scribed the system existing in the United States at the present time. In one respect at least this system is not altogether typical. Subsidiary money is not usually kept redeemable. Further, recent experience seems to show that the fourth characteristic, limitation of legal tender, is not essential. In fact, of the seven characteristics named, three only seem really necessary, (1) made of inferior metal, (2) overrated, and (3) limited in coinage. However, the more elaborate provisions of our system are doubtless a real gain as insuring results which would otherwise depend on skillful management or good luck.

We are now prepared to understand the case of the fiat silver, which was mentioned above as the second kind of circulation money and the consideration of which was postponed to this point. This money, when circulating as coin rather than in the form of certificates, must be viewed as in essence a subsidiary coin. It lacks indeed the fourth and seventh characteristics; i .e., it is not a limited, but a full, legal tender and it is not redeemable. But after all it behaves as a regular subsidiary coin; it remains quite subordinate to standard money. We must add, however, that it can not be reckoned as a really satisfactory subsidiary money. As at present constituted, it constantly exposes our system to one serious danger. Not being redeemable, it is always liable to become less valuable than standard money; and, in that case, being a full legal tender it would certainly drive out standard money and itself usurp the place.

In this account of fiat silver I have had in mind all the time the actual silver dollars. The certificates issued on the deposit of silver dollars present a peculiar case. As already explained on page 46, we do not, ordinarily, need to distinguish between certificates and the coin which they represent. In the case before us, however, this statement is not quite true. Silver dollars and silver certificates play quite different rôles in our monetary system. Silver dollars, the coins, are a large-denomination subsidiary money. Silver certificates are a small-denomination paper money. Further this difference effects quite important practical results. The need of the country for silver dollars as a species of sub

sidiary money is quite limited, absorbing only about oneninth of those issued. But the need for silver certificates, as a small-denomination paper circulation money, is almost unlimited. Consequently, by circulating our silver money in both its coin and certificate forms, we manage to keep it all busy and out of mischief.

The net result of this is to justify the statement that this kind of money is still more or less an anomaly, a fifth wheel. Doubtless it is not seriously wrong to divide our circulation money into two sorts, (1) bank notes and (2) subsidiary money and its certificates. But this is sacrificing precision to simplicity. A truer statement is that we have three circulation moneys (1) bank notes, (2) subsidiary coin, and (3) a mixed sort, fiat silver and its certificates.

READING XI.

SPECULATIVE TRADING HAS REAL ECONOMIC FUNCTIONS.

*Few things have called forth greater extremes of praise and blame than modern organized speculation. On one side it is strongly denounced, either as being morally wrong in itself, or as being in addition to this a disastrous influence in business. This view is, perhaps, that of a large majority of respectable persons outside of business life, and of the greater part of the newspaper press. On the other side the system is as strongly upheld.

The criticism directed against speculation is made from two somewhat conflicting points of view. The first is that speculation is merely gambling and has no reference to actual trade, except that it consists in betting on the course of prices. The second is that speculation is all powerful in trade, which has become completely demoralized by its subjection to fictitious speculative conditions. The former view is utterly beside the mark. However the gaming instinct may control it, the fact must be recognized that speculation is an important factor in the commercial world, and dominates trade in the field in which it acts. Speculation in any case is not mere gambling. Whether it is better or worse than gambling is a question on which opinions will long differ.

ence.

The close resemblance in many ways between gambling and speculation has obscured the essential point of differBoth depend upon uncertainties. Both involve the risk of present possession for the sake of future gain. In speculation, as in gambling, the occurrence of a certain event results in gain for one party, while an occurrence of a different kind results in loss. What distinctions can be

*H. C. Emery-Speculation on the Stock and Produce Exchanges of the United States (1896). Columbia University Studies, pp. 96-109 and 159-165.

...

made between them? Gambling is a transaction in which one party pays over a sum of money from his own wealth because of the occurrence of a chance event. Speculation is a transaction in which one acquires by purchase the right to a certain property (not specifically designated perhaps), and gains (or loses) for himself the difference between the value of the property at the time of the sale and its value at the time of purchase. The difference is a significant one. In gambling one party must lose just what the other wins. In speculation this is not necessarily so. A dealer in wheat may buy of a farmer and sell to a speculator, and the wheat be sold at a constantly rising price through a line of speculators, till bought by a miller for grinding at the highest price of all. Neither the dealer nor the miller loses by the transaction, which is not speculative on their part, yet each speculator in turn wins. The reason is that there has been an actual increase in value. The gains of the speculators result from the division among them of this increase. The charge is made against speculation, that it is like gambling, because it is unproductive, and consists in the transfer of money from one pocket to another. The charge is misleading, if not false. Speculation does not directly produce wealth, but there is a real increase or decrease in the value of property due to outside causes, and this gain or loss in value is shared by the speculators. It is true that speculative gains and losses far exceed the ultimate increase or decrease in the value of the aggregate of the commodities dealt in, but this is because new rights of property are created at every speculation, with a corresponding enormous accumulation of speculative “differences" to be settled. How much of such business is desirable, how far it is marked by the same spirit as gambling, are questions not raised at this point. We shall not hesitate to speak of some transactions in general terms as of a gambling nature, yet it is well to keep clear this objective and economic distinction between gambling and speculation. Both depend on uncertainties, but, whereas gambling consists in placing money on artificially created risks of some fortuitous event, speculation consists in assuming the inevitable economic risks of changes in value.

It is this element of risk that we have the key to the function of speculation. It is often said that all business is to a certain extent speculative; in other words, there is an uncertainty as to the ultimate profits. These risks are inherent in all business, and are no more artificial than the whole commercial order under which we live. They are risks which thrust themselves upon business men and which business men must meet. Especially are these risks dependent on changes in value, and it is the assumption of such risks that constitutes speculation.

The central feature in the economic organization of modern society is the market. From the point of view of the individual, the production and distribution of commodities are carried on with a view to their exchange. The regulator of exchange, and therefore of production, is value. Consequently the producer will expend his energies on such commodities as will have the greatest market value as compared with the expenses of production, just as the merchant will take them to the market where they will command the highest price. But this adjustment of production and distribution according to values will be accurate only in proportion to the success of the producer and consumer in ascertaining such values. The producer produces only when he thinks he can get a return greater than his outlay. The merchant buys only when he thinks he can sell at a higher price. In both cases there is always the risk that before the production is completed, or the sale made, the value of the commodity may fall. Similarly, there is a chance that it may rise. In the one case there is a loss; in the other a gain, to the producer or the merchant. Hence it may fairly be said that the test of the perfection of the organization of trade is the promptness with which such changes are learned and the accuracy with which they are predicted. It is by a due appreciation of this fact that one comes to a realization of the importance of organized speculation. If it is found to be the means of making the needed prediction, it will also prove itself the chief directive influence in the economic field in which it prevails. In such event the idea of its being an artificial device for gambling purposes will give way to a conception of speculation as a natural growth to meet an actual want.