A term used with reference to business transactions to signify the investing of money at a risk of loss on the chance of unusual gain. The word is commonly used only when the risk of loss is greater than ordinary business methods and prudence warrant. A coal merchant who sees grounds for thinking that the coming winter will be severe, and that there will be a general strike among coal miners, shows enterprise if he lays in a large stock of coal with the expectation of reaping more than usual profit from its sale. He incurs the ordinary risks of business, he does not speculate. But if a man thinks, on trivial indications, that there is going to be a great development in the opening up of a new country, and buys large tracts of prairie land in the district on the chance of its rising rapidly in value, he would be said to speculate in land. More specifically, speculation is used to designate dealings in futures and options on the Exchanges, especially when the parties to the transaction do not intend any effective transference of commodities or securities, but only the payment of differences between making-up prices and those agreed on. Such time-bargains are universally practised nowadays on the world's Exchanges, and the volume of business done in them vastly surpasses that where effective transfer of securities or commodities is contemplated. The transactions may vary indefinitely in character between bona fide and perfectly lawful buying and selling, on the one hand, and the merest gambling or betting on future prices, on the other.

Some of the ordinary types of such operations are the following. A speculator buys at the current rate a thousand dollars' worth of stock for the account at the end of the month. When the day for settlement arrives, if the price has risen, he is paid the difference between the price at which he bought and the making up price. If the price is lower, the speculator loses and pays the difference to the broker. In the slang of the Exchange, this is a "future", or "time-bargain or a deal in "differences"; and one who speculates for the rise of prices is called a "bull", while one who speculates for the fall is called a "bear". When the operator loses, he may prefer to extend the time of settling the account to the next settling day. This may be done by arrangement with the broker, and the transaction is known as "carrying over". A speculator may purchase at a fixed rate the right to receive or to refuse a certain amount of a certain stock or commodity at a future date. This is called an "option". If he purchases the right either to sell or to buy, it is a "put and call", or a "double option". Of course no objection can be raised against such contracts as these when they are entered into by merchants or others with a view to the effective transfer of what is bought and sold. A merchant or manufacturer requires a constant and steady supply of what he deals in so as to be able to conduct his business. Effective dealings in "futures" and "options" guarantee the steady supply which is needed, and that at fixed rates settled beforehand. Such business methods benefit the dealer and the public as well. They ensure a constant supply of commodities at medium rates. But the speculator does not intend effective transfer. His buying and selling are fictitious; he only pockets his differences if he wins, and pays them if he loses. His methods give rise to serious moral, economic, and political questions, which have been the subject of much discussion.

There is no great moral harm in the practices which have been mentioned if they are considered singly by themselves and in the abstract. Without incurring the reproach of great moral obliquity I may buy a thousand dollars' worth of stock at the current rate from a broker when neither buyer nor seller intends effective transfer of the stock, but merely the payment of differences when the settling day arrives. In essentials the transaction is a bet as to what the price of the stock will be on settling day. And if the buyer and the seller have the free disposal of the money which is staked on the bet, and there is no fraud, unfair dealing, or other evil adjuncts or effects of the transaction, the bet will not be morally wrong. (See BETTING; GAMBLING.) However, betting and gambling are almost always dangerous pastimes and often morally wrong. Just in the same way speculation tends to develop a passion which frequently leads to the ruin of a speculator and his family. The hope of becoming rich quickly and without the drudgery of labour distracts a man from pursuing the path of honest work. The speculator, even if he succeeds, produces nothing; he reaps the fruit of the toil of others, he is a parasite who lives by preying on the community. Moreover, in practice, the event on which the bet is laid by one who speculates in futures is seldom left to the operation of natural causes. When large sums of money are at stake the temptation to influence the course of prices becomes almost irresistible; Hence the fierce and frequent contests between "bulls" and "bears" on the Exchanges. Cliques of one party, interested to bring about a rise in prices, buy the stock in order that the increased demand may produce the effect desired. Often the buying is merely fictitious, but this fact is not known to the outside world. The purchases are published, industriously commented upon by the venal financial press, puffs and mendacious reports are inserted in the papers in order to raise the price of the stock and attract moneyed investors. The opposite party adopts the contrary, but equally immoral, tactics. They indulge in real or fictitious sales and do all they can to depreciate the stock in their favour by fair or foul means. Great financiers with command of large sums of money can and do influence the markets almost as they please, and the small speculator is usually swallowed up by them. Wealthy financiers and gigantic syndicates can often buy or obtain effective control over all the available supply of some stock or commodity and then charge monopoly prices. Such "rings", or "corners", even when they do not succeed entirely according to the intention of the operator produce widespread inconvenience, hardship, and ruin. The result is that in practice speculation deserves all the evil reputation which attaches to the word.

Speculation indeed has its defenders and advocates, especially among brokers and jobbers, who claim that it equalizes prices and prevents the fluctuations which would otherwise be inevitable. Some affirm that speculative dealings have little appreciable effect on buying and selling for transfer. In volume and number speculative transactions are very much larger than those for effective transfer, but the two are conducted separately and to a great extent between different parties. It is asserted that the speculative market is to a large extent separate and distinct from the real market. These two arguments in favour of speculative dealings mutually destroy each other. If speculative dealings equalize prices, it cannot be true that they have little appreciable effect on the markets. As the result of the speculation depends on the actual market price of the security or commodity in question at the time agreed upon, it cannot be said that speculative transactions are independent of effective buying and selling for transfer. It is patent that the various devices to which "bulls" and "bears" have recourse do produce some effect. The acute and experienced men who devote themselves to speculative business, and who frequently have recourse to the methods described above in order to influence the market in their favour, would be the last people in the world to expend uselessly time, effort, and money. The contention, then, of producers and consumers that speculation has a disastrous effect on real business transactions seems to be well grounded. They maintain that speculators denaturalize prices. These should be regulated, and are naturally regulated, by the varying costs of production and by the mutual interaction of supply and demand; but the artificial dealings of speculators tend to fix prices without reference to those natural factors. Hence, producers and consumers are robbed by clever men, who manipulate the markets in their own interests, produce nothing, perform no useful social service, and are parasites on commerce. In Germany the Exchange Law of June, 1896, forbade gambling in options and futures in agricultural produce, and after a severe struggle with the Berlin Exchange the Government succeeded in maintaining the law. A similar law was passed in Austria in January, 1903. America and Great Britain as yet have no special laws on the matter, though more measures than one have been proposed to Congress. The great difficulty of distinguishing between transactions for effective delivery and mere time-bargains, and the ease with which positive laws on the matter could be evaded, have checked the tendency to positive legislation. In England the existing laws against gambling and fraud have been found sufficiently effective to provide a remedy for cases of special importance.

ANTOINE in Dictionnaire de Théologie Catholique (Paris, 1905), s. v. Bourse (Jeux de); BRANTS, Les grandes lignes de l'Economie Politique (Louvain, 1908); Ecclesiasticai Review, XXXII (New York, 1905), 2; INGALL AND WITHERS, The Stock Exchange (London, 1904).

T. Slater.