VII The Importance of the Risk Factor

VII MAKING £1,000 IN.A WEEK: THE IMPORTANCE OF THE RISK FACTOR ONLY once in my life have I indulged in a gamble, a real gamble in that the risks were heavy and the game was one of which I had no particular experience. All business is, of course, to some extent a gamble, but the word cannot be applied properly to risks taken in the ordinary way .of trade by persons qualified to judge of them, and therefore able to measure them with a cer tain degree of exactitude. In this particular gamble I had no data to go upon; indeed none existed. I had some idea of the possible outlay; I also knew the amount of the possible returns; but I had no means of judging how far my estimates 9f outlay would prove right in the light of experience, nor was anyone able to say what was the margin of error in the estimate of receipts. In July, 19°9, the Fleet paid a visit to the Thames, thus offering an opportunity, very rare in those days, for the citizens of London to have a .look at the .Navy about which they sang .89 lustily, for which they paid so readily, and of which they knew and saw so little.

Great popular interest was t~ken in this event, and great preparations were made to. enable the people to take advantage of the occasion. The Fleet was stationed off Southend and Shoebury ness, and some scores of excursions were arranged by train to the former place. Others were made by steamer MAKING £r,ooo IN·A WEEK r21 from London Bridge. For 5s. it was possible to make the return journey by rail to Southend and the tram trip along the mile and. a quarter of Southend Pier, and to -enjoy a couple of hours on board a pleasure steamer cruising round the ships of war. . These circumstances seemed to me to offer an oppor tunity for enterprise in the way of making arrangements to meet the requirements of those who would be willing to spend a little more money, in order to avoid the crush and crowd of the more popular excursions which, until I entered the field, were the only means available for visiting the Fleet. I had, by a coincidence, spent an afternoon a few months earlier walking round the Isle of Grain and had inspected Port Victoria, a place with a good name but consisting only of a wooden pier and a railway siding. Port Victoria had not been in use since the London, Chatham and Dover and South Eastern Railways had first.experimented in the modern craze for amalgamation and the elimination of compe tition. The Continental service which once ran from Port Victoria had been discontinued, and the port and siding were almost derelict. But the name was good.

Quee.n Victoria had on occasion used the port, and that was a point with a natural appeal to the advertising man. I approached the South-Eastern and Chatham Rail way and ascertained that it would be possible, though at a price which seemed to me exorbitant, to run special trains from Charing Cross to Port Victoria, and as a result of further negotiations I was able to issue the following prospectus: Many thousands of Londoners and almost as many visitors from the country and abroad will be rushing to the river during the five days beginning July 19th, to take the very rare opportunity which then offers of inspecting the Fleet in the Thames. There will be assembled in the mouth of the river no fewer than 150 ships of war. The official 12-2 THE CONFESSIONS OF A CAPITALIST programme shows that the great majority of the ships will be grouped between Southend and Port Victoria, where, counting the submarines, there are to be as many as five lines abreast. The total length of the main Fleet, from the destroyers off Leigh Middle to the eastern end , of the Home and Atlantic Fleets off Shoeburyness Sands will be about twenty miles. The ships to be seen, including those in the upper reaches, will comprise 24 battleships, 16 armoured cruisers, 6 second class cruisers, 7 special service ships, 7 scouts and third-class cruisers, I torpedo gunboat, 47 destroyers, 6 torpedo boats, and 35 submarines.

Never before in history has such a sight been so readily accessible, and it is unlikely that a similar event will occur during the lifetime of the present generatien. Every description of river craft will be pressed into the service, and great difficulty will be· experienced in obtaining accommodation by those who wish to avoid the crush and crowd and see the Fleet with some degree of comfort. It is to meet the requirements of this class that the magnificent steamer, jointly owned by the L.B. '& s.c. and L. & S.W. Railways, Duchess of Fife, has been specially chartered. The Duchess of Fife will be the best appointed passenger steamer in the river, and offers the only prospect of inspecting the Fleet in luxury and comfort.. Of the 150 ships to be seen, there will be between the Tower and Southend only 17, and these of the smaller descriptions. Visitors travelling by steamer from London will thus have to cover nearly 50 miles of the river and spend about three hours before they reach the main body of the Fleet, and there will also be this unattractive route to be traversed on the return journey.

The fast special trains of the Port Victoria Route make it possible, without starting early in the morning and. returning late at night, to see all that is worth seeing and to avoid the uninteresting and tedious passage down and up the Thames. Although the Duchess of Fife is licensed to carry a large number of persons, each day's party will be strictly limited, so as to ensure an entire absence of crush, perfect comfort, and an uninterrupted view of the line of ships. Being built for the rough seas of the English Channel, the Duchess of Fife offersexceptional security from risk and from discomfort while cruising in the river and round the Fleet. Lunch and light refreshment by Messrs. Spiers and Pond, Ltd., will be served each day, at moderate prices, in the magnificent saloon. Afternoon tea may be taken in the saloon or upon the promenade decks. The number of passengers being strictly limited, as explained above, immediate application for tickets is essential. Tickets, if applied for MAKING £1,000 IN A WEEK 12 3 before July 10, will cost £1 5s. each for Monday, Wednesday, Thursday, and Friday, or £1 1 IS. 6d. for Tuesday, on which day the Lord Mayor of London and the City Corporation make their official visit.

Out of this very rash gamble I secured much useful experience. It will be noticed that I priced my trip at 25s. and 3 IS. 6d., while the market figure for a similar service via Southend varied from 5s. to lOS. My fore cast proved right, and I sold every ounce of accommo dation I had, from which I learnt that cheapness is not always a necessary feature in a successful transaction. But the experience which has been of most value to me lay in the negotiating and the price I paid for the Duchess of Fife. Brought up in a competitive market and thoroughly believing in the value of competition, when it came to chartering a steamer, I went to half a dozen brokers iW" and agents in the shipping business and told them all my requirements. In my simplicity it seemed to me that they would each be anxious to secure the order and would produce, one after the other, steamers for my inspection, each cheaper than the last. But I over looked the fact that there is not an unlimited supply of pleasure steamers available for such a purpose as I had in view; that most of those existing were already en gaged on the Southend side of the river; and that, in view of the superior quality of the e-KcursionI proposed to advertise, it was necessary to have a steamer with an attractive reputation and adequate accommodation. As I learnt afterwards, there was in fact only one such vessel to be had nearer than the Clyde; and the voyage from that river was, for my brief purpose, out of the question.

As has been mentioned, the ship I finally secured belonged jointly to the London, Brighton and South Coast and London and South-Western Railways, and 124-THE CONFESSIONS OF A CAPITALIST was used for trips between Portsmouth -and the Isle of Wight. My' numerous shipping agents all fastened upon her; allniade bids for her; and were all informed that she was much in demand, that the-re were man): inquiries, and that she could only be obtained if the contract were signed at once. The price for a week's hire _would be £850, plus the victualling of the crew, coal, and insurance. I had, in fact, made a market against myself, and subsequently formed the opinion that I could have had the craft with victuals and coal and insurance for £500 had I but grasped more com pletely the subtle workings of the thing called " com petitio tl." I did not till then realise that there may be competition to buy ~s well as competition to sell. This experience with the Duchessoj Fife has helped me since on many occasions to an understanding of the reason why, whenever a public body requires to make a pur chase, it always has to pay very much more than the real value for what it wants.

It remains to explain how I, a young publisher with every penny that I possessed sunk in my own business, and carrying, in addition, an incubus of debt, was able to undertake a gamble involving formidable risks and sums of money which were, for me, distinctly large. The best estimate -that I could make out of the outlay necessary to finance the trip was somewhere between £5,000 and £6,00(),e That was the total outlay. Should the scheme prove a complete failure, £4,000 or £5,000 might be lost. Should it, on the other hand, prove successful in every way, I conjectured a possibl~ profit of £2,000. In view of my financial position and responsibilities, I sought out a relative who was more fortunately placed and, having succeeded in persuading him that the scheme was a good one, we went into partnership on the matter. The terms of arrangement between us MAKING £r,ooo IN A WEEK r25 were very ~imple: I was to do all the work, he was to find all the money-and we were to share the profits.

He took all responsibility in the event of loss. The business was conceived and carried to a finish in a period of less than three weeks. The actual work asso ciated with it was done mostly within the space of seven days. I have never before or since done such a week's work. I had my clothes off twice in seven nights. The staff of the syndicate consisted of two clerks borrowed from my business. A room was hired and two tele phones installed (it being possible in those days to get a telephone at a few hours' notice). Quantities of tickets and bills of advertisement had to be printed, and all this part of the business, from the writing out and ordering to the ·printing and even delivery,. was executed within the space of twenty-four hours. The printing trade had not at that time been organiseq into its present state of leisurely efficiency. There is no need at this distance of time to tell the story in all its details, but it will readily be belie,:ed that a good deal of trouble and anxiety was associated with it.. The South-Eastern Railway even in those days had its little weaknesses. I well remember how one of our evening trips, which should have returned my 600 passengers to Charing Cross at the convenient hour of I I p.m. landed them at Cannon Street at 4 a.m., with the result that I was inundated with claims for hotel accommodation, cabs to the most distant parts of the suburbs, and other forms of damage. But we sur mounted these little difficulties and came out of the gamble at the end of the week with a very handsome profit; my partner and I taking a trifle less than £1,000 each.

My purpose in telling the story is, of course,. to con sider and discuss its economic implications, to discover to what extent I was justified in making this large sum 126 THE CONFESsIoNSOF A CAPITALIST of money, and whether good or harm resulted from this profitable speculation, s() definitely stigmatised by Ruskin as " sin." From that point of view my partner would perhaps be considered a greater sinner than I, for he did no work. He received £1,000 simply by virtue of the fact that he owned a little money and was therefore able to shoulder the risk of the enterprise. His case is rendered blacker still from the interesting circumstance that, from beginning to end of the. whole business, he did not part with a penny-piece. The terms of his arrangement with me provided that he should find any money. that was wanted, but, as things turned out, the money from the sale of tickets began to come in before we were called upon to pay any of our liabilities. The syndicate therefore carried through its affairs without in fact possessing a single cent of capital. I could, of course, have carried through the business without a partner at all. I could have. pawned my estate, and no doubt someone would have been willing to lend me £4,000 or £s,oooon more or less reasonable terms, had I been plucky enough to ri~k all my possessions on this little enterprise. I am, how ever, made of more cautious stuff, and that method did not seem wise. I ther~fore sought the assistance of my partner, and, as will be seen, the enterprise depended entirely upon him. Without the existence . of someone who was in a position and willing to risk the loss of £S,ooo, the Duchess of Fife trips would never have been available to the public. My partner shouldered that risk.

From my point of view the most important result was that it removed a purchasing power of one thousand sovereigns from .the pockets of some thousands of people into my own. That would not seem to be of great significance from the point of view of public benefit. In ,this case, however, some importance did MAKING £r,ooo IN A WEE:£{ attach to it.. The existence of £I ,000 worth of pur chasing power in the pockets of a large number of fairly well-to-do people was, of course, a useful thing for industry generally. It meant that goods to the value of £1,000, coming from many markets, could be purchased and, in every case, that expenditure would involve so much employment and so much profit. But the transference of all those little frag ments of purchasing power to me in one big lump of £I ,000 did, as a matter of fact, alter the character of· that sum, by taking it out of the current account of the spending public a1'l:d placing it to the credit of my capital account, where it promptly became part of the capital with the help of which I have been able to develop and enlarge my business.

It can, I think, be safely argued that this £1,000, considered as part of the general well-being of the community, is doing better service in promoting busi ness enterprise than if it had been spent in single sovereigns by a thousand people who would have bought a number of isolated commodities. Even so, this gamble of mine went further and deeper than that. It added, in the course of the week over which it was spread, some £4,000 to the wages fund, and it had the special effect of stiffening the market in the wages of seamen, coal-workers, railwaymen, and engineers. It is obvious and incontrovertible that but for the presence of that £4,000 on the nlarket, com peting for the services of all these workers, the market must have been weaker and the wages of all of them less. We can go further back and justify the trans action by considering the case of the business men and the speculators who, years before, had put up their . savings and risked them upon the building of the steamer which I used. Those wages, for the construc tion of the ship, the making of the steel and all the 128 THE CONFESSIONS OF A CAPITALIST other processes involved in it, would never have been paid had it not been for the expectation that people like myself would be willing later on to speculate still further in the use of the vessel. So, whether the trans action is considered backwards or forwards, it will be seen to be a great wage~producing agent, causing in its history much more activity and the use of far greater sums of money in a bigger scheme of things than ever appeared on my little account.

This venture with the Duchess oj Fife is the only big gamble completely outside myow~ line of business in which I have ever indulged, but I have lost a great deal more money than I made in this way on other small speculations' indirectly associated with· publishing. Chief among these were two exhibitions that at diff erent times I was tempted to conduct. An old and respected friend of mine, Mr. John T. Day, proprie tor of The Shoe and Leather Record, had for many years past organised a very successful trade exhibitio tl, the Shoe and Leather Fair. He had shown that it is poss ible to associate a trade paper with. a trade exhibition, and that the two things, conducted together, can bene fit the trade, the public, and the publisher. If John T. Day could do this, it seemed to me that I might be equally successful. So in 1898, when I was .running The House, a journal concerned with the decoration of the home, I attempted to organise an exhibition of domestic art at the Imperial Institute. I was fortunate in securing the patronage of King Edward, then Prince of Wales, and I surrounded the enterprise with all the glamour of a distinguished committee, which included many leaders of the society of that day. But I was wrong. Whether it was that the Imperial Institute did not conjure up int,he minds of th~ public the idea 'of success, or whether it was that the public in those days did not care enough about domestic art, MAKING £1,000 IN A WEEK the fact remains that the applications for space from prospective exhibitors were not sufficient to enable us to open the doors. The exhibition was never held, and a few hundred pounds were lost.

In 191 I I tried again, entering into a contract to hire Olympia and run a hardware exhibition. As the pro prietor of one of the most successful hardware papers in the world, I thought, judging again by the experi ence of John T. Day, that it would be a simple thing for me to do. Something, however, though to this day I do not understand what it was, made it appear to the hardware trade that I was not the person to do this work, and my previous experience was repeated. The prospectus failed to enlist enough support, and the preliminary expenses had to··be written off. All this only shows that the wor~ of supplying public needs, or of making the public recognise its needs, is not so simple as would-be organisers of society appear to imagine. The Socialist theories overlook entirely the intricate question of risk. They conveniently ignore the fact that before anything can be done to produce a single article for public use, some person or some agency must undertake the risk of loss necessarily involved. No system can ever ensure that, when the article is made, the public will be willing to accept it at the value put upon it by those who make it. Hence, in any system allowing any choice at all to the buyer or consumer, there must always be the risk that in the end loss will be incurred. Risk is the very heart and core of com merce, and yet it is this factor to which least attention is paid by those who are so fond of discussing the rights and wrongs of the industrial system.

There is, of necessity, a certain amount of-risk con nected with business' of every kind. When the village grocer buys a hundredweight of sugar, hoping to retail I 130 THE CONFESSIONS OF A CAPITALIST it in pounds and half-pounds to the villagers, he takes many little risks. The sugar may not sell, or it may take a long time to sell. His assist~nt may drop water in it or spill it on the floor of the warehouse and waste it; it may be stolen, mice may eat it, and a hundred other things may happen to cause him loss. He, there fore, consciously or unconsciously, adds to the retail price of the sugar some small fraction to cover his risk. His neighbour, the village draper, takes a rather heavier risk in dealing with millinery. He has to face the poss ibility of changing fashions, the vicissitudes of the weather, and so forth, and these together make it·neces sary for him to charge rather more in respect of his risk than the grocer. The merchant who sells timber to a builder for delivery six months hence, thus enabling the builder to enter into a contract for the erection of a warehouse, takes a longer and larger risk which must be proportionately covered. The publisher of a book usually charges twice as much as he otherwise need, if he were certain that he. could sell out his whole edition, and yet it is not alleged that publishers as a class make too much money; the fact being that the double price is not more than sufficient to cover the cost of the books which nobody buys.

My financial backer in the very profitable deal which I have described did not, therefore, get more than a justifiable profit considering the heavy nature of his risk. All the profits on all such deals, balanced with all the losses, would disclose a surprisingly small sur plus, and when it is remembered that in a long business career this single transaction produced the only profit of the kind that I can put on record, it will be seen how really big, was the risk of loss involved. I have tried to show that wealth is exchange, and the story of the Duchess ~f Fife may help some to under stand that the most difficult work in connection' with • MAKING /,1,000 IN A WEEK exchange, and therefore wealth production, is' the shouldering of the risk inseparable from every com mercial undertaking. It is a misunderstanding of this vital question of risk taking which'leads to much wrong thinking on specula tion and gambling. It is probably true that England's greatness, that our lead in the creation of the commerce of the world, is due to the fact that we possess in a rather more pronounced· degree than most people the speculative or the gambling instinct. My partner in .the Duchess of Fife venture was a speculator. He had a few thousand pounds, no doubt inv~sted in gilt-edged securities producing to him, in those days, 2! or 3 per cent., and he was willing to risk the loss of his capital on the chance that he might increase it and secure a larger' income. He wanted his gamble and did very well out of it in this particular case, but, were he given to speculation of this kind as a habit, there is little doubt that he would lose in the long run.

The onus of risk is regarded altogether too lightly and assessed far too cheaply, notwithstanding the profits made by some who take such risks as I have described. "The overweening conceit," says Adam Smith, "which the greater part of men have of their own abilities is an ancient evil remarked by the philosophers and moralists of all ages. Their absurd presumption in their own good fortune has been less taken notice of. It is, however, if possible, still more universal. There is no man living who, when in tolerable' health and spirits, has not some share of it. The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued, and by scarce any man, who is in tolerable health and spirits, valued at more than it is worth." (The Wealth of Nations..) I am not an expert on betting, but I am told that more money is lost at 20 or 30 to I 'than when, in the 132 1~HE CONFESsIoNsof A CAPI'TAL1ST . language of the turf, " odds are even." There is some...

thing in our mental outfit which finds a dispropor tionate attraction in a 30 to I chance and makes us willing to pay for it more readily than when the odds are 2 to I, thus showing, as Adam Smith says, that the chance of loss is constantly underrated. This question of speculation requires further exam ination. It is not realised as widely as it should be how much each one of us depends for his comfort, convenience, and security upon the speculator, who, of course, makes and maintains every market that there is. The business of the speculator is to ease the price ofa commodity up or down, as required, thus relieving the rest of us of the grave risks and serious inconveni ences to which we should be subjected if we ourselves had to shoulder the violent fluctuations of the market. The dangers and liabilities incurred by those. who assume responsibility for risks may, perhaps, be seen . most clearly in connection with insurance.

Consider the case ofa ship leaving London with a cargo for Australia. The professional speculator (who, as will be seen later, is not speculating in the sense in which the word is used by the public, but is really supplying the most essential ingredient in wealth pro.duction, the assumption of risk) knows from past experience that out of a thousand ships sailing from London for Australia, a definite percentage has come to grief. He is, therefore, able to offer a price for insuring the ship and its cargo--Iet us say 5s. per cent. The insurance market, acting through one of its members, accepts 5s., and for that sum undertakes to pay £100 if the ship should be lost on its way. Half way through the voyage it is reported from some pass ing vessel that the· ship in question is experiencing engine trouble. The insurance market knows from experience that ships suffering in this way fail to reach MAKING £r,ooo IN A WEEK r33 their destination in a much heavier proportion than others. The odds, therefore, alter and the price to insure such a ship becomes heavier, let us say 25S.

per cent. The speculator on the insurance market who has accept"ed SSe promptly reinsures the vessel with some other speculator at 25s. and loses £I per cent. Presently, reports come through that the engine trouble is more serious than at first appeared. The chances of a successful voyage being more remote, the proper rate for insurance, judged by the best experi ence, becomes £5 per cent. Thereupon the speculator who has taken the 2 ss. rate reinsures with another speculator at £5 and loses £3 ISS. Day by day the news grows worse, and day by day the rate goes up until, the ship being a month overdue and no news of her having reached the market for weeks, hope of her safe arrival becomes very slender, the chances are indeed 19 to I against her surviving at all, and some speculator accepts £95 for the risk of paying £I 00 if she should prove a total loss. In the end, one of two things happens: either the ship is never heard of, or she puts in a belated appear ance in an Australian port. In the first event, the total cost of the ship and cargo has been spread over a large number of professional speculators, without the exist ence of whom the ship would never have sailed; its cargo could never have been sold to Australia, and the whole enterprise must have failed to materialise unless, indeed, it is argued that we should go back to the days of Antonio, when one man was willing to risk the whole of a large fortune on a big enterprise, and when big business transactions' were few and far between. In the second event, that of the ship arriving safely but late, the fortunate speculator-who received the £95 to take the risk of £100 pockets his good, fat premium.

134 I THE CONFESSIONS OF A CA~ITALIST Even then, however, he has made in the normal way no more profit than is necessary for the conduct of his business. He is, on the insurance market, a profes sional taker of heavy risks, of last hopes, and the experience of the market is sufficient to show that this speculator, taking day by day 19 to I chances, ' makes no more than a normal profit. A moment's consideration will show that, without the speculator, no forward contract is possible. Many of our current troubles are due to the excessive risk engen dered by post-War conditions and the lack of a suffi cient number of speculators to bear the burden of these risks. As an example, before the War it was my practice to buy my printing paper on three-year contracts. It was usual for the paper-maker to quote a price for deliveries which he would undertake to maintain for a period of three years. The paper-maker, working in those days on very narrow margins, could not himself assume responsibility for any extreme fluctuations in the prices of materials which might occur during a period of three years. He relied upon the professional speculator on the markets from which he drew his supplies. To quote a price for paper three years ahead involved, among many other conditions, an assurance of pulp and freights from Canada or Norway at firm prices during the whole of that period. Two tons of coal go to the making of every ton of paper, and my maker, in giving me his price, had to be sure that for three full years he could rely upon receiving his coal at a fixed figure, notwithstanding strikes or other con tingencies. The same conditions applied to the supply of china clay and all his other requirements. The three-year contract was a great convenience to me as a publisher. Assured of my paper supply at a fixed price for a reasonable period, I could make my plans MAKING £I,ooo·IN A WEEK '135 and develop my business in a way that is not possible to-day, when, thanks to political uncertainty and other legacies of the War, we have to be content to think at the most a few months ahead.

In those days, therefore, I relied for the stability of my business upon many professional speculators, who had undertaken all the several risks associated with a fixed price for my paper. The whole question is, of course, exceedingly complex and demands a far more rigid and meticulous examina tion than would be appropriate here; but it would be wrong to leave the reader with the impression that the professional speculator who undertook the delivery of coal three years ahead at a fixed price was in any real sense gambling. As a I1lember of his market, fulfilling his proper function, it would be his duty, when signing that contract, to find on the other side a coalowner who 'wished to be sure of a market for his output in three years' time, and who could, on that guarantee, see his way to employ sufficient labour to develop his pits. The same considerations apply to the erection of a building such as. I am now putting up in Fleet Street.

As I write, my position is that I shall want large sup plies of steel in three months' time, quantities of bricks in six months, and deliveries of timber in twelve. But I could not put up my building unless some contractor were able to assure me that he would do the work and place the new offices at my disposal at a given date for a given price. I should certainly never be justified in embarking upon an extensive building scheme if threatened with the risk that, when the steelwork was put up, I might discover that the price of bricks had doubled and that I ha~ not the money with which , to buy them. I am absolutely dependent upon the professional speculator, who, standing in the middle of the market,. accepts my difficulties, balances them 136 THE CONFESSIONS OF 'A CAPITALIST against the similar difficulties of the suppliers of materials, and thus makes the operations of both sides possible.

There is a common misapprehension here which requires correcting. It is assumed that risk-taking and gambling are one and the same thing. Nothing could be farther from the truth. The line between the two is very easily drawn. The risk-taker, the most valuable of all the functionaries who help to develop wealth-producing industries, renders a service to others, in return for which he hopes to receive a profit. The gambler renders no such service. Any doubt, therefore, as to whether a particular trans action is legitimate or not can be settled at once by applying the test of service.. Risk-taking and speculation illustrate, perhaps better than any other examples, the real trouble with Capital ism and capitalistic systems, namely, the stupidity of the business classes as a whole. They have allowed the impression to become widespread and general that there is a large class of persons making big fortunes at the expense of the community by gambling in the commodities upon which the rest of us depend.

Nothing could be more inaccurate. That there are> such gamblers and that they occasionally make moriey cannot be denied. These, however, constitute a very small class, and, further, it is beyond doubt that, on the whole, they lose more than they 'make. Monte Carlo is kept going and made rich because, as the song tells us, there was once a " man who broke the bank," but it cannot be argued from this isolated fact that the people who frequent the tables at that fas cinating holiday resort make money. The professional speculator in stocks and shares is the first person who jumps to the average mind when mention is made of the much-misunderstood subject of MAKING £r,ooo IN A WEEK 137 speculation. It is commonly assumed that, if a man can gain admission to the Stock Exchange, he is then able with little effort to make big money by a process which the public, in its carelessness and ignorance, is content to dismiss as a species of gambling. Nobody bothers to inquire what would happen if one of us, having saved £25 and wanting to invest it in London County Council 3 per cents., were to canvass the streets and houses of the metropolis to discover a person who hap pened to conform to the three parts of our particular necessity, namely, that, in the first place, he should possess L.C.C. 3 per cents.; secondly, that he should be in a position to sell them; and, thirdly, that, own-ing exactly £25 worth of them, he should be willing to sell. Nor does anyone trouble to inquire how, if we went through this laborious process, the price of the L.C.C. 3 per cents. would be settled; while all the machinery of transfer and exchange would seem to be beneath the consideration of the critics of this Stock Exchange transaction. The much-maligned specula tor, who makes a hard-earned living out of L.C.C.

3 per cents., has a long and weary road to travel and a complicated business to learn before he can carryon his nefarious practices at all. Just like any other shopkeeper, he must first of all make it known that he is there. Further, it must be known that he proposes to specialise in municipal stocks and shares, so that those who want industrials or foreign bonds will not go to him, any more than people who want meat go to a chemist. When he has thus established himself as a recognised dealer in municipal issues, he must stand in the market and be prepared to buy or sell everything that comes along. From an intimate knowledge pf the exact position of the various issues he must judge how much is likely to come to the market; how many buyers and how 138 THE CONFESSIONS OF A CAPITALIST many sellers there will be ; and what is the price at which business can be done to the satisfaction of both parties. Accordingly he will announce a figure which seems to him to be appropriate for L.e.C. 3 per cents.

If that figure is an attractive one from the point of view· of the holders of this particular stock, they will tend to rush upon the market. to sell to him, but the buyers whom he must find to balance his account will hold back, and he will be threatened with the risk of accepting large quantities of the stock at a price which other people will -not pay. Finding himself in that position he lowers the price, marks the stock down, and in this way checks sell~rs and encourages buyers. Day by day and hour by hour this delicate process is performed, always discovering that happy mean which exactly suits the points of view of both buyers and sellers, and makes· it possible for both to deal freely in the stock in question. The London County Council is consequently able to borrow money which it could never obtain without the professional speculator who gives to each investor a guarantee that his investment is always liquid and realisable. The public -does not invest in gilt-edged securities and accept a low rate of interest without the certain assurance that it can always realis~ its investment rapidly. That is an essential con dition in cheap public borrowing.

The· best illustration I can-give of the common errors of thQught on· this matter of business speculation and , ,its general benefits to the community is a speech I heard some years ago from the lips of Mr. Ben Tillett. He was younger, -less experienced and a little wilder than he has since become. He was discussing the wrongs of Capitalism and the way in which the rich lived in luxury by grinding the fa~es of the poor. He waxed very eloquent about the wealth that was made at the expense of the workers' stomachs and took by MAKING £1,000 IN A WEEK 139 way of illustration the people's bread. According to him, this common necessity was permitted to the poor folk, whom he represented, only after the money owners, the gamblers, and the speculators had squeezed great fortunes out' of it. He traced the history of the loaf from the time that the land which grows the wheat was bought and sold in Canada. First wealth was amassed from speculations in land. Then the seed to be sown was subject to speculation in the Pit at Chicago. Millionaires were sp'rung from the very seed that the starving poor in the East End of London needed to provide .them with bread. The crops were at last grown and further fortunes arose out of the buying and selling of them. Shipping magnates gambled in freights as part of the operation of bring ing the grain from the wheat-fields of Canada to the London market. Millers, again, bought and sold it, at every turn adding to its price. Throughout the whole proceeding there was the middleman carrying on the scoundrelly .business of buying and selling and robbing the worker of the bread which God has provided for his. sustenance.

The reader who remembers Ben Tillett at his best will be able to reconstruct the wonderful picture which that great orator could draw {roln such a story. The occasion was one of those conferences between capital and labour with which I have been closely asso ciated, and it was my painful' duty to follow Tillett and to spoil the work of art which he had so skilfully wrought. A few sentences were sufiicient for the pur pose.. It so happened that, at the time when Tillett was working up the indignation of the ignorant on speculation in grain and bread, there was a statesman of almost equal eloquence, Joseph Chamberlain, lead ing a great party' whose principal grievance was that the loaf was t{)O big, that the Empire was going to I 14-0 THE CONFESSIONS OF A CAPITALIS1~ pieces because of the low price of bread. We were assured that in order to wih salvation our food must cost us more. I do not remember any single case that demonstrates more clearly and conclusively the real purpose and effect of speculation. Speculation, like competition, is a price-reducer, a big force for economy, and one of the greatest services that the development of the economic system has rendered to mankind.

So it can be seen that those who object to what is called the incentive of gain, to the acquisitive instinct ordinarily supposed to be at the back of industrial enterprise, those who think that society could be so conducted that profit making could be eliminated, have yet to explain how they will rid us of the risks and the losses. If all the books and articles that have been written about the iniquity of private gain were re-written round the subject of private loss, the writers of most of them would, of necessity, be driven to different conclusions. This personal desire, individual greed, so much discussed and so much dissected, is in fact an immense power, working through millions of private ihdividuals, for the preservation of society from losses which, if allowed free play, would soon bring it to an end. When losses and profits are balanced; when it is shown that, notwithstanding all the profits, these are mostly absorbed in the losses; when it is ~hown that the ow.ners of the profits, whatever their desires, take no more than a very small margin which is barely sufficient to provide us with the increase of savings and capital upon which our progress depends, then it seems to me that the case against private enterprise and individual gain entirely disappears.