well explained by McCulloch. "It rarely happens," he says, "that either the actual supply of any species of produce in extensive demand, or the intensity of that demand, can be exactly measured. Every transaction in which produce is bought that it may be afterwards sold, is, in fact, a speculation. The buyer anticipates that the demand for the article he has purchased will be such, at some future period, either more or less distant," or at some other place, either in the same country or across sea, "that he will be able to dispose of it at a profit; and the success of the speculation depends, it is evident, on the skill with which he has estimated the circumstances that will determine the future price of the commodity. It follows, therefore, that in all highly commercial countries, where merchants are possessed of large capitals, and where they are left to be guided in the use of them by their own discretion and foresight, the prices of commodities will frequently be very much influenced, not merely by the actual occurrence of changes in the accustomed relation of the supply and demand, but by the anticipation of such changes. It is the business of the merchant to acquaint himself with every circumstance affecting the particular description of commodities in which he deals. He endeavors to obtain, by means of an extensive correspondence, the earliest and most authentic information with respect to everything that may affect their supply or demand, or the cost of their production; and if he learned that the supply of an article had failed, or that, owing to changes of fashion or to the opening of new channels of commerce, the demand for it had been increased, he would most likely be disposed to become a buyer, in anticipation of profiting by the rise of price, which, under the circumstances, could hardly fail of taking place; or if he were a holder of the article, he would refuse to part with it unless for a higher price than he would previously have accepted. If the intelligence received by the merchant were of a contrary description, — if, for example, he learned that the article was now produced with greater facility, or that there was a falling off in the demand for it, caused by a change of fashion, or by the shutting up of some of the markets to which it had previously been admitted,

he would act differently; in this case, he would anticipate a fall of prices, and would either decline purchasing the article,

except at a reduced rate, or endeavor to get rid of it, supposing him to be a holder, by offering it at a lower price. In consequence of these operations, the prices of commodities, in different places and periods, are brought comparatively near to equality. All abrupt transitions, from scarcity to abundance, and from abundance to scarcity, are avoided; an excess in one case is made to balance a deficiency in another, and the supply is distributed with a degree of steadiness and regularity that could hardly have been deemed attainable." *

All commerce, then, may be said to consist in speculation, if we leave out of view those operations which are more properly regarded as subsidiary to commerce than as forming a part of it; such as the actual transportation of commodities from one place to another, and breaking bulk, or selling by retail for the greater convenience of consumers. The rest is only buying or selling with a view to profit from an expected change of price; and the success of the dealer will depend upon the correctness of his anticipations. Speculation, then, as McCulloch remarks, "is only another name for foresight." It plays an important part in those beneficent arrangements of Providence through which the cupidity and selfishness of individuals are made to minister to the general good. To recur to an instance already cited, it is through the speculations of private merchants that the inhabitants of a great metropolis are supplied with food and all other necessaries of life, without wastefulness and yet without stint, each family receiving every day just what it wants, and as much as it wants, and being admonished through the price to limit or economize its consumption of any one article, whenever a failure in the harvest or other mode of supply, or even the prospect of a failure, renders such economy essential.

The common prejudice against speculation arises, first, from confounding it with gambling, to which we must admit that it is very nearly allied, as the two operations run into one another by imperceptible degrees. A stock-jobber, for instance, agrees to purchase at a future day a particular amount of government stock at a certain price, expecting that the market price will rise before the day comes, so that he will make a

* McCulloch's Principles of Political Economy, 4th ed., pp. 336, 337.

profit by the bargain; the jobber who contracts to sell him the stock at that time, and on those terms, expects that the market price will fall in the mean time. But the party who agrees to sell has really no stock to dispose of, and he who agrees to purchase does not expect to receive the stock, but only to receive or pay, on the day appointed, the difference between the actual market price and the price agreed upon. Obviously, this is only betting upon the rise or fall of stocks within a given period, and is therefore properly denounced as "gambling in the stocks." On the other hand, a flour-merchant agrees to purchase, at a fixed price, a cargo of flour which has not yet arrived in port, because he has been led to believe that the price will rise, while the person who sells it to him expects it will fall; and this is admitted to be fair speculation, or a legitimate operation of trade.

How can these two cases be distinguished in principle, so as to prove that the one is censurable and the other praiseworthy? McCulloch says, "That may be termed a gambling adventure in which the contingencies are unknown, or in which they are nearly equal"; for instance, if a bet is to be decided by a throw of dice, it is gambling, because the utmost sagacity cannot determine how the dice will turn up. But if a flour-merchant contracts to purchase or deliver flour at a future day, he relies upon the information which he has obtained respecting the amount of the crops, and the probable extent of the demand, and his action, as it is thus based upon calculation and foresight, is a fair exercise of skill in trade.

It would seem to follow, then, that if one of the betters knew beforehand that the dice were loaded, and could thus anticipate how they would turn up, he would not be a gambler, but an honest man. But the common sense of mankind decides directly the other way. It may be said, indeed, that the criminality here consists in the deception, the one party using information, or having knowledge of facts, which the other party was not aware of. But then the flour-merchant often acts in the same manner, as he may have ascertained some circumstances which will probably affect the future price of grain, and he bases his action upon this knowledge, carefully concealing the facts from the person whom he deals with; and however such conduct may be viewed by strict

moralists, it is sanctioned by the almost universal custom of merchants, and is regarded as a fair exercise of activity in getting early information, and of sagacity in profiting by it.

Speculation can be accurately distinguished from gambling, as it seems to me, only by taking into account the different motives and intentions of the parties. The gambler, acting from the love of excitement almost as much as from the thirst for gain, makes bets, or forms contracts which amount to bets, with reference to the doctrine of chances only, having no regard to the effect which his transaction will have upon markets by equalizing prices and supplies. The upright merchant, excluding as far as possible all consideration of mere chance, forms no bargain if his calculations do not assure him that it must lead to a favorable result, barring only all unforeseen contingencies; his transactions are all real, or based upon the actual transfer of merchandise, with reference to the effect of such transfer upon the markets in removing a surplus from one time or place, and supplying a deficiency in another. Accidents that could not be foreseen may falsify his calculations, and bring failure and loss; but he engages in no enterprise that bears hazard upon its face, regarding this as the province of the gambler. Failure, therefore, always takes him by surprise, and he shuns danger, while the other courts it, or deliberately weighs the probability of loss against that of gain.

Another prejudice against legitimate speculation in trade has arisen from its supposed effects in creating an unnecessary enhancement of price, to the detriment of the consumers. This is a mistake; the speculator cannot raise prices unnecessarily, without injuring himself more than those who buy of him. To prove that he cannot, I will take the strongest case, and one in which he is most frequently exposed to popular odium, the grain and flour trade. It is for the interest of the community that each crop should be distributed equally throughout the country and throughout the year. The business of the grain-merchant is to equalize the supplies, and the more equal and perfect that he makes this distribution, the larger is his profit. His interest, then, even in years of the greatest scarcity, is exactly coincident with that of the consumers. If the deficiency be very great, he sends to foreign countries for an additional supply, and thus contributes effect

ually to lower the price. If the harvest, on the other hand, has been unusually abundant, he exports a portion of the surplus, and thus prevents injury and discouragement to the agriculturists from the price falling too low, and guards the people against the formation of wasteful and improvident habits in consuming a cheap commodity. True, if he has a large stock on hand when the scarcity begins to be felt, he makes immense profits from the rise in price; and he sometimes holds back his stock in expectation of a further rise, though meanwhile the poorer classes are actually suffering from hunger. But in so doing, as Adam Smith remarks, he only treats the people in the same manner as the prudent master of a vessel often treats his crew. "When he foresees that provisions are likely to run short, he puts them upon short allowance. Though, from excess of caution, he should sometimes do this without any real necessity, yet all the inconveniences which his crew can thereby suffer are inconsiderable, in comparison of the danger, misery, and ruin to which they might sometimes be exposed by a less provident conduct. If he raises the price unnecessarily high, he becomes himself the greatest sufferer, as he runs the risk of losing a portion of his stock, by the natural decay of so perishable a material, and of being obliged to sell what remains of it at a much lower price than he might have obtained some months before. The profit which he makes when the price unexpectedly rises from a failure of the crops, is only a fair compensation for the loss which he must suffer when the price unexpectedly falls. The average rate of profit cannot be higher in this trade than in any other, as the business is free to all, and as competition brings profits everywhere to a level."

In fine, says Mr. Buchanan, "those who still imagine that corn is artificially raised in price, would do well to consider, that, as the supply of provisions is liable to great variations, there must be some provision in the economy of nature for making a smaller supply last as long as a larger supply; that there is no way of thus regulating the consumption but by the price; and that it is, accordingly, in reference to this great object that the price is invariably fixed. It neither can be lowered nor increased, but for the sake of more exactly suiting the daily and weekly waste to the supply of the year. If we