CHAPTER XIV

SPECULATION AND BROKERS' LOANS

UNDOUBTEDLY the contagion of the long bull
market had encouraged unwise speculation. But the
main trouble was that so much borrowed money was
used. It might have been entirely proper had the
speculators used their own money in following a generally
 sound judgment to profit by reasonably
expected gains in the future.
Speculation in itself may do either good or harm.
It does good when it reduces the inequality of prices
at different times. It does harm when it aggravates
this inequality. In the first case, which may be called
the normal one, the interests of the speculator and
the public are to a large extent identical. When the
speculator is correct in his prognostications, he will
make a profit. His object is to make a profit when
prices are rising, but he can do so only by mitigating
the rise. Likewise his object is to make a profit
when prices are falling, but he can do so onlv by
mitigating the fall.
His profits are, as it were, a reward paid him by
the community for mitigating price changes. If he
makes a mistake in either form of speculation, he suffers
 losses, and these losses may be regarded as a
sort of penalty he suffers for aggravating the inequal-218