Speculation an Out-growth of prosperous times
If it be conceded that playing for money, to which end speculation likewise in any other commodity than stocks and shares is simply the means, produces a pleasurable sensation in a man, and that very few men do not experience it some time or other, who have the opportunity of calling it forth, the greater number of men whose position enables them to gamble, will probably do it. At every rise and fall in a country’s prosperity there is a flow and ebb in the tide of speculation, not only in stocks and shares, but in all markets. We refer now to that class of speculation which is an excrescence of prosperous times. A merchant’s business is at all times more or less of a speculative nature, it cannot be otherwise; but this is very different from the speculation of outsiders in commodities which they know nothing about. Many persons would, no doubt, think it strange that there should be a feverish speculation sometimes carried on in such an article as pepper. Yet syndicates are occasionally formed for quietly buying up this article, and ascertaining the exact amount in stock, and the probable quantity that will reach the market by ship within a given time. When the syndicate has complete command of the supply, they commence to “rig” the market, or put the price up, then put the public in and let it down again. In the stock markets the bona fide operations, as compared with the speculative, are probably as 1 to 20 at most, and in the colonial produce and other markets the proportion is only something more. It may be imagined, therefore, to what an extent the speculative operations in an article like pepper may be carried when it is considered that the weekly deliveries for consumption amount to 250 tons.
Commercial Prosperity unhealthily fostered by Illegitimate Speculation.
One inevitable evil attending all forms of commercial prosperity is that they are built up in so large a degree upon a basis of unremunerative speculation. Such a foundation only serves as a sufficient support to the superstructure, while the pressure upon it does not pass a certain limit. If, for example, it be accepted as proved that one Stock Exchange transaction in twenty is bona fide, it is obvious that when the speculation in those markets shrinks up for the time, which it is sure to do when it has had its run, a number of stock brokers whose business has been established by reason of the increase of speculative operations must fail, unless they have made enough money during the period of unusual activity to be able to live through the period of stagnation that intervenes before the next revival. And after every commercial revulsion a large number of them do fail, and it is not easy to estimate the mischief that is occasioned by the shock that is communicated to trade and production by the sudden and complete stoppage of these extra streams of expenditure.
The Influence of Trade Profits upon the Stock Markets.
There are great foci whence proceed currents of profit. The currents of profit may be traced to the great seats of the national industries. The money made, for example, by the great cotton and iron manufacturers of this country, distributes itself in a hundred streams from Lancashire and Yorkshire, to keep within the bounds of two counties.[28] The larger currents flow into the pockets of two classes, those who are very rich, and those who are moderately so; while the smaller streams trickle into the cottages of the labourer and artisan. The wealthy direct their new gains as they flow in, into the markets for public securities, and the gains of the labourers follow to some extent in the same direction at a slower pace, through the lower middle class, whose profits increase by the augmented consumption of all the primary articles, in which weekly wages are laid out. In both cases the currents of profit starting from the great foci of production, spread, embracing all classes of the community, like the winter’s snows gathered in their wealth in the mountain heights, which are loosened by the summer sun to flow over and irrigate the grateful plains below, and are again gathered up to a large extent for distribution through the Stock Exchanges of Europe.
An Increase in the Amount of Trade Profits realised, causes an Increase in the Number of Securities.
When this volume of profit begins to be felt in the Stock markets, the harvest time for the professional speculator commences, and with the increase in the amount of the profits of the nation the number of securities increases also. The public securities quoted in the bourses of Europe at the present time amount to thousands of millions sterling more than existed a quarter of a century ago. Side by side with this increase in Stocks and Shares has the speculation in them increased also. Such has been the growth, indeed, of speculation that several joint stock companies have been formed, which are nothing more nor less than syndicates of speculators who have invited the public to join them in buying up a number of securities and making a profit by selling them at enhanced values. A few skilful Stock Exchange practitioners at the head of these concerns have, in many instances, made an excellent business out of the operations, by systematically raising the necessary capital and taking the securities off the market, which practically illustrates in broad daylight the legitimate method by which speculation may be pursued as a business, as we have already stated in Chapter III.
Speculation by Established Companies.
The fact of speculation having come to be practised by established companies, where before it was a kind of business that it was considered necessary to pursue as secretly as possible, proves how strong is the tendency of the age in which we live to make royal roads to wealth.[29]