SPECULATION.

New Zealand Herald, Volume LVII, Issue 17651, 11 December 1920, Page 1 (Supplement)

SPECULATION.

EFFECT ON THE PUBLIC. BY H. W. SEGAR, M.A. , F.N.Z. INST. Tell a working-class audience that many speculators do a good serrice to the public and. that speculation has a legitimate part to play in trade and commerce, and there is sure to be manifested a general scepticism punctuated with some loud guffaws. But so it is. In nature we have beneficial as well as injurious insects. In trade we have beneficial as well as injurious speculators. Insects follow their instinct oblivious of the interests of man, but it so happens that the operations of some are as helpful as those of others are harmful to those interests. The speculator works for his own advantage, not in any way for the benefit of his fellow-man. But many help others while they help themselves, though others prey on the community.

Speculation thrives on .the uncertainties of business, and on fluctuations of prices. The aggravation of these features introduced by the war has thus been exceptionally favourable to the spread of speculation, and has even increased the need for it. If there has been of late no very wide and loud outcry against the speculator and speculation as such it is because the speculator has been included in a more general class —that of profiteer. But the specially great uncertainty of the courses of prices, together with the abnormal and abnormally fluctuating exchanges, are bound to give speculation a wider scope and a greater importance for many years to come than formerly obtained.

It is not part of ordinary business to aim at making profit out of changes in prices. That is the function of speculation. Business aims at achieving its purpose with as little risk as possible. Kisk is accordingly handed over to the speculator or insurance company. Business must receive a return that makes :t worth while. If there is effective competition the return will not be materially greater than is fairly earned. But it is impossible to eliminate altogether the -speculative element from almost any business. Prices will vary, and business has to be carried on ahead of demand. Moreover, what the demand will be when the goods are put on the market can qniy be estimated. Thus the return obtained is variable. Sometimes it is greater, perhaps much greater than the average, and the cry of profiteering arises. Such a period, however, is almost bound to be followed by one in which the return is less, and many a business man. then envies the comparative security of the man on salary or wages.

Beneficial Speculation. The simplest form of pure speculation is buying for a rise or selling for a fall in price. The Speculator, anticipating a shortage leading to a rise in price, buys a commodity to sell at a profit when the rices go up. Others do the same. The result is that prices begin to rise before the shortage arrives. Is this harmful to the community 1 We cannot yet say, for there are other consequences. As a result of the speculation stocks are not exhausted so rapidly, and the anticipated shortage when it arrives is found not to be so acute, nor are prices so high, as they otherwise would have been. That is the service of the speculator to the community. The consumer pays a higher price for a longer period, but not so much at the worst. Nor perhaps has the price risen so much as to make him forego the purchase, or greatly reduce the consumption of • the commodity. *• : The speculator makes his profit. That is what fie is after. But who pays: it? Not necessarily, or even probably, the public. The great profit the producer would have made at the time of real scarcity has been greatly reduced. The amount of the reduction is probably sufficient to cover the profit of the speculator and at the same time relieve the public. In % a similar way by selling in antici pation of a glut, the advantages of s abundance are spread over a longer period. The producer is saved the great loss ''incurred by a glut. The speculators, as a result of giving special attention to the subject, are generally in a position to foresee and estimate the supply and needs of the future much more accurately than those who do not specially devote themselves to the business. * .They'are thus, though in their own interest, "contributing to the public the best judgment of minds that are generally alert, wellinformed and capable.". " ' But speculation is carried out not only by the speculator, but by the business' man as an insurance against' the speculative element in his 'business which he does not wish to cultivate but: has to face. He can insure in the ordinary way against loss by fire, or destruction of crop by hail. But. there is, no such simple means of insuring against the. rise. in the pi-ice of the material which he has to use in fulfilling his contracts.*. Where there is •an "organised" market, : dealing in "futures" may practically .eliminate the element of risk arising from changes in prices. Business is then business, and not partly speculation. The speculative risk is borne by .those who are specially qualified to deal with it, and who, deal' ing in it alone, are able to set risk against risk. In this way the speculation itself becomes. a business. .... .. '" : -i The Injurious Variety. That much speculation is evil and illegi- ! timate lies not in the speculation as such, but in the method of it.'The weakness is hot so much' in the,; system that allows the practice as in the nature of those that take advantage of it. The first fault is ignorance. The speculator ought. to be expert, in the material he deals with, otherwise he is not likely to.,make an accurate estimate of any situation. His action will tend to accentuate instead of diminishing the fluctuation of prices, which latter i s the justification for his existence. It will incidentally lead to his own loss, perhaps hi 3 ruin. In this way, in fact, the amateurish speculators are fortunately eliminated, so that the great mass of trade speculation is done by. qualified men. A second fault is that of manipulation of the markets. Here the speculator almost invariably gains at the expense of others, as does the thief, although unforturnately there is not the same protection afforded by law a there is against robbery. False suggestion is the chief weapon of the unscrupulous men, who thus aim at illegitimate gain. Price has been described as the indicator of business. These men falsify the indicator far their own purposes. Speculation may be unwise, even when : legitimate. To speculate on insufficient i capital means that, if the forecast of events is wrong, there is a risk of a bankruptcy which may involve others in disaster. Other speculation serves no useful social purpose. Such is speculating in shares or in land. Dealing in shares or in i land lias no influence in adjusting supply to demand, if we except the work°of deve- i loping or subdivision of land which otherwise would remain unusued.-vor not used to the same advantage. It does not even bring seller and buyer together. Such speculation is to be classed with other gambling which no community has found it to its best interests to encourage. The recognition of this has assisted j in some countries in the imposition of j special taxation on profits made from the sale of land.

Land occupies a peculiar position in respect to speculation. Speculation for a rise in the value of land is easy, but no one can speculate for a fall without parting with the land he happens to hold. The comparative absence of such speculation at critical times largely explains why the collapse of land booms is often so sudden. Space forbids examples, but many readers will recall memories of. the past. We shall' say nothing as 4o'tho future.