But it must be admitted that in actual practice much of what we may strictly define as speculation is carried on with a gambling intent. Even where the forms are legally those of speculation and all the ob jective phenomena are such, the intent and the so cial effects may be those of gambling. The rules of all exchanges forbid gambling as we have defined it: But they make so easy a technical delivery of the prop erty contracted for, that the practical effect of much specu lation, in point of form legitimate, is not greatly different from that of gambling. Contracts to buy may be privately offset by contracts to sell. The offsetting may be done, in a systematic way, by clearing houses, or by "ring settlements." Where deliveries are actually made, property may be tern pOrarily borrowed for the purpose. In these ways, specula tion which has the legal traits of legitimate dealing may go on almost as freely as wagering, and may have most of the pecuniary and immoral effects of gambling on a large II. Evils of speculation.—The great evil of spec ulation lies in the fact that persons who engage in it assume unnecessary risks and simply bet on fluctua tions. There are too many amateurs in the business, too many unskilled adventurers without either the necessary capital or the mental equipment. The un skilled lose in this field as readily as in any other. They seek in a childish manner to make money with out work, either mental or physical.
Possibly this evil of speculation on the part of ig norant outsiders can never be entirely abolished, but it can be greatly alleviated. In fact it is not as bad today as it was fifteen years ago; improvement is es pecially noticeable in the smaller markets like Duluth, Minneapolis and Kansas City. Moreover, many grain dealers have had gradual awakenings of con science and have come to refuse absolutely specula tive orders from outsiders who are not qualified to shoulder the risks involved. Others still cling to the old method of soliciting orders from any one and every one. However, the whole trend of opinion among the leaders of the organized exchanges is that many more safeguards should be established to prevent the "pikers" from taking "fliers." 12. Excessive speculation.—The charge is often made that speculation is harmful because of its great extent. A Congressional Committee, known popu larly as the Pujo Committee, prepared tables show ing that within any given period, certain stocks are "sold" on the Exchange at many times the amount of those stocks that are actually outstanding. One stock, for example, was dealt in six times over its amount in a single month. These figures are further fortified by the fact that dealings in certain stocks vastly exceeded transfers.
Such figures clearly indicate excessive speculation but there are counter considerations. Commonly these enormous transactions are confined to a few popular securities. It is the same on the London Stock Exchange and also to a certain extent true in Berlin and Paris. The great majority of stocks are never subject to such operations. As far as the fact
that more stocks are sold than transferred on the com pany's books is concerned, it may be noted that many investors fear their ownership may be revealed if their stocks are transferred. In other words many opera tions, which appear on their face as being wholly spec ulative, are really of an investment nature.
13. Effect of speculation on stocks.—If dealings upon the various stock exchanges of the country were confined solely to the business of investors, it might be possible that a cut in the dividend of an investment issue would result in a hundred selling orders with out a single buying order. Conditions upon the ex changes, however, do not follow any such one-sided plan. On any exchange there are always found both buyers and sellers for any stock which is listed. In this way one of the most useful functions of specula tion is secured, that of counterbalance. The pur chases made by the traders have a tendency to check or overcome the declines, and at the same time, give to the sellers an outlet for their stocks.
A pertinent illustration of this practice is shown in the case of a broker's customer who wished to dis pose of some three hundred shares of Canadian Pa cific. The market at the time was inactive with no sales of this issue. It was quoted at 185 bid and 190 asked, the bid coining from Berlin and the selling of fer from Montreal. In an endeavor to secure the best possible price for his client, and having the necessary time in which to do so, the broker started in to work up interest in Canadian Pacific on the floor of the exchange. A man dealing in arbitrage raised the offer to 187 and made the asked price 189. At this juncture a well-known speculator made the market still narrow by quoting 188-189, whereupon another broker bid and offered to sell at The 300 shares were finally disposed of at to a man who had no idea of buying Canadian Pacific one month previous, but who saw an opportunity for mak ing a profit and was willing to buy a block of the stock. As a result of the interest aroused in this se curity by the broker, the customer received $975 more for the stock than he would have secured had there been but one buying order at the time when he wished to sell.
14. Effects of speculation in generale—The great services which speculation performs have been men tioned several times before. In briefest outline they are: (1) removing risk from other classes of pro ducers; (2) steadying and leveling prices; (3) ad justing prices and regulating the flow of commodities between markets; (4) directing industries into profit able channels and liquidating those that are ill judged. Speculation is clearly the most elastic feature of the modern financial system. It takes the edge off panics and famines, for by putting up prices it enforces economy ahead of future want, because the specula tors discover a future shortage of grain before the consumer does. It tends also to prevent monopoly.