Investment and speculation are closely associated with each other and with the well-being of trade. They are the propelling forces governing the money market, which in turn is the vital life-blood of business.

Every head of a corporation, every business man who holds a responsible position and upon whose judgment the success of an enterprise largely depends, should provide himself with a general knowledge of the problem of investment and speculation.

Many a merchant and many a manufacturer who has mastered the problem of investment and speculation has been able to put his knowledge to great financial advantage. Through his ability to foresee a drain upon the money market and its consequent effect upon interest rates, he can provide for all his banking accommodations long before interest rates have hardened. He has been able, by anticipating a depression in trade, to curtail expenditures and guard his credit accounts from weakness. Such a knowledge prevents him from being caught off his guard by a sudden dropping-off in business. And, vice versa, he is in a position to detect a revival in trade by the same barometer, the money market.

As it is also true that business, whatever may be its nature, is a calling devoted solely to the making of profits, some time or other surplus funds are accumulated which are intended for investment. The intelligent and safe investment of such idle funds requires a general knowledge of investment and speculation. Fortified with such knowledge, the owner of surplus funds guards himself from serious errors. It shows him the importance of being guided by actual facts and not by the hearsay advice of others. It can harm no one to know how to differentiate between investment and speculation; it can only benefit him.

Definitions

Defining the difference between investment and speculation is not easy, as there are no hard and fast rules to distinguish them. The dictionaries commonly define investment as follows: "To lay out capital in the purchase of property for permanent use as opposed to speculation.9} And then they say that speculation is "to make a purchase or investment that involves risk in the hope of probable gain," "a more or less risky investment of money in expectation of considerable gain."

It is plain that in each case the word means the employment of capital for gain. Broadly speaking, there is no distinction between the two methods of laying out capital beyond that made in the public mind by the measure of risk involved. Now experience shows that the measure of risk in any given case may vary from day to day, so that what seemed free from all danger yesterday may present all the elements of hazard tomorrow.

Illustrated By Government Bonds

This may appear rather a strange statement, but a simple example will easily establish it. There is no safer investment in the mind of the public than a government bond, but suppose a government conquered and its possessions invaded by the forces of a foreign foe; what is the natural outcome of such a disaster? The securities issued by the stricken nation rapidly decline in value, through the general uncertainty as to how the invaders will deal with the nation's creditors. They can, if they so desire, wipe the slate clean of all debts, or they can compromise, or they can pay in full. As long as it is not known what the outcome will be, the quotations of all the nation's obligations fluctuate violently. As securities, in regard to the safety of the funds invested in them, they cannot properly be classified as investments.

Of course such a turn of affairs with us is an unlikely contingency. I mention it as a remote possibility, merely to emphasize my statement that there are really no immutable rules that will make an investment always an investment. Unforeseen events will often transform an investment into a speculation or change what at one time appeared a risky speculation into a very desirable investment.

It was not very long ago, measured in years, that our government bonds were looked upon by foreign investors more or less as a speculation. This was during the dark days of our Civil War, when Gladstone, the British Premier, seemed to speak the truth when he declared that a new nation was born by the secession of the southern states from the United States of America. The bonds then issued by our government to raise money to carry on the war were viewed with suspicion in England. Only the German and French investors took kindly to our securities and then only when they were obtainable at bargain-counter terms.

Nor does a clash in arms between nations alone tend to have a serious effect upon their securities. It sometimes happens that economic influences depress their values to snch a degree as to make them a poor investment for those who placed their money in them when they were regarded as gilt-edged securities and were bringing high prices. This is what has happened with British consols, the government obligations of the English nation. They have steadily declined in price until under the normal conditions prevailing before the great European war they were selling as low as seventy. I shall not enter here into a discussion of the causes responsible for this striking decline in one of the premier securities of the entire world. I cite it only as another illustration in support of my contention that the dividing line between investment and speculation is very elastic.

What may be good today may be worth much less tomorrow or may be even worthless.