanges in Moscow; there is no Peking Duck Exchange in China; there is no Havana Cigar Exchange.  The farmers of those countries have no need for a mechanism that offers risk transference, price projection, or price protection.  In those countries, the governments establish the prices at which farmers can sell their products.  Consequently, the farmers' primary risk is entirely removed.  Alas, by removing the risk, that system also removes the incentive.  The sorry history of such systems is that they have been abysmal failures.

In contrast, during the past 100 years, our nation with its agriculture has proved to be the only one in the world that could continue to produce more food products than we could consume---and of a higher quality and at a lower cost than any other nation.  Mr. Chairman, there are many reasons for this remarkable fact.  But the central and primary reason is that we have, for the most part, maintained a free enterprise system.  This is the pivotal difference between us and them.  This is the secret of our success and their failure."

CME advertising executive Martin Cohen was the creator of these ads and deserves credit for the tremendous detail of each.

click photo to enlarge

How come there's no Moscow Mercantile Exchange?

"Millions of tons of potatoes, cabbage and other commodities change hands in the U.S.S.R. every year, but not a ruble's worth is traded on any futures market.  In a regualted economy, the price of a head of cabbage is exactly what the government says it is---no more, no less. Does their system work?  Apparently.  Does it work as well as ours?  You've got to be kidding."

Starting from the back, a babuska chalkboard operator is marking quote board entitled (according to Google translate) Moscow Commodity Exchange with the y-axis listing the 12 months and the x-axis listing cabbage, vodka, caviar, potatoes, (unknown), goats, and soybeans (?).  To the right of the quote board is a portrait of Lenin under which a KGB agent stands, or perhaps this gentleman is just a typical market regulation official, lol.  I can't find the translation for the banner.  Within the pit is a crowd of traders in jackboots and wearing Red Army uniforms, a civilian holding his shoe a la Khrushchev, a Red Army babushka with a head of cabbage and a matryoshka doll in her bag, another babuska sweeping up, and various items including heads of cabbage, bottles of Stoli, a duck, a goat, bag of potatoes, trading cards and a newspaper which I can't identify

click photo to enlarge"

How come there's no Havana Cigar Exchange?

"It just wouldn't work.  A commodity futures market such as those that flourish in the United States and other free economies simply can't operate in a highly regulated economy.  Free markets---or controlled?  When you get right down to it, that's probably the single biggest difference between their way and ours.  Except, of course, for the standard of living."

Starting again with the quote board entitled Havana Cigar Exchange, the y-axis lists the 12 months and the x-axis is comprised of the following cigar brands:  Larranaga, H. Upmann, Monte Cristo, Partagas, Hoyo de Monterrey, Rey del Mundo, Romeo y Julieta, and again Rey del Mundo.  Both Cohiba and Trinidad weren't listed because at that time those brands were reserved as Cuban diplomatic gifts and not for sale. Directly in front of the chalkboard operator in the decrepit building is a rifle stack and beside the door is a posted sentry but tough to say if he'd prevent people from entering or traders from leaving before their out trades were settled, certainly a way for firms to avoid O'hare trades.  On the wall is graffiti stating "Viva Fidel" above one of the many spare tires in the set.  Within the pit are various traders wearing the standard fatigues of Cuban Revolutionaries along with 26 de Julio armbands.  One of the traders is wearing a beret, a la Che Guevara, along w/a bandolier and holstered pistol (open carry in the pit!).  Strewn about the pit are chickens, bits of hay, drying tobacco along with boxes of Partagas, H. Upmann and Hoyo de Monterey cigars.  On the right is a sad looking peasant and a sadder looking burro, perhaps he is a former pit trader who blew out and is left to be simply an observer. 

click photo to enlarge

How come there's no Peking Duck Exchange?

"Difference of opinion --- openly aired --- is as essential to a free economy as it is to a free society.  That's why great commodity exchange can flourish in this country and not in the People's Republic of China.  you can't have free markets in a regimented society.  And you can't have regimented markets in a free society."

The exchange hall is draped in red banners and lanterns with two portraits of Chairman Mao looking on approvingly.  Centered between the portraits is a painting of various Chicoms, one holding a firecracker and another holding a duck by it's neck.  In the midground on the left is a large abacus in front of which the child board operator is using the slow trading day to read through Mao's Little Red Book.  The quoteboard on the right midground is titled (according to an old Chinese lady who translated) Peking Duck Commodities with an incomplete listing of rice, duck, eggs and congee.  If you can translate further then email me.  Within the pit are various traders wearing the uniform of the Red Guards which look like they wouldn't be out of place on the rack at Shanghai Tang now.  Multiple traders are clinging to their Red Books and the trader at the center holds a smaller abacus.  Looking on is a young child but I don't know what the book he's holding translates to.  Also included in the picture are various ducks, some in cages and others out.  The only disappointing aspect is that Chinese number gestures weren't involved. 

click photo to enlarge

When the fall of the USSR occurred, CME reprinted these these ads in a single poster to crow about the triumph of free markets.

"That was then; this is now...Some fifteen years ago, back in the days of Chairman Mao and Brezhnev, back when Beijing was Peking and financial futures were in their infancy, the Chicago Mercantile Exchange launched an award-winning ad campaign contrasting the gridlock of controlled economies with our free markets.  Today, the Chicago Mercantile Exchange is the world's leading financial futures exchange.  More important, free markets are sweeping away the old order.  The Moscow Mercantile Exchange?  Well, right idea, wrong name.  It's up and running --- only they've named it the Moscow Commodities Exchange.   And, we're told, the Chinese aren't far behind.  Now, about that Havana Cigar Exchange..."

I'm not sure what CME traders in the mid 1970s would've found more farfetched, the use of microwave networks to trade or that the CME's marquee marketing sponsorship would be in women's professional golf, probably the latter. 

As I mentioned, I've got a double set of these original three prints and would offer them up as tradebait in the unlikely scenario someone has other memorabilia to trade, the bar is high of course.  
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