loss and society suffers from wasted resources." Is this true? Write out a similar statement concerning commercial speculation. 3. “The grower, the manufacturer, and the merchant must speculate." Why? 4. "Commercial speculation is sometimes analogous to insurance and sometimes to gambling." What does this mean? 5. "Commercial speculation may concern itself either with the space area of the market or with the time area." Explain. 6. "The work of the trader in acquiring goods when they are cheap and parting with them when they are dear results in an increase of their utility to the public." Do you agree? 7. How can one distinguish between legitimate and illegitimate speculation ? 8. "By leaving it to the option of the individual property-holder to undertake experiments or not as he pleases, society secures most of the gain and avoids most of the loss." Is this true? 9. Does more speculative industry mean more costly industry? If so, who foots the bill? 10. What distinction can you draw between "speculative industry" and "organized speculation." If all organized speculation were to cease: what proportion of speculative industry would have disappeared? 11. Describe some of the chief risks in industry. Group these into classes. 12. Are risks greater in a changing condition of industry? Why or why not? Are risks greater in a wide market? 13. Is the process of production in modern industry spread over a longer period of time and is it more roundabout than formerly? How does this affect risks? 14. Assuming that industrial methods are constantly changing, should you agree to the suggestion that those persons who are pioneers in introducing the new methods make profits because of the change, and that those who cling to obsolete methods are commonly losers? Explain your answer. 15. Work through the "classification of price influences." What ones of these influences are under the control of the individual business man? 16. What is chance? What is its bearing upon the speculative character of modern industrial society? As far as this one factor is concerned, is society becoming more or less speculative? 17. What factors contribute to making "the mechanism of industry" delicate? When once we are aware it is delicate does that delicacy make industry more speculative? 18. Now that we know there are "fashionable seasons" does the presence of such seasons make industry more speculative? 19. What is meant by the industrial cycle? Does it make industry more or less speculative? 20. "The pecuniary organization of society increases the industrial instability." Is this true? Assume it to be true. Show that as a matter of logic this does not need to be interpreted as a final judgment to the effect that the pecuniary organization should be abandoned. 21. "The railroad and the bank are responsible for the modern industrial crisis." Is this a literal or a figurative statement? Is it a true statement, in either case? 22. Should you expect crises to be more acute in a frontier community or in a well-settled community? In a new or in an old country, granted approximately equal industrial development? 23. What are the essential characteristics of industry in flush times? During a crisis? During a depression? 24. It has been said that our society is sensitive to demand, and sensitive to shock. Why, in each case? What bearing does this have on the question of insecurity of capital? Would a socialistic society be sensitive to demand and to shock? 25. "The economic cycle involves the whole industrial system. No simple device will arrest the violence of its rhythm. It can be reached only by a complex of many complementary measures. We must learn to control the introduction of new technique; the demand for goods must be steadied; we must develop an art of predicting business conditions; a means must be found for co-ordinating recently accumulated capital and opportunities for investment; a higher sense of responsibility in making loans must be felt by bankers; a feeling of responsibility must be engendered in the promoter and means must be devised for checking the speculative mania." (a) Explain the why of each of these statements. (b) What things, if any, are we doing along these lines? 26. Illustrate risk being reduced (1) by increasing our knowledge of the future; (2) by employing safeguards; (3) by insurance; (4) by speculative contracts; (5) by social control. 27. Is it possible by foresight and calculation to reduce or to avoid some of the risks of industry? All of the risks of industry? 28. Does insurance reduce risks or does it transfer risks from the individual to society? Grant that it does only the latter, is the function socially justifiable? Just what is the function of insurance in modern industrial society? 29. Is it possible to insure your business against "negative" profits as you do against fire? Against what kinds of risk can you insure in an ordinary insurance company? 30. A certain cotton manufacturer displays great ability in the production of cloth, but he is nevertheless barely able to keep his head above water, because he is a poor judge of the raw cotton market and is more likely than not to buy when prices are inflated. Show how he could liberate himself from the consequences of this defect of judgment. 31. Miller A always covers purchases of wheat for milling by corresponding short sales. Miller B boasts that he is no speculator, and refrains entirely from transactions on the exchange. Whether prices rise or fall, A is insured his miller's profit, and never receives more. If prices rise, B makes a profit over and above his miller's profit. When prices fall, not only may his miller's profit be wiped out, but he may incur additional losses. Which one is really the speculator ? 32. During the Civil War certain wool manufacturers made enormous profits because of the rise in price of raw materials which they had on hand. After the war there were cases where these profits were nearly wiped out by losses consequent upon the fall in prices of raw materials. Explain. Could the loss have been avoided? 33. Speculators are often regarded as mere gamblers. If the whole body of speculators were to cease buying and selling grain, and limited themselves to betting upon the course of prices, would the work of commerce and industry be carried on exactly as it is at present? 34. "The speculative trader of the board of trade is another specialist." Is this true? If so, in what does he specialize? 35. What is the distinction between trade profit and speculative profit in hedging operations? 36. "The board of trade is one of the greatest insurance institutions in existence." Do you agree? 37. "Speculative contracts do not reduce risks; they simply pass the risks along, and society must face as many and as great risks as would have been the case if no such device as speculative. contracts had arisen.” Is this true? 38. Make a list of at least six kinds of speculative contracts. 39. "The lack of a well-co-ordinated system of control makes industry resemble, at present, a mob rather than an army." Upon what does society depend for the correlation of industrial units? Is its dependence well placed? What bearing has this question upon the topic "speculative industry"? 40. What is meant by referring to the entrepreneur as a risk-taker? As an insurance agent for the other factors of production? 41. If we were to have a socialistic society would risks disappear? 42. Would there be a risk-taker in a socialistic society? Would there be any of the functions of modern insurance performed? 43. Is our society really more speculative than that of the Middle Ages? If so, what factors have made it so? In any event, what are the indications for the future? 44. Draw up as long a list as you can of the various devices and structures which have been developed as a result of the speculative character of industrial society. B. The Meaning of Speculation 178. SPECULATION1 Now speculation is an all-embracing word, overworked, threadbare, and worn to the bone. Originally, it meant "to see," then "to view,” "watch," "spy out," then "exploration" or "contemplation." When thrift came into the language and men ceased burying their gold, it began to take on a new meaning. The spirit of legitimate adventure that entered men's minds when the Most Christian Kings abandoned brute force and repudiation, led men to buy things in the hope of selling them at a profit. It was risky business at first, and capital then as now was timid. The High Finance of the Middle Ages was not easily forgotten. But little by little channels through which enterprise might flow into wealth came into being, and confidence came with them. This was called speculation. By the time Adam Smith wrote his Wealth of Nations (1776) the word was firmly fixed in the language. "The establishment of any new manufacture," he said, "or any new branch of commerce, or of any new practice in agriculture, is always a speculation from which the projector promises himself extraordinary profits." How the early channels of speculation broadened into great rivers, how confidence grew as the art of making money and increasing it developed, how speculation led to the opening of new countries, all this is a fascinating story. And yet the speculation of today is no different in its elementals from that of the early Greeks: the same spirit of "divine unrest" that spurs on the philosopher in his study stimulates the explorer of strange lands, beckons on the engineer and the builder of railways, and attracts the capital of the adventurous investor. We cannot stop it if we would, because hope, ambition, and avarice are fundamentals of human nature. The police cannot arrest them; they are fixed and immutable. If there is more speculation in material things today than there ever was before, it is because there are more things to speculate in, more money to speculate with, more people to speculate, and more machinery, like telephones and telegraphs, to facilitate speculation. Capital, credit, and new undertakings grow day by day and open new avenues of possible profit. The per capita wealth of nations, growing by what it feeds on, constantly seeks new fields for enterprise and adventure. The intelligence of the people increases by leaps and bounds, and goes peering I Adapted by permission from W. C. Van Antwerp, The Stock Exchange from Within, pp. 36-39. (Doubleday, Page & Co., 1913.) curiously into all the little nooks and crannies of the world for opportunities of gain-the apotheosis of speculative enterprise. All forms of human endeavor in material things are, or were at their beginning, speculation. Every ship that goes to sea carries with it a speculation and leaves another one behind it at Lloyds. Every man who insures his life or his house buys a speculation, and every company that insures him sells one. The farmer speculates when he fertilizes his land, again when he plants his seed, and again when he sells his crop for future delivery, as he often does, before it is planted or before it has matured. The merchant contracts to fill his shelves long before spring arrives; he is speculating. The manufacturer sells to him, speculating on the hope or belief that he will be able to buy the necessary raw material, and again on the labor, the looms, and the spindles necessary to make the delivery. In the South the grower of cotton and in Australia the grower of wool are likewise speculating on the probability of a crop and on the price at which they may sell to this manufacturer. It sounds like "This is the house that Jack built" and its endless chain of sequences; a chain, indeed, and one no stronger than its weakest link. Interfere with any part of it, and the whole commercial structure which it binds together must fall apart. The grower, the manufacturer, and the merchant must speculate. 179. COMMERCIAL SPECULATION1 Commercial speculation is sometimes analogous to insurance and sometimes to gambling. In the former case it is said to be legitimate, in the latter it is said to be illegitimate. But the legitimate and illegiti- · mate transactions are so much alike in their form, and so inextricably mingled in practice, that it is often extremely hard to draw the line between them. A large speculative element is involved in trade of every kind. The trader seeks to buy articles at as low a price as he can and to sell them at a higher price. He may do this either by buying them in a market where they are cheap and selling them in a market where they are dearer; or by buying them at a time when they are cheap and selling them at a time when they are dearer. The difference between his buying and selling prices represents his profit on the transaction. The uncertainty attaching to the amount of such profit makes the operation a speculative one. There is a serious risk of loss, which the trader I 1 Adapted by permission from A. T. Hadley, Economics, pp. 100–111. (G. P Putnam's Sons, 1899.) |