Merchants against the bankers: the financialization of a commodity market

Global commodity and capital markets have undergone dramatic structural changes associated with financialization. But, in spite of this, the literature on financialization neglects questions about market structure: What happens when exchanges cease to be non-profit trade-enabling utilities and instead become for-profit firms? How have automation, derivatives, and competition between exchange platforms affected transacting in markets? Who mandated the market-structural revolution? This article breaks new ground by examining the political economy of market-structural financialization through an evaluation of the 150-year-old London Metal Exchange (LME). The findings challenge theories that present financialization as a deterministic and undifferentiated process. The LME, a commodity market once designed by merchants to support the global metals trade, has been reinvented for the benefit of algorithmic traders and speculators. However, far from reflecting teleological market progress or technological determinism, the LME’s evolving market structure can only be understood through its particular historical-institutional heritage and a continuing distributional struggle between traditional metal merchants and financial institutions. Thinking about financialization through fine-grained analyses of market-structural change, and of the ways in which financial engineering is driven by ground-level politics, can explain why the process of financialization varies even between markets that are situated in common national and ideational contexts.