1. Every enterpriser is to some extent specializing as a risk-taker. This familiar idea may be taken as a starting point in discussing speculation. In its broadest sense speculation means to look into things, to examine attentively, study deeply, contemplate, meditate. In a business sense the speculator is one who studies carefully the conditions and the chances of a change of prices; hence arises the thought that speculation is connected with chance. The enterpriser can estimate these chances better than most men. He stands on a hilltop sweeping the horizon, and can see farther than the workingman can. He relieves the other agents of part of the risk, and he insures both laborer and capitalist against future fluctuations of prices. Some of the profits of successful enterprise in countries where no system of regular insurance has grown up, and in certain lines here where no insurance is possible, are speculative gains of this sort. Offsetting them, however, in large measure, are the speculative losses, by which in many cases the investment has been swept away altogether. The cautious business man tries to reduce chance as much as possible by insurance, and to confine his thought and worry to the parts of the productive process where his ability counts in the result. The wise have found out that it is better to shift the risk to some specialist who can take it better than they. For a man who has his thought and effort concentrated on running a flour-mill, it is foolish to take the risks of fire, of loss in shipment, of a rise in the price of grain needed to fill outstanding orders - it is as foolish as it would be for him to make his own machinery. Insurance being the economical way to cover risk, the reckless will, in the long run, be eliminated from the ranks of enterprisers.

An element of speculation in all business.

2. In some lines the risk of marketing and carrying large stocks becomes highly specialized, so that ordinary enterprisers shift it to a small group of risk-takers. In buying and selling large quantities of produce there is required the closest and most exclusive attention of a small group of men. The marketing of some staple products requires the most minute acquaintance with world conditions. To foretell the price of wheat one must know the rainfall in India, the condition of the crop in Argentina, must be in touch as nearly as possible with every unit of supply that will come into the market. Such knowledge is sought by the great produce speculators in the central markets. If all means of communication - telegraph, cables, mails - are open to all, competition among these speculators becomes intense, and the result is the extremest efficiency. Their survival depends on the development of acute insight into market conditions. It is the testimony of expert witnesses and of writers in the report of the Industrial Commission that the margin at which farm produce is sold has fallen greatly in the last few years. These products are marketed along the lines of the least resistance, that is, of the greatest economy. The function of the commercial specialists is to foresee the markets, and to ship to the best place, at the right time, in the right quantities. If a product shipped to Liverpool will, by the time it arrives there, be worth more in Hamburg, there is a loss. Such difficult decisions can be made best by a small group of men selected by competition. When handling actual products they perform a real economic service.

Specializa- tion of risk taking.

Produce speculators as insurers.

3. Even some mere speculators on the produce markets may and do at times perform a productive service as risk-takers. Many of the speculators in staples, wheat, corn, wool, rarely handle the material things, the real products. They make it their business to study the world conditions, to foresee prices, and in a sense to bet upon them. Regular merchants buy and sell fictitious products of these men. When a miller buys ten thousand bushels of wheat that will remain in the mill three months before they are marketed as actual flour, he at the same time sells that number of bushels to a speculator for future delivery; or selling flour for future delivery the miller buys a future in wheat. In either case he cancels the chance of loss or gain, giving up the chance of profit in the rise of wheat in exchange for protection from the loss of the product on his hands. To him this is legitimate insurance, for he is striving not to create an artificial risk, but like the medieval ship-owners, to neutralize one that is inseparable from the ordinary conditions of his business.

One may ask, How, if the miller in the long run benefits, can the speculator gain? He does not intend to perform this service for nothing. Yet as the sales in the whole market equal the purchases, some say that there can be no profits to the speculator. There are unsuccessful speculators and at any rate their losses go to the successful as a sort of gambling profit. Speculators do not dine entirely on "lambs"; they are anthropophagous. But, further, the sales to legitimate purchasers should net a gain to the abler speculator. In proportion as his estimates are correct, there will remain a regular slight margin of profit to him. If he agrees to sell wheat at eighty-five cents to be delivered in three months, he expects it to be a little less at that time. In the long run the ablest speculator probably buys at a little less and sells at a little more than the price really proves to be. This means that the merchants in the long run pay something for protection against changes in prices, just as they pay something for insurance. And yet this is the cheapest way to eliminate risk, and a man engaged on a large scale in milling is, it is said, at a disadvantage if he neglects this method of marginal buying.

Source of legitimate speculators' gain.

4. The buying of margins by the "lambs" is simple betting, and much manipulation of the market is dishonest. What has just been described is the more legitimate phase of marginal buying, not its darker aspect. One who, having no special opportunities to know the market, buys or sells wheat, or other commodities or securities, on margin, is called a lamb. He is simply betting. He has no unusual skill; he cannot foresee the result. The commission paid to brokers "loads the dice" slightly; the opportunities of the larger dealer of anticipating information load the dice heavily against the lambs. Secret combinations and all kinds of false rumors cause fluctuations large enough to use up the margins of the small speculator. At times a number of powerful dealers unite to cause an artificially high or low price, a situation called "a corner." But this is little other than gambling between betters. The general public gains and loses little if any by these operations, except in the evil effects they entail socially.

Ignorant and dishonest speculation.

The promoter's service to the owners.