A produce exthange affords a meeting place for those who wish to trade extensively in such staples as wheat, corn, oats, cotton, pork and beef. Buying and selling in such exchanges must be done in ac cordance with established rules laid down by the gov erning board. In most &changes it is possible to buy and sell `;futures," by which is meant that during March a man may enter into a contract to pay a cer tain price for wheat delivered to him. at the end of April or May, or even a later month. Commodities are graded, and the buyer will insist that the grade delivered to him be not inferior to the one for which ; his contract calls.
On the floors of the produce exchanges the market prices of nearly all staple articles are fixed. These are not the wholesale prices, but they influence the wholesaler in making up his list, and changes in the wholesale prices finally affect the prices which the retailer exacts from the consumer.
The stock exchange, called bourse in Paris, Borse in Berlin, provides a meeting place for men who wish to buy or sell productive capital. The capi tal may be invested in railroad or industrial corpora tions and will be represented on the exchange by stock certificates or by mortgage bonds.' Since the return upon the bonds is fixed at a certain per cent, they are not commonly objects of speculation, being bought by investors who have surplus capital on which they wish a sure return. The prices of stocks, how ever, vary greatly because of present and prospec tive changes in the earning power of corporations. Certain professional traders, therefore, speculate in stocks just as others do in cotton, wheat and other staple commodities.
9. Speculator's is a popular no tion that speculation is an unmixed evil and that the speculator is no better than a gambler, betting on the future prices of articles instead of on the turn of a card. This notion is due in part to popular ig norance in regard to the real nature of speculation and to the fact that much of the buying and selling on the exchanges is done by amateurs who operate thru brokers.
The -trader who deserves to be called a scientific speculator is not a gambler. He backs his judgment with his money just as does the miller when he buys wheat, or the merchant when he lays in a stock of goods. The difference between the ordinary mer chant and the scientific speculator is only one of de gree, the speculator merely taking a greater risk.
His problem is more intricate and difficult than the retailer's or the wholesaler's. Most people think he is taking a gambler's chance merely because they do not have the faintest idea of the nature of his business problem.
As a result of the speculator's operations the prices of staple articles are much steadier than they would otherwise be. He foresees changes in market condi tions long before the consumer or the retailer or even the wholesaler, and begins at once to buy. If his judgment is sound, a gradual advance of price begins and a consequent gradual curtailment of consumption; but for him, sales would have gone on at the lower price until the new conditions actually prevailed, when prices would have suddenly jumped to such a height as to cause distress among consumers and dissatis faction among those producers who had already sold their supplies. The price, it should be noted, would go to a figure higher than it would be permitted to reach under the influence of speculation, for consump tion during the preceding months would not have been curtailed by any advance in price. Thus speculation tends to conserve the supply or stock of an article for months before a shortage is indicated, and so tends to prevent sudden and great fluctuations of price.
On the other hand, if the speculator foresees a great increase of supply without a corresponding in crease of demand, he becomes a bear and is willing to sell at the present market price. If the pressure to sell exceeds that to buy, the price gradually de clines ; and as a rule consumption increases so that the price does not fall so low as it would have fallen if speculation had not caused it gradually to decline for some time before the supply on the market had actually been increased.
It is needless to prove here that society is bene fited by stability of prices. Every consumer knows the annoyance occasioned by a sudden advance in price, and every merchant and manufacturer knows the damage that can be done by a sudden drop of prices. The professional trader, when engaged in speculation, is performing a useful task and is really earning a profit.
Not only does he fix the prices of most of the raw materials which are made into the necessaries, com forts and luxuries of life, but he also helps to save the consumer and the dealer from the shock of sud Qen and great fluctuations.