BENJAMIN GRAHAM ON BUFFER STOCKS

Abstract

Surprisingly, Benjamin Graham, the acknowledged “Father of Value Investing,” considered his most important work to be the invention of the Commodity Reserve Currency Plan during the 1930s and 1940s. Previous studies of the Plan have overlooked the fact that, of its three main components (buffer stocks, price stability, and currency backing), Graham regarded the first as the most important and the other two as “secondary” or “subsidiary.” By focusing on the buffer-stock aspect, we demonstrate, first, the breadth and depth of Graham’s overall conception in terms of both micro- and macroeconomics, and, second, the considerable overlap with John Maynard Keynes’s ideas developed around the same time, which are manifested particularly in their common conclusion that the inefficiency of commodity markets could be rectified only by government intervention. We also comment on Perry Mehrling’s assessment of Graham as “not any kind of economist at all” (JHET 2011).