6. Speculation

In any economic system which is in process of change all economic activity is based upon an uncertain future. It is therefore bound up with risk. It is essentially speculation.

The great majority of people, not knowing how to speculate successfully, and socialist writers of all shades of opinion, speak very ill of speculation. The Iiterateur and the bureaucrat, both alien to an atmosphere of business activity, are filled with envy and rage when they think of fortunate speculators and successful entrepreneurs. To their resentment we owe the efforts of many writers on economics to discover subtle distinctions between speculation on the one hand and ‘legitimate trade’, ‘value creating production’, etc., on the other.1  In reality all economic activity outside the stationary state is speculation. Between the work of the humble artisan who promises to deliver a pair of shoes within a week at a fixed price, and the sinking of a coal mine based upon conjectures with regard to the disposal of its products years hence, there is only a difference of degree. Even those who invest in gilt-edged fixed-interest-bearing securities speculate — quite apart from the risk of the debtor’s inability to pay. They buy money for future delivery—just as speculators in cotton buy cotton for future delivery. Economic activity is necessarily speculative because it is based upon an uncertain future. Speculation is the link that binds isolated economic action to the economic activity of society as a whole.

It is customary to attribute the notoriously low productivity of government undertakings to the fact that the persons employed are not sufficiently interested in the success of their labours. If once it were possible to lift each citizen to such a plane that he could realize the connection between his own efforts and the social income, part of which belongs to him, if once his character could be so strengthened that he would remain steadfast in the face of all temptations to idle, then government undertakings would not be less productive than those of the private entrepreneur. The problem of socialization appears thus to be a problem of ethics. To make Socialism possible it is only necessary to raise men sufficiently above the state of ignorance and immorality to which they have been degraded during the terrible epoch of Capitalism. Until this plane has been reached bonuses and so on must be employed to make men more diligent.

It has already been shown that, under Socialism, the lack of an adequate stimulus to the individual to overcome the disutility of labour must have the effect of lowering productivity. This difficulty would arise even in a stationary state. Under dynamic conditions there arises another, the difficulty of speculation.

In an economic system based upon private ownership of the means of production, the speculator is interested in the result of his speculation in the highest possible degree. If it succeeds, then, in the first instance, it is his gain. If it fails, then, he is the first to feel the loss. The speculator works for the community, but he himself feels the success or failure of his action proportionately more than the community. As profit or loss, they appear much greater in proportion to his means than to the total resources of society. The more successfully he speculates the more means of production are at his disposal, the greater becomes his influence on the business of society. The less successfully he speculates the smaller becomes his property, the less becomes his influence in business. If he loses everything by speculation he disappears from the ranks of those who are called to the direction of economic affairs.

Under Socialism it is quite different. Here the leader of industry is interested in profit and loss only in so far as he participates in them as a citizen — one among millions. On his actions depends the fate of all. He can lead the nation to riches. He can just as well lead it to poverty and want. His genius can bring prosperity to the race. His incapacity, or his indifference, can bring it to destruction and decay. In his hands lie happiness and misery as in the hands of a god. And he must indeed be god-like to accomplish what he has to do. His vision must include everything which is of significance to the community. His judgment must be unfailing; he must be able rightly to weigh the conditions of distant parts and future centuries. That Socialism would be immediately practicable if an omnipotent and omniscient Deity were personally to descend to take in hand the government of human affairs, is incontestable. But so long as this event cannot definitely be counted upon, it is not to be expected that men will be ready freely to grant such a position to any one out of their midst. One of the fundamental facts of all social life, which all reformers must take into account, is that men have their own thoughts and their own wills. It is not to be supposed that they would suddenly, of their own free will, make themselves for all time the passive tools of anyone out of their midst — even though he were the wisest and best of them all.

But so long as the possibility of a single individual permanently planning the direction of affairs is excluded, it is necessary to fall back upon the majority decisions of committees, general assemblies and, in the last resort, the whole enfranchised population. But therewith arises the danger on which all collectivist undertakings inevitably come to grief— the crippling of initiative and the sense of responsibility. Innovations are not introduced because the majority of the members of the governing body cannot be induced to consent to them.

Things would not be made any better by the fact that the impossibility of leaving all decisions to a single man, or a single committee, would lead to the creation of innumerable sub-committees by which decisions would be taken. All such sub-committees would only be delegates of the one supreme authority which, as an economic system working according to a unitary plan, is implied by the very nature of Socialism. They would necessarily be bound by the instructions of the supreme authority and this, in itself, would breed irresponsibility.

We all know the appearance of the apparatus of socialist administration: a countless multitude of office holders, each zealously bent on preserving his position and preventing anybody from intruding on his sphere of activity — yet at the same time anxiously endeavouring to throw all responsibility of action on to somebody else.

For all its officiousness, such a bureaucracy offers a classic example of human indolence. Nothing stirs when no external stimulus is present. In the nationalized concerns, existing within a society based for the most part on private ownership of the means of production, all stimulus to improvements in process comes from those entrepreneurs who as contractors for semi-manufactured articles and machines hope to make a profit by them. The heads of the concern itself seldom, if ever, make innovations. They content themselves with imitating what goes on in similar privately-owned undertakings. But where all concerns are socialized there will be hardly any talk of reforms and improvements.

• 1See the pertinent criticism of these efforts which are evidence of good intentions rather than of scientific sharpness of thought, in Michaelis, Volkswirtschaftliche Schriften, Berlin 1873, p. 3 et seq., and by Petritsch, Zur Lehre von der Uberwälzung der Steuern mit besonderer Beziehung auf den Börsenverkehr, Graz 1903, p. 28 et seq. Of Adolf Wagner, Petritsch says that ‘although he likes to call economic life an “organism” and wants to have it considered as such, and although he always stresses the interest of the community against that of individuals, yet in concrete economic problems he does not get beyond the individuals and their more or less moral aims, and wilfully overlooks the organic connection between these and other economic phenomena. Thus he ends where, strictly speaking, should be the starting point, not the end, of every economic investigation’ (p. 59). The same is true of all writers who have thundered against speculation.