From an investment to a speculation is only a short step. A. buys a share of stock or a bond, pays for it, and lays it aside in order to derive an income from it. That is an investment. B. buys a stock or bond and holds it, expecting a rise in its value, when he may sell it at a profit. That is a speculation. B.'s transactions are perfectly legal, moral, and in every way legitimate. Every dealer in dry goods, groceries, or farm products, and a large proportion of those who buy land, buy with the expectation of selling again at a profit. Then again, one who buys property as an investment may find its market value so increased within even a very short time, that he concludes to turn his investment into a speculation, and sells, intending perhaps to buy another kind of property or investment. Thus we see by analysis, the operations of the investor, the merchant and the speculator are essentially the same in principle, and to condemn one is to condemn all.

Is speculation a benefit to the business world? Would the business world be benefited if speculation were entirely prohibited and all stock exchanges and produce markets either wiped out of existence or restricted to purely investment transactions? Radical and unthinking persons have declared emphatically an affirmative to this latter question. They have even introduced bills into legislative bodies for the abolishment of produce and stock exchanges. All advanced and progressive nations have their exchanges in which speculative transactions form a large part of the business done. By means of the trading, both speculative and for investment purposes, these exchanges act as balance wheels upon prices. When prices advance, holders begin to sell, and when prices fall abnormally low, buyers are attracted, and their purchases tend to raise the market price to its normal condition. Thus extreme fluctuations are in a measure prevented by speculation.* Then again, the experienced speculator having a prophetic vision, may see in the future a season of favorable conditions which will increase the market value of stocks. Accordingly, he buys now, thus raising, in a measure, present prices, and in the future he sells, his sale tending to supply the demand, and lower prices. His mission then as a speculator has been a benefit to others. Henry Clews, before a Legislative Committee in New York, said: "Speculation is a method of adjusting differences of opinion as to future values, whether of products or of stocks. It regulates production by instantly advancing prices when there is a scarcity, thereby stimulating production, and by depressing prices when there is an overproduction/'

*This law is trodden under foot, when in the case of a "corner" a single individual or a coterie of operators temporarily buy up and control a particular commodity and force its price up abnormally.

Speculators usually buy on a margin. Instead of paying for the stock in full, they virtually buy the stock on credit, leave it in the broker's possession, and pay enough cash on the purchase to cover any possibility of a loss to the broker. Thus instead of buying fifty shares of stock at $100 each and paying $5,000 for it in full, the buyer pays down, say $10 on each share, or 10 per cent. of the par value as a margin, and is thus able to buy ten times as much, with a corresponding increase in profit if the market proves favorable. Since he expects to soon sell the stock, it is not essential that he should buy wholly for cash. Nevertheless, it is an actual sale, and delivery of the stock to him is contemplated unless he otherwise disposes of it before delivery. The broker charges interest on the unpaid balance of the purchase money. Were buyers required to pay in full for all stock purchased, their transactions would be restricted to a comparatively small volume. They have the same moral right to use the credit system, as the retailer who buys of the wholesaler and pays part of the purchase price, the balance, perhaps, to be paid after a portion of the goods have been sold; or as the buyer of real estate who makes his first payment and sells the property before the next payment falls due. It is true the buyer on a margin takes a greater risk than either of these, for his purchase is larger in proportion to his capital

Buying on Margins invested, and if the market should go against him, he might lose his entire investment. But he is a buyer on credit, the only difference being that a greater degree of credit is extended to him on account of the custody of the property remaining with the broker as security.

There is a point, however, where speculation degenerates into gambling. The feverish desire for sudden riches, and the fascination that attends the uncertainty of speculative operations, often lead men away from strictly legitimate transactions and they become reckless, - mere gamblers upon the turn of the market. The speculator is one who studies the condition of finance and trade, both present and future, with especial reference to their effect upon the stock market, and bases his action upon well drawn and conservative conclusions, shaping his course so as to meet conditions of the money market as he anticipates them. He exercises the same judgment and discrimination that a wholesale merchant or banker employs in the conduct of his business. The gambler in stocks, on the contrary, makes no calculations, but "goes it blind," buying and selling merely on his impulse, and "trusting to luck" for the result. His operations are not based upon a study of the future, but upon "tips." He makes no effort to control or meet future conditions. In short, he does not differ, so far as the intent is concerned, from one who puts money on a horse race or a throw of dice. No wonder such operators almost universally "go broke" sooner or later.

Since the intrinsic value* of any given bond or stock remains practically unchanged from day to day, or gradually increases in value according as the company is prosperous or otherwise, why should the market value fluctuate so rapidly and radically, on 'Change, is a mystery to many persons. Some of the most stable and reliable stocks in well established companies, paying nearly-uniform dividends from year to year, flucturate in price on the market, to a surprising extent. Thus St. Paul railroad stock has been known to fluctuate $50 a share within a few months, with little or no change in its real earnings. A stock which earns five per cent. frequently sells for less than one which is earning four. This seeming inconsistency can only be explained as one of the results of speculation and the manipulations of the market by shrewd operators. Mr. S. S. Pratt, in illustrating this feature of the stock market, says: "A man owns a house from which he derives a net income of $1,000. The house is worth, say, $20,000, and the income of $1,000 is 5 per cent, on the investment. But if he had to sell the house quickly he might not find a ready purchaser, and would have to sacrifice the property, say, for $10,000. There has been no change in the actual worth of the house. It is in as good condition as before, and the income continues, but the price is 50 per cent. of its true value. Or, the owner of the property may find that a corporation wants it for some important purpose, and is willing to pay a big price for immediate possession. In this case an urgent demand has advanced the price, although there has been no change in income. Let us carry the illustration further. Suppose the corporation wants the property, but wants it cheap, and is willing to wait a while for it. Thereupon it begins to manipulate the market for real estate in that vicinity. By various expedients it impresses the owner with the belief that the prices of property on the street are likely to decline, and that he had better sell for what he can get now, than wait and perhaps do worse."

♦Stocks and bonds have three values, viz.: par value, or normal value; intrinsic value, or real and inherent worth; and market value, or what it will bring when sold. These three values may be widely different.

Now, transfer the foregoing illustrations to the transactions on the stock market, and the reasons for many of the fluctuations in stocks will be apparent. The stock market is filled with shrewd men who study the present and future conditions of the market. They know in a general way, who hold certain stocks, and they endeavor to create conditions which will affect the market in their favor, - enable them to buy cheaply or sell dearly. If they can create an impression that will depress the price of a given stock in future it tends to depress it now. Sometimes they sell stocks to create the impression that they are "unloading" on account of an expected fall in price, while at the same time they are buying the same stocks secretly through another broker, taking care to buy more than they are selling. Just how far deception in stock manipulation can be carried without becoming dishonesty is difficult to determine, but open lying, such as spreading a false or malicious rumor in order to affect the market is considered disreputable, and beneath any gentleman both on the stock, as well as produce markets. A "corner" is the extreme of manipulation, and consists in controlling practically all the stock of a kind, with the result of forcing those who are short to buy the stock at a fictitious price in order to fill their contracts.