20 
LAND 6r WATER 
October 24, 1918 
Speculation Rampant : By Hartley Withers 
THERE is a 4ime for all things, and speculation, 
in its right time and place, is a useful economic 
factor without which material progress would be 
impossible. If nobody ever backed his luck or 
took a risk in the hope of a big profit and the 
chance of a big* loss, experiment and development would, 
under our present economic system, be very seriously 
checked ; and it is difficult to imagine any economic system 
under which speculation, under a different form, perhaps 
with a different name, would not be necessary to progress. 
Even in its narrow and most unattractive sense — that of 
gambling in stocks and shares — speculation is highly useful. 
Without it new ventures with a promising but doubtful 
future could not get the capital that they need, and even 
new issues of proved soundness might lack a home until the 
investing public, which finally holds them, had got used to 
the look of them. The investor is, rightly and naturally, 
a slow and cautious person whose choice of securities is 
apt to run in grooves; and the speculator meets a "felt 
want" by anticipating the demands of the investor and 
providing lodgings for securities that have not yet found a 
home in the hearts of real holders. Another useful duty 
that he performs in normal times is that of making a free 
market and reducing the violence of oscillations in prices. 
That the market is freer in a security which, thanks to the 
attention of speculators, is changing hands continually in 
large and small quantities, need not be argued. That 
speculation steadies fluctuations is, at first sight, something 
of a paradox. But a moment's reflection shows that the 
man who anticipates demand by buying a security or com- 
modity that is out of favour and supplies the demand when 
it arises, lessens the jerk on its price that would otherwise 
be caused by the demand ; and that the same beneficent 
function is performed on the other side of the market by 
the much-abused "bear" who sells short when a stock or 
commodity is run after, and so provides a steadying influence 
by his repurchases when the tide turns 'and a stream of 
selling overwhelms the price. These useful duties are per- 
formed by the average amateur speculator not only for 
nothing, but at a loss. He has to pay commissions and 
market "turns," and contributes to the revenue through 
•contract stamps. What one makes comes usually out of the 
pockets of another, and the whole body of the amateur 
gang is probably, on balance and in the long run, yielding a 
■comfortable revenue to the better-informed professional 
operator who is always just ahead of them in getting in 
■and getting out. 
The Boom of To-morrow. ' 
The notion of an after-war boom in Stock Exchange 
prices springs, like hope, "eternal in the human breast,"' 
and will only be abolished by the League of Nations 
if anc^, when it abolishes war. Sorne of us remember 
the confident expectations of a boom after the South 
African War, and how it duly made its appearance and 
lasted just three minutes. It does not, therefore, foUow 
that at the end of the present war there will be no boom or 
an equally brief one. In financial matters history by no 
means always repeats itself. It could not if it tried, because 
conditions are never quite the same. But one thing is cer- 
tain : that the more speculation is built up on the expecta- 
tion of an after-war boom, the less chance there is that the 
boom will happen. For speculation, as has been shown, 
itself defeats the expectations that it anticipates by pro- 
viding an antidote for them. It is "plain as way to parish 
church" that the more people there are who are waiting to 
"get out," the more their sales will undo the effect on prices 
of the after-war buyers who come in and bid for stock. As 
to how far these two influences will outweigh each other, 
and which will finally be the stronger, only those can say 
who can foresee how moneyed people will feel after the war, 
and how far and how they will express their feelings by 
Stock Exchange operations. Market movements are entirely 
a psychological question, depending on the number of people 
Avho think that the moment has arrived for buying or selling, 
and are in a position, by being possessed of money or credit, 
■or of securities to be sold, to put their thought into action. 
So that the speculator on an after-war boom runs a con- 
siderable risk of finding his expectations disappointed, and 
the more he is multiplied and the more deeply he is com- 
•mitted, the greater he makes that risk by his own action. 
So much for the speculator's chances from his own point 
of view. Now for the question of the general interest. What 
are the prospects of the after-war financial position ? No 
one can teU with any certainty. This we do know : that 
they are greatly improved by the certainty of the right 
kind of peace, and that every effort that statesmanship 
can make to relieve mankind of the ^ear of war, and the 
burden of preparation for it, will have enormous influence 
oft the brighter side of those prospects. But even if we 
take the most optimistic view of the future, we shall probably 
admit that we have rather a difficult time to go through 
during the process of after- war adjustment and the switching 
over of the whole social organisation^ from war effort to 
peace work. That being so, it does not seem to be an occa- 
sion for giving any chances by encouraging any avoidable 
weaknesses in our financial fitness. One most important 
element in financial strength is the absence of inconvenient 
commitments which would force operations to realise if 
prices happened to fall. In other words, what the City calls 
a weak "bull account" is a dangerous weakness in ticklish 
times. The meaning of this phrase was that a large number 
of people had bought stock not for investment, but in the 
hope of a speculative profit, and were carrying it over in 
the market instead of paying for it and putting it away. 
Owing to Treasury control during the war, this kind of 
operation is no longer possible. Carrying over is, for the 
time being, forbidden. But though there is now no bull 
account in the old sense of the phrase, the same danger 
exists, and is all the more unpleasant because it is less easy 
to detect and check, if a large number of people have bought 
stock and taken it up with money borrowed from their 
bankers or from anybody else. Everybody, knows that this 
sort of speculation had become increasingly fashionable in 
the years before the war, so much so that the grey-headed 
rnembers of the Stock Exchange used to deplore it as an 
evil tendency, because, as has already been said, it is so 
much less easy to trace and control. In the old days (those 
old days the existence of which one is sometimes inclined 
to doubt), when nearly all the public's speculative commit- 
ments were carried over on the Stock Exchange, the 
Stock Exchange could see then the extent with reasonable 
accuracy, and if they became distended to a dangerous 
degree, could* reduce them by a pleasant power known as a 
"shake-out." But when speculation is financed by money- 
lenders outside the House, it is possible for a veiled equivalent 
of a bull account to be built up on a very large scale without 
the Stock Exchange jobbers knowing much about it. If 
this is now happening, which no one can tell with certainty, 
but well-informed opinion suspects rather strongly, the 
position is to that extent weaker than it need be. We do 
not want any kind of top-hamper when we face the possibly 
capricious breezes of after-war financial weather. We want 
steady and hopeful markets all round, and especially strength 
in Government securities. If a number of speculators want 
to realise shipping shares, industrial shares, and other securi- 
ties that their fancy has selected, it is possible that owing 
to the comparatively narrow market in them they may 
have to do so at prices which may not seem satisfactory 
to them ; in that case, if they are also holders of Government 
securities, they may prefer to nurse their holdings of the 
less saleable kind and turn out Government securities instead, 
which will not be good for the market in the latter, which 
we want to see as good as possible. This kind of mutual 
reaction of one market on another is a most disconcerting 
influence that has to be reckoned with by those who dabble 
in finance. Flawless calculations are often upset by some 
event that may happen at the other end of the world, and 
without any possible direct connection with the security 
that an operator had chosen to back. If we want any one 
market to be good, we want them all to be good ; or the 
badness of one may poison the atmosphere of aU. There is 
no need to anticipate honors of any kind in after-war financial 
events. The recent favourable movement in neutral rates 
of exchange has been a very gratifying proof of the general 
belief abroad that peace will bring quick recovery here and 
a marked improvement in the value of our currency and of 
our promises to pay. When we think of all that this war 
has cost in the li\fes of the best of us, and how immeasur- 
ably important for the future welfare of mankind the history 
of the first few months of peace will be, it is surely not too 
much to ask the speculator to consider, when he ponders 
the scope and direction of his activities, their possible effect 
on matters that may be rather more important than his 
own profit or loss. 
