300 NATURE OF CAPITAL AND INCOME [Cmar. XVI 
he prefers an intermediate course, — a small profit which’ 
is sure, rather than the chances of both gain and loss. 
Consequently he “hedges.” He enters into some specu- 
lative market, knowing that it will move in sympathy 
with the New York market, and there he “speculates” 
for a fall, or sells “short.” In case the price in New York 
falls, what he loses on the wheat which he has transported 
he gains through his speculative short selling. Contrari- 
wise, if the price rises, what he gains on his wheat trans- 
ported he loses in the speculative market. In other words, 
he is, as it were, betting on both sides of the market at 
once, and therefore eliminating all risk, so that he only 
obtains his normal profit, commission, or percentage on 
the actual wheat handled, having imposed the burden of 
risk of speculation on the speculative dealers to whom he 
“sold short.” 
The effect of hedging on those who engage in it, 
such as the wheat dealers, is evidently to enable them to 
work on a smaller margin of profit. In consequence the 
public receives a benefit in lowered prices. The case is 
thus very similar to those respectively of the builder and 
of the woolen manufacturer. Short selling, binding the 
future to the past, enables the specialist to guarantee 
to the general public a definite foreseen series of events. 
The beneficial effect to the public, in saving useless stocks 
and reserves, in producing more intelligent direction of en- 
terprises, and in encouraging accumulation through greater 
certainty of its future benefits, is both obvious and great. 
Risk is one of the direst economic evils, and all of the de- 
vices which aid in overcoming it — whether increased guar- 
anties, safeguards, foresight, insurance, or legitimate specu- 
lation — represent a great boon to humanity. 
1 See “Speculations on Stock and Produce Exchanges of the United 
States,” by Henry C. Emery, Publications of American Economic Asso 
ciation. For the development of insurance-speculation in England, 
see “ The Put and Call,” by L. R. Higgins, London, Effingham Wil- 
sou, 1902.