Speculation and Economic Stability

Abstract

The purpose of the following paper is to examine, in the light of recent doctrines, the effects of speculation on economic stability. Speculation, for the purposes of this paper, may be defined as the purchase (or sale) of goods with a view to re-sale (re-purchase) at a later date, where the motive behind such action is the expectation of a change in the relevant prices relatively to the ruling price and not a gain accruing through their use, or any kind of transformation effected in them or their transfer between different markets. Thus, while merchants and other dealers do make purchases and sales which might be termed `speculative', their ordinary transactions do not fall within this category. What distinguishes speculative purchases and sales from other kinds of purchases and sales is the expectation of an impending change in the ruling market price as the sole motive of action. Hence `speculative stocks' of anything may be defined as the difference between the amount actually held and the amount that would be held if, other things being the same, the price of that thing were expected to remain unchanged; and they can be either positive or negative.1