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The seeds for Leo Melamed’s idea to add a futures exchange at the Chicago Mercantile Exchange were planted during his family’s escape from Nazi Poland at age 7, Melamed told students at Gleacher Center on May 17. Transferring currency from one country to the next, Melamed’s father, a teacher and mathematician, explained how the free market was a better gauge for exchange than government valuations, said Melamed, the founder of financial futures and chairman emeritus of the Mercantile Exchange.
“That lesson resonated in a 7-year-old and stayed with me,” he said. Thirty years later, as chairman of the Merc, Melamed thought the same of the antiquated Bretton Woods currency exchange system used since 1944. Unsure of his idea for a free market in currency futures, Melamed nervously brought it to his economic idol, Milton Friedman. “He stood up and embraced me,” Melamed said. “He said, ‘What a wonderful idea.’ To tell you there were tears in my eyes is not to overstate the moment. It was a moment of truth to me.”
What was a revolutionary idea in 1972 was expanded to greater use with the advent of computers in the early 1980s, Melamed said. “This technology allowed some smart guys and gals coming out of universities at the time to say, ‘This guy Melamed in Chicago has got these big markets going in interest rates, in currency and stock indexes. Why can’t we do the same thing with a computer?’” he said. “They thought, ‘Say I have a clientele at Goldman Sachs that’s only 10,000 or 1,000 people. We could create an instrument for their use, for their hedging, and perfect it on the computer.’”
Based on his own profound lessons in life, Melamed believes fixed prices and even communism will never withstand the power of the free market. “The computer has democratized the world and forced value shifts,” he said. “It used to be that where you were located made the difference between success and failure. The computer can be anywhere and every one of us is more equal than we were because of that.”
During Melamed’s recent visit to China, a high-ranking government official pointed to thousands of Chinese using cell phones in Tiananmen Square, Melamed said. “He said to me with pride, ‘Do you realize, Mr. Melamed, there are 300 million cell phones in operation in China?’ That’s bigger than the American population,” he said. “I looked at him and I said, ‘No more Tiananmen Square.’ He knew what I was talking about. He laughed at me and said, ‘You’re right. We had trouble with fax machines, but can you imagine 300 million Chinese on cell phones saying, “Do you know what’s going on in Tiananmen Square?”’ It couldn’t happen.”
—Phil Rockrohr