SPECULATION

IN the preceding chapter I have been assuming that you are a capitalist. I am now going to assume that you are perhaps a bit of a gambler. Even if you abhor gambling it is a necessary part of your education in modern social conditions to know how most of it is done. Without such knowledge you might, for instance, marry a gambler after having taken the greatest pains to assure yourself that he had never touched a playing card, sat at a roulette table, or backed a horse in his life, and was engaged solely in financial operations on the Stock Exchange. You might find him encouraging you to spend money like water in one week, and in the next protesting that he could not possibly afford you a new hat. In short, you might find yourself that tragic figure, the gambler’s wife who is not by temperament a gambler.

A page or two ago I dropped a remark about a game played on the Stock Exchange and called Speculation, at which phantom prices are offered for imaginary shares. I will explain this game to you, leaving it to your taste and conscience to decide whether you will shun it or plunge into it. It is by far the most widely practised and exciting form of gambling produced by Capitalism.

To understand it you must know that on the London Stock Exchange you can buy a share and not have to pay for it, or sell a share and not have to hand over the share certificate, until next settling day, which may be a fortnight off. You may not see at first what difference that makes. But a great deal may happen in a fortnight. Just recollect what you have learnt about the continual fluctuations in the prices of incomes and of spare subsistence in the Money Market! Think of the hopes and fears raised by the flourishing and decaying of the joint stock companies as their business and prospects grow or shrink according as the harvests are good or bad: rubber harvests, oil harvests, coal harvests, copper harvests, as well as the agricultural harvests: all meaning that there will be more or less money to divide among the shareholders as yearly income, and more or less spare money available to buy shares with. The prices of shares change not only from year to year but from day to day, from hour to hour, and, in moments of excitement on the Stock Exchange, from minute to minute. The share that was obtained years ago or centuries ago by giving £100 spare money to start a new company may bring its owner £5000 a year, or it may bring her thirty shillings, or it may bring her nothing, or it may bring her all three in succession. Consequently that share, which cost somebody £100 spare money when it was new, she may be able to sell for £100,000 at one moment, for £30 at another, whilst at yet another she may be unable to sell it at all, for love or money. As she opens her newspaper in the morning she looks at the city page, with its list of yesterday’s prices of stocks and shares, to see how rich she is today; and she seldom finds that her shares are worth the same price for a week at a time unless she has been prudent enough to lend it to the Government or to a municipality (in which case she has communal security) instead of to private companies.

Now put these two things together: the continual change in the prices of shares, and the London Stock Exchange rule that they need not be paid for nor delivered until next settling day. Suppose you have not a penny of spare cash in your possession, nor a share (carrying an income) to sell! Suppose you believe for some reason or other that the price of shares in a certain company (call it company A) is going to rise in value within the next few days! And suppose you believe that the price of shares in a certain other company (company B) is going to fall. If you are right, all you have to do to make some money by your good guessing is to buy shares in company A and sell shares in company B. You may say “How am I to buy shares without money or sell them without the share certificates?” It is very simple: you need not produce either the money or the certificates until settling day. Before settling day you sell the A shares for more than you bought them for on credit; and you buy the B certificates for less than you pretended to sell them for. On settling day you will get the money from the people you sold to, and the certificates from the people you bought from; and when you have paid for the A shares and handed over the B certificates, you will be in pocket by the difference between their values on the day you bought and sold them and their values on settling day. Simple enough, is it not?

This is the game of speculation. Nobody will blame you for engaging in it; but on the Stock Exchange they will call you a bull for pretending to buy the A shares, and a bear for pretending to sell the B shares. If you pay a small sum to get shares allotted to you in a new company on the chance of selling them at a profit before you have to pay up, they will call you a stag. If you ask why not a cow or a hind, the reply is that as the Stock Exchange was founded by men for men its slang is exclusively masculine.

But, you may say, suppose my guess was wrong! Suppose the price of the A shares goes down instead of up, and the price of the B shares up instead of down! Well, that often happens, either through some unforeseen event affecting the companies, or simply because you guessed badly. But do not be too terrified by this possibility; for all you can lose is the difference between the prices; and as this may be only a matter of five or ten pounds for every hundred you have been dealing in you can pawn your clothes and furniture and try again. You can even have your account “carried over” to next settling day by paying “contango” if you are a bull, or “backwardation” if you are a bear, on the chance of your luck changing in the extra fortnight.

I must warn you, however, that if a great many other bears have guessed just as you have, and sold imaginary shares in great numbers, you may be “cornered”. This means that the bears have sold either more shares than actually exist, or more than the holders will sell except at a great advance in price. Bulls who are cunning enough to foresee this and to buy up the shares which are being beared may make all the money the bears lose. Cornering the bears is a recognized part of the game of speculation.

As the game is one of knowledge and skill and character (or no character) as well as of chance, a good guesser, or one with private (inside) information as to facts likely to affect share prices, can make a living at it; and some speculators have made and lost princely fortunes. Some women play at it just as others back horses. Sometimes they do it intelligently through regular stockbrokers, with a clear understanding of the game. Sometimes they are blindly tempted by circulars sent out from Bucket Shops; so I had better enlighten you as to what a bucket shop is.

You will remember that a speculator does not stand to lose the whole price she offers for a share, or the whole value of the share she pretends to buy. If she loses she loses only the difference between the prices she expected and the prices she has to pay. If she has a sufficient sum in hand to meet this she escapes bankruptcy. This sufficient sum is called “cover”. A bucket shop keeper is one who undertakes to speculate for anyone who will send him cover. His circulars say, in effect, “Send me ten pounds, and the worst that can happen to you is to lose it; but I may be able to double it for you or even double it many times over. I can refer you to clients who have sent me £10 and got back £50 or £100.” A lady, not understanding the business in the least, is tempted to send him £10, and very likely loses it, in which case she usually tries to get it back by risking another £10 note if she has one left. But she may be lucky and pocket some winnings; for bucket shops must let their clients win sometimes or they could hardly exist. But they can generally prevent your winning, if they choose, by taking advantage of some specially low price of shares to shew that your cover has disappeared, or even by selling two or three shares themselves at a low price and quoting it against you. Besides, if you sue them for your winnings they can escape by pleading the Gaming Act. They cannot be mulcted or expelled by the Stock Exchange Committee; for they are not members of the Stock Exchange, and have given no securities. A bucket shop keeper is not necessarily a swindler any more than a bookmaker is necessarily a welsher; but if he fleeces you you have no remedy, whereas if a stockbroker cheats you it may cost him his livelihood.

If you speculate through a regular stockbroker you must bear in mind that he is supposed to deal in genuine investments only: that is, in the buying of shares by clients who have the money to pay for them, and the sale of shares by those who really possess them and wish to exchange them for a lump sum of spare money. The difference is that if you go into a bucket shop and say frankly “Here is a five pound note, which is all I have in the world. Will you take it as cover, and speculate with it for me in stocks of ten times its value”, the bucket shop will oblige you; but if you say this to a stockbroker he must have you shewn out. You must allow him to believe, or pretend to believe, that you really have the spare money or the shares in which you want to deal.

You will now understand what gambling on the London Stock Exchange means. The game can be played with certain variations, called options and double options and so on, which are as easily picked up as the different hazards of the roulette table; and the foreign stock exchanges have rules which are not so convenient for the bears as our rules; but these differences do not change the nature of the game. Every day speculative business is done in Capel Court in London, on Wall Street in New York, in the Bourses on the Continent, to the tune of millions of pounds; and it is literally only a tune: the buyers have no money and the sellers no goods; and their countries are no richer for it all than they are for the gaming tables at Monte Carlo or the bookmakers’ settlements at the end of a horse race. Yet the human energy, audacity, and cunning wasted on it would, if rightly directed, make an end of our slums and epidemics and most of our prisons in fewer hours than it has taken days of Capitalism to produce them.