Remarks of Chairman J. Christopher Giancarlo at the Global Financial Leadership Conference, Naples, Florida

November 12, 2018

Introduction: A Great American Institution

It is great to be at The Global Financial Leadership Conference.  It is one of the most important annual events on financial market evolution and economic thought leadership.  It is an honor to speak to such a distinguished audience.

I want to start off by stating something that is widely known, but inadequately voiced by those of us in the official sector.  That is that the Chicago Mercantile Exchange and its family of listed exchanges and the marketplaces they serve are profoundly essential institutions in our economy.  Indeed, they are a foundational pillar of the American way of life.

That is because the CME operates platforms on which the risks of variable production costs, such as the price of raw materials, energy, foreign currency and interest rates, are transferred from those who cannot afford them to those who can.  These platforms serve the needs of society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.

The risk conveyance instruments so critically traded on CME platforms are futures, options, swaps and other derivatives.  Some of you know how derivatives markets work, but I think a basic example will be useful.  Let’s start with your local grocery store.  Its shelves are stocked with food at stable prices week after week, rain or shine, year after year.  We never have to wonder how the weather is affecting the growing season or if it was a bountiful or lean harvest in America’s farmland.

Yet, the constant bounty of food at steady prices which we enjoy in our grocery shelves here in America is not the case everywhere.  In too much of the world, plentiful food still depends on a good harvest.  A bad harvest means there is little to eat.  With little to no income from a bad harvest, farmers are unable to plant next year causing further hunger and misery.

The use of risk hedging instruments, namely commodity futures, swaps and other derivatives, is one of the key reasons Americans find plenty of food at stable prices in our grocery stores.  But derivatives are not just beneficial for food security.  They moderate the price of warming our homes, powering our factories, driving our cars, paying our home mortgages and investing our retirement savings.  In short, derivatives provide stability and predictability to our way of life.

That’s why these markets are so essential.  That’s why CME’s work is so important.

Economic Bedrock: Free Market Capitalism

But I am not standing here before you to merely confirm the importance of an important American institution.  I want to assert the essentialness of an even greater foundation.  And that is nothing less than free market capitalism, the bedrock on which our entire economy and its great institutions and critical infrastructure stands.

And I want to assert this importance here and now.  I do so knowingly, indeed, forthrightly, in a time of growing erosion of trust and respect for long serving institutions.  I do so amidst growing efforts here and abroad to increase political control over markets.  I do so at a time of calls to prioritize political goals and objectives over sound financial regulation.

Loss of Faith in Free Markets

Today, we see distrust, and even disdain, for so much of society’s core institutions: from government to political parties from law to law enforcement from social conventions to organized religion.  We see it in some our young generation and their fascination for socialism.

And yet, the growing antipathy to free enterprise and market capitalism are not merely generational.  Some, like Thomas Piketty, see the 2008 recession as a failure of capitalism.  They cite growing inequality as a reason for stronger political control over the economy and its institutions: more government activism, new forms of shared socialism and less private property.

Others foretell capitalism’s coming demise. They call for a new international order, a new Bretton Woods, where politically-motivated decision-makers divine and create the economic future better than financial markets evolving through innovation, choice and competition.  They champion new global bodies with greater authority that can impose political solutions for market problems.

Enduring Value Proposition

That is why I wish to reassert today the value proposition of free market capitalism.  That proposition is that broad and sustained prosperity generally occurs wherever in the world you have open and competitive markets, combined with free enterprise, personal choice, voluntary exchange and legal protection of person and property.

This value proposition is a source of human expression, aspiration and creativity. It is unrivaled in creating wealth, employment, innovation, personal financial security, and opportunity.  It has lifted hundreds of millions out of poverty.

But the case for free market capitalism is not just a utilitarian one – that it reduces poverty - but it is a moral one as well.  Freedom of choice is a social good in its own right, a moral and economic imperative.  Life, liberty and the pursuit of happiness are about the freedom of the individual – not just moral or political freedom - but economic freedom as well, freedom to live in a self-directed manner and conduct commerce as one may determine.

Freedom in the economy is a part of freedom itself.  Billions of consumers, following their own self-interests and individual needs, make the decisions that direct the future, not have it directed for them.  For an emerging generation fascinated by crowd sourcing, free capital markets are the ultimate in crowd sourced decision making.  Young people today and always, aspire to bright and self-actualized futures – something that is no more freely and openly chosen than under free market capitalism.

The American Model

The classic American model of free market capitalism is one where well-regulated and well-ordered trading activity is considered a forum of human self-expression and economic advancement. The legitimacy of capital markets is not derived from furthering other governmental, social, or industrial policy goals.  Rather, free and fair capital markets are considered a social good in their own right.

And a critical part of this model is the independence of financial regulation from politics and political control.  That is why the framers of the US market regulatory structure wisely made the CFTC and SEC independent agencies, not under the direct control of either the executive or legislative branches, but subject to the thoughtful oversight of both.  The effect is to shield Federal market regulators from the political tempests of the times.  It allows them to regulate in the best interest of markets and not in furtherance of a broader political agenda.

Having served under both Obama and Trump Administrations, I have witnessed consistent avoidance of interference in the CFTC’s regulatory mission.  And that is right.  It is a credit to US political institutions. Society may choose to address certain concerns such as climate change, poverty or gender discrimination but they are properly addressed through legislative action.  Markets offer a platform to value those concerns, not institute them.

I believe that insulation from political control and direction is one of the reasons why US markets remain the world’s deepest and most liquid.  And interestingly, despite being the most venerable, US futures markets are today among the fastest growing markets in the world.  Their continued expansion reflects their universally-recognized integrity and independence from particular government social, monetary or political policies.

Political Encroachment on Free Markets

It is unfortunate that around the world today we witness political encroachment on free markets.  In some overseas markets, “home teams” of regulated market participants are compelled to adjust their trading activity to move markets in directions complimentary to prevailing government economic policy.  In other cases, market access and trading activities of non-domestic market participants are heavily burdened and limited.  In many jurisdictions market regulation is subordinated to government political, social, and industrial policy.

These infringements on free markets are misguided.  Whatever the short term expediency, treating markets as instrumentalities for social, political and other government policies diminishes market integrity and investor confidence in the long term.  That is why we must resist attempts, domestic or foreign, to subject US markets to policies or regulations designed for any purpose – no matter how worthy – that is not in the strict best interest of the markets themselves.

Truth, Freedom and Free Markets

I would never wish otherwise, yet, the fall of Soviet Communism is a perverse loss for Western liberal democracy.  The Soviet Block provided context for the free market institutions that support our civil and commercial liberties.  The current disintegration of socialist Venezuela reminds us that surrendering individual liberty - not only political and social liberty, but economic liberty - is destructive to humanity.

And, frankly, it’s time to say it.  The late president of the Czech Republic, Václav Havel, who knew something about the loss of personal liberty, urged us to “live in truth.”   Let’s tell the truth about socialism and government encroachment on free market capitalism and human choice.  Havel said that morality is part of our ideas…truth and freedom are intertwined.  Human freedom is indivisible:  if it is denied to anyone, it is denied to us all.

And countries that don’t safeguard free markets, like Venezuela, are ruined, a previously bountiful economy destroyed by central planning and corrupt government control.  There are rampant shortages in every commodity from wheat to paper.  There is human misery.  There is economic destruction that will take decades to repair while the people continue to suffer…or leave for free markets elsewhere.

Conclusion 

In closing, we must champion and defend free market capitalism and the disciplined and independent financial regulation that safeguards it.  We must do this so that individuals have the freedom to choose and prosper.  We are entering a complex and conflicting new world and must respond with a fresh unleashing of the creative power of humanity.  In a future of unimaginable possibilities, we need the vision of a Steve Wozniak, the clarity of a Václav Havel and the courage of the CME’s eminence gris, Leo Melamed.

Where others see the deterioration of venerable institutions, we see their rebirth and renewal.  While others argue for a future of imposed conformity, we see a future of more human potential and possibility.  Where some encourage collective bridling of economic activity, we reassert the unrivaled power of free market capitalism, the best foundation for a future of human creativity and aspiration.

We must renew faith in free markets for ourselves and our children.  We must encourage the initiative, productivity, drive, and dreams of everyone on this planet…not just in Chicago, New York or Paris or Tokyo and in other developed economies, but also in places that lack infrastructure, or nations facing economic crisis like Venezuela or growing needs like the Congo.

We invite the world to follow this model of free market capitalism.  We welcome others to join us in a thriving future of human potential.  A future where creativity and economic expression is a social good all by itself – and a good for us all.

Thank you.