[30 THE WORK OF THE STOCK EXCHANGE 
clusion can be drawn regarding either the benefits or the 
dangers of speculation there. 
Stock Speculation and Trade Depressions.—Concerning 
the harmful results of stock speculation, we must first disabuse 
our minds of a few hoary fallacies, for speculation in securities 
has serious enough faults without attributing to it many others 
for which in fact it is not responsible. 
The first of these fallacies is that stock speculation causes 
trade depressions. Whenever a recession in business occurs, 
‘he man in the street at once and quite naturally begins to look 
around for its cause. Without trying to analyze the basic 
causes of the trouble, he may recall that a few months before, 
when the sky was apparently unclouded and serene, the stock 
market had experienced a decline in prices. At once a hundred 
myths and legends he has heard about “Wall Street” spring up 
in his mind. And since the disturbance first became conspicu- 
ous on the Stock Exchange, he leaps to the conclusion that 
somehow or other speculation in stocks must have started it all. 
This is the type of fallacious reasoning which centuries ago 
the philosophers called post hoc ergo propter hoc. For® the 
organized securities markets often reflect in advance, like a 
barometer, future developments in the field of business. Par- 
ticularly in the highly organized and sensitive Stock Exchange, 
coming events cast their shadows before, and accordingly stock 
prices begin their adjustment to the future diminished net 
earnings and dividend rates which oftentimes general business 
is not equally quick in foreseeing. Thus it is really business 
-ecessions which cause serious stock market crises, rather than 
declines in security prices which bring on trade depressions. 
It cannot, of course, be maintained that trade depressions 
are made any better because of preceding stock market troubles. 
Losses by security speculators to some extent curtail consump- 
tion, particularly of luxuries, temporarily make new financing 
more difficult, and spread a pessimistic spirit among business. 
Te 8ge Lhumer TT 0 56.