judgment of either or both may be bad. But it is no less a real bargain, in which each side gets value received for what he gives. Gambling, on the contrary, does not involve an exchange of values. It is a contribution of values to a central fund, the ultimate ownership of the fund to be determined by chance. True, in gambling each contributor receives a chance of receiving all the contributions; but he also runs a risk of losing his whole contribution. Thus the speculator receives a value in return for his stake, while the gambler does not. For the former it may not be the value that he thinks he is getting, and the value actually received may decline. But that is true of everybody who buys a commodity with a view to its increase in value, from raspberries to skyscrapers. The fact that a man's judgment as to future values may prove unsound does not throw him into the class of gamblers.

Nor does the fact that speculation on the Stock Exchange is largely carried on through tradings on margins and short-selling make it gambling. Both processes are common under other names throughout the commercial world. Trading on margin is buying stock, and making only a small cash payment at the time of purchase. It differs in no essential particular from buying furniture on the instalment plan, from buying land on mortgage, and from buying books by subscription. It merely involves the use of personal credit backed by security.

Short-selling is selling securities which one does not possess at the moment in the expectation and belief that they will go down in price. This action is no more gambling than that of an automobile manufacturer in contracting to sell an automobile before he has in his possession any of the materials out of which it is to be made is gambling.

Speculation and gambling, again, differ widely in the service which they render to the community. Gambling renders none. The gambler is a drone in an economic hive, a parasite in the industrial organism. Speculation renders a real, a valuable, and indeed an indispensable service. The Stock Exchange brings the investor and the enterprise together. It directs capital into channels of investment which the owners of the capital would never have been able to find for themselves. The speculator performs an important function for the investor by forecasting the future. Speculation is the struggle of intelligence, armed with a knowledge of the ascertainable conditions, against the blind workings of chance.

The essential likeness between gambling and speculation lies in the fact that both are attractive to those who have no business to indulge in them. Men will gamble who cannot afford to gamble, who have no skill at the game they seek to play. So, too, men will enter

into speculation lacking adequate resources, adequate knowledge, and adequate judgment. For just as gambling is attractive because it holds out glittering hopes of making money without labor, so speculation is attractive because the prizes for the successful are out of all proportion to the effort expended or to the stake put up.

The main evil which accompanies speculation lies in this participation in it of the unfit. It is not speculation in itself that is an evil, but the improper and unwise use of the speculative faculties by the ignorant and the unskilled, the insufficiently provided, the weak in judgment.

84. The Ethics of Speculation"

What is speculation? And how does it differ from legitimate business? A miller knows in the fall that next summer he will need a million bushels of wheat. He studies the wheat conditions throughout the world, forms the best judgment he can as to the probable supply and demand, and the prospective market price, then sends out an agent to contract with the farmers to give him next summer the wheat he will need at the price he is willing to pay. This is a legitimate business transaction, advantageous to both miller and farmer. The fact that the miller may miscalculate, and as a result make an unexpected profit or suffer an unexpected loss does not make the transaction a speculation.

A broker, who has no mill and has no use for any wheat, makes a similar calculation; he sends out his agent, buys in the fall of the farmers at an agreed price to be paid on delivery the next summer, expecting to sell the wheat in turn to the millers. This may be a legitimate business transaction. It is advantageous to farmer and miller. And in modern complicated business the service of the broker is often indispensable.

A speculator makes a somewhat similar investigation of probable demand and supply. He knows what the average crop for the last five years has been. He knows that there is an iscreasing demand for wheat as a food product all over the world. He gets together some cash and more credit, and plans to buy up the whole wheat supply in the United States; if necessary, the whole wheat supply of America. If he can succeed in doing this, he will have a monopoly, and can indefinitely increase the price. This is not quite so impossible as it may seem at first sight. He does not have to buy all the wheat; if he owns most of it, he can trust the owners of the rest not greatly to undersell him, and thus can largely determine the market

17 Adapted from an editorial in The Outlook, XCII, 14-16. Copyright (1909).

price. He does not have to maintain the highest price for any great length of time; he has only to keep up his price until the date at which he has agreed to sell, and can often sell part before that time at a price sufficient to guard himself against loss. He does not have to pay cash for his wheat. He has only to contract to pay at a future day, and meantime, to raise money enough, called a margin, to save from loss the man of whom he is buying it, in case the price declines below the amount which he has agreed to pay for it.

But the speculator is not alone. Others are associated with him in his endeavor to obtain control of the wheat in the United States. There are also speculators who believe that this attempt will fail; and who are leagued together to make it fail. The former, in the jargon of the market, are called bulls; the latter are called bears. The bears agree to sell wheat on the first of May at a fixed price; the bulls agree to buy the wheat at that price. The bulls attempt to make the market price on the first of May as high as possible; the bears attempt to make it as low as possible. But the bears have no wheat to sell and do not expect to have any; and the bulls do not want any wheat and do not expect to buy any.

What actually happens is this: Mr. Bear agrees to sell, and Mr. Bull agrees to buy, a thousand bushels of wheat on the first of May at one dollar per bushel. But on the first of May the market price of wheat is $1.10 a bushel. Mr. Bear, therefore, would have to spend $1,100 to buy the thousand bushels of wheat which he had agreed to sell to Mr. Bull for $1,000. Instead of doing so, he pays Mr. Bull $100. If, on the other hand, the price of wheat has fallen to ninety cents per bushel, Mr. Bear can buy for $900 the wheat for which Mr. Bull has agreed to pay him $1,000. In that case Mr. Bull pays Mr. Bear $100.

No wheat is actually bought and sold; no wheat passes from one to the other. Under guise of the contract to buy and sell, these two men, Mr. Bull and Mr. Bear, have simply made a bet as to the price of wheat on the first of May. The amount of the bet to be paid depends upon the difference between the actual market price on the first of May and the stipulated dollar a bushel.

If the reader asks, How can a bet between two dealers affect the price of wheat? The answer is, It cannot. But when hundreds of men are excitedly offering to buy wheat and other hundreds to sell wheat, and these offers to buy and sell include millions of bushels that have no existence, and the bets upon the price of wheat reach millions of dollars, the result is to create an artificial demand and an equally artificial supply, which determine the market price of such wheat as is stored in the warehouses.

processes which go on upon the floor of the Stock estment, speculation, and gambling-are often inexsiten practically impossible to assign any parour question to one of these three classes. Constance, is sometimes semi-speculative in charwho has saved a thousand dollars and wishes get a future need. There are many ways in which the Stock Exchange. He may buy government Sit in this case there is no chance that his principal ret to any degree when he comes to sell his bonds.

judgment of either or both may be bad. But it is no less a real bargain, in which each side gets value received for what he gives. Gambling, on the contrary, does not involve an exchange of values. It is a contribution of values to a central fund, the ultimate ownership of the fund to be determined by chance. True, in gambling each contributor receives a chance of receiving all the contributions; but he also runs a risk of losing his whole contribution. Thus the speculator receives a value in return for his stake, while the gambler does not. For the former it may not be the value that he thinks he is getting, and the value actually received may decline. But that is true of everybody who buys a commodity with a view to its increase in value, from raspberries to skyscrapers. The fact that a man's judgment as to future values may prove unsound does not throw him into the class of gamblers.

Nor does the fact that speculation on the Stock Exchange is largely carried on through tradings on margins and short-selling make it gambling. Both processes are common under other names throughout the commercial world. Trading on margin is buying stock, and making only a small cash payment at the time of purchase. It differs in no essential particular from buying furniture on the instalment plan, from buying land on mortgage, and from buying books by subscription. It merely involves the use of personal credit backed by security.

Short-selling is selling securities which one does not possess at the moment in the expectation and belief that they will go down in price. This action is no more gambling than that of an automobile manufacturer in contracting to sell an automobile before he has in his possession any of the materials out of which it is to be made is gambling.

Speculation and gambling, again, differ widely in the service. which they render to the community. Gambling renders none. The mbler is a drone in an economic hive, a parasite in the industrial anism. Speculation renders a real, a valuable, and indeed an spensable service. The Stock Exchange brings the investor and enterprise together. It directs capital into channels of investwhich the owners of the capital would never have been able ! for themselves. The speculator performs an important func-the investor by forecasting the future. Speculation is the of intelligence, armed with a knowledge of the ascertainable 5, against the blind workings of chance.

sential likeness between gambling and speculation lies in it both are attractive to those who have no business to em. Men will gamble who cannot afford to gamble, who t the game they seek to play. So, too, men will enter