WEBVTT NOTE 22. The Speculator 1 00:00:00.000 --> 00:00:04.000 Chapter 22 The Speculator 2 00:00:04.000 --> 00:00:11.000 Kill the speculators is a crime made during every famine that has ever existed. 3 00:00:11.000 --> 00:00:19.000 Uttered by demagogues who think that the speculator causes death through starvation by raising food prices, 4 00:00:19.000 --> 00:00:24.000 this cry is fervently supported by the masses of economic illiterates. 5 00:00:24.000 --> 00:00:43.000 This kind of thinking, or rather non-thinking, has allowed dictators to impose even the death penalty for traders in food who charge high prices during famines, and without the feeblest of protests from those usually concerned with civil rights and liberties. 6 00:00:43.000 --> 00:00:49.360 Yet the truth of the matter is that far from causing starvation and famines, it is the 7 00:00:49.360 --> 00:00:52.120 speculator who prevents them. 8 00:00:52.120 --> 00:00:57.360 And far from safeguarding the lives of the people, it is the dictator who must bear the 9 00:00:57.360 --> 00:01:01.800 prime responsibility for causing the famine in the first place. 10 00:01:01.800 --> 00:01:07.960 Thus, the popular hatred for the speculator is as great a perversion of justice as can 11 00:01:07.960 --> 00:01:09.680 be imagined. 12 00:01:09.680 --> 00:01:15.200 We can best see this by realizing that the speculator is a person who buys and sells 13 00:01:15.200 --> 00:01:19.000 commodities in the hope of making a profit. 14 00:01:19.000 --> 00:01:26.080 He is the one who, in the time-honored phrase, tries to buy low and sell high. 15 00:01:26.080 --> 00:01:31.920 But what does buying low, selling high and making large profits have to do with saving 16 00:01:31.920 --> 00:01:34.760 people from starvation? 17 00:01:34.760 --> 00:01:40.400 Adam Smith explained it best with the doctrine of the invisible hand. 18 00:01:40.400 --> 00:01:45.520 According to this doctrine, every individual endeavors to employ his capital so that its 19 00:01:45.520 --> 00:01:49.080 produce may be of the greatest value. 20 00:01:49.080 --> 00:01:54.520 He generally neither intends to promote the public interest, nor knows how much he is 21 00:01:54.520 --> 00:02:01.380 promoting it, and he intends only his own security, his own gain. 22 00:02:01.380 --> 00:02:07.820 He is led in this as if by an invisible hand to promote an end which was no part of his 23 00:02:07.820 --> 00:02:09.320 intention. 24 00:02:09.320 --> 00:02:15.340 By pursuing his own interest, he frequently promotes that of society more effectually 25 00:02:15.340 --> 00:02:18.940 than when he really intends to promote it. 26 00:02:18.940 --> 00:02:24.780 The successful speculator, therefore, acting in his own selfish interest, neither knowing 27 00:02:24.780 --> 00:02:29.100 nor caring about the public good, promotes it. 28 00:02:29.100 --> 00:02:36.140 First, the speculator lessens the effects of famine by storing food in times of plenty, 29 00:02:36.140 --> 00:02:38.940 through a motive of personal profit. 30 00:02:38.940 --> 00:02:45.080 He buys and stores food against the day when it might be scarce, enabling him to sell at 31 00:02:45.080 --> 00:02:47.160 a higher price. 32 00:02:47.160 --> 00:02:50.820 The consequences of his activity are far-reaching. 33 00:02:50.820 --> 00:02:56.220 They act as a signal to other people in the society who are encouraged by the speculator's 34 00:02:56.220 --> 00:03:15.220 to do likewise. Consumers are encouraged to eat less and save more, importers to import more, farmers to improve their crop yields, builders to erect more storage facilities, and merchants to store more food. 35 00:03:15.220 --> 00:03:22.100 Thus, fulfilling the doctrine of the invisible hand, the speculator, by his profit-seeking 36 00:03:22.100 --> 00:03:28.180 activity, causes more food to be stored during years of plenty than otherwise would have 37 00:03:28.180 --> 00:03:33.860 been the case, thereby lessening the effects of the lean years to come. 38 00:03:33.860 --> 00:03:40.220 However, objections will be raised that these good consequences will follow only if the 39 00:03:40.220 --> 00:03:44.860 speculator is correct in his assessment of future conditions. 40 00:03:44.860 --> 00:03:46.300 What if he is wrong? 41 00:03:46.300 --> 00:03:52.540 What if he predicts years of plenty and, by selling, encourages others to do likewise 42 00:03:52.540 --> 00:03:55.260 and lean years follow? 43 00:03:55.260 --> 00:04:01.460 In this case, wouldn't he be responsible for increasing the severity of the famine? 44 00:04:01.460 --> 00:04:02.820 Yes. 45 00:04:02.820 --> 00:04:08.320 If the speculator is wrong, he would be responsible for a great deal of harm. 46 00:04:08.320 --> 00:04:14.220 But there are powerful forces at work which tend to eliminate incompetent speculators. 47 00:04:14.220 --> 00:04:21.220 Thus, the danger they represent and the harm they do are more theoretical than real. 48 00:04:21.220 --> 00:04:26.140 The speculator who guesses wrong will suffer severe financial losses. 49 00:04:26.140 --> 00:04:32.500 Buying high and selling low may misdirect the economy, but it surely creates havoc with 50 00:04:32.500 --> 00:04:34.980 the speculator's pocketbook. 51 00:04:34.980 --> 00:04:40.540 A speculator cannot be expected to have a perfect record of prediction. 52 00:04:40.540 --> 00:04:46.060 But if the speculator guesses wrong more often than right, he will tend to lose his stock 53 00:04:46.060 --> 00:04:47.060 of capital. 54 00:04:47.060 --> 00:04:53.020 Thus, he will not remain in a position where he can increase the severity of famines by 55 00:04:53.020 --> 00:04:54.960 his errors. 56 00:04:54.960 --> 00:05:01.340 The same activity which harms the public automatically harms the speculator, and so prevents him 57 00:05:01.340 --> 00:05:03.660 from continuing such activities. 58 00:05:03.660 --> 00:05:10.860 Thus, at any given time, existing speculators are likely to be very efficient indeed, and 59 00:05:10.860 --> 00:05:14.660 therefore, beneficial to the economy. 60 00:05:14.660 --> 00:05:20.420 Contrast this with the activity of governmental agencies when they assume the speculator's 61 00:05:20.420 --> 00:05:23.800 task of stabilizing the food market. 62 00:05:23.800 --> 00:05:30.140 They too try to steer a fine line between storing up too little food and storing up 63 00:05:30.140 --> 00:05:31.820 too much. 64 00:05:31.820 --> 00:05:36.440 But if they are in error, there is no weeding out process. 65 00:05:36.440 --> 00:05:42.140 The salary of a government employee does not rise and fall with the success of his speculative 66 00:05:42.140 --> 00:05:43.700 ventures. 67 00:05:43.700 --> 00:05:49.120 Since it is not his own money which will be gained or lost, the care with which bureaucrats 68 00:05:49.120 --> 00:05:54.980 can be expected to attend to their speculations leaves much to be desired. 69 00:05:54.980 --> 00:06:01.680 There is no automatic, ongoing, daily improvement in the accuracy of bureaucrats, as there is 70 00:06:01.680 --> 00:06:04.640 for Private Speculators. 71 00:06:04.640 --> 00:06:11.160 The oft-quoted objection remains that the speculator causes food prices to rise. 72 00:06:11.160 --> 00:06:17.000 If his activity is carefully studied, however, it will be seen that the total effect is rather 73 00:06:17.000 --> 00:06:20.460 the stabilization of prices. 74 00:06:20.460 --> 00:06:26.340 In times of plenty when food prices are unusually low, the speculator buys. 75 00:06:26.340 --> 00:06:31.820 He takes some of the food off the market, thus causing prices to rise. 76 00:06:31.820 --> 00:06:37.740 In the lean years which follow, this stored food goes on the market, thus causing prices 77 00:06:37.740 --> 00:06:39.340 to fall. 78 00:06:39.340 --> 00:06:45.180 Of course, food will be costly during a famine, and the speculator will sell it for more than 79 00:06:45.180 --> 00:06:47.700 his original purchase price. 80 00:06:47.700 --> 00:06:53.660 But food will not be as costly as it would have been without his activity. 81 00:06:53.660 --> 00:06:59.220 It should be remembered that the speculator does not cause food shortages, which are usually 82 00:06:59.220 --> 00:07:05.460 the result of crop failures and other natural or man-made disasters. 83 00:07:05.460 --> 00:07:10.640 The effect of the speculator on food prices is to level them off. 84 00:07:10.640 --> 00:07:17.040 In times of plenty,ivid when food prices are low, the speculator by buying up and storing 85 00:07:17.040 --> 00:07:19.980 food causes them to rise. 86 00:07:19.980 --> 00:07:26.460 In times of famine, when food prices are high, the speculator sells off and causes prices 87 00:07:26.460 --> 00:07:28.020 to fall. 88 00:07:28.020 --> 00:07:31.420 The effect on him is to earn profits. 89 00:07:31.420 --> 00:07:33.140 This is not villainous. 90 00:07:33.140 --> 00:07:38.120 On the contrary, the speculator performs a valuable service. 91 00:07:38.120 --> 00:07:44.540 Yet instead of honoring the speculator, demagogues and their followers revile him. 92 00:07:44.540 --> 00:07:53.540 Prohibiting food speculation has the same effect on society as preventing squirrels from storing up nuts for winter. 93 00:07:53.540 --> 00:07:55.540 It leads to starvation.