Is speculation a good or bad thing?
“So-called “speculative” profits reward those who correctly anticipate new information and thus provide a powerful incentive to produce new information.”
-- Randy Barnett
Is speculation Necessary?
“To make a financial gain, the promoter of a production project – the entrepreneur – must be able to sell the final product at a price higher than the price of the various inputs that have been used to bring it to market. But since production takes time, and things can change in the interval, this outcome is by no means certain. The cost of inputs may rise along the way, other competitors may bring better or cheaper products to market, fashions might change, and consumers may not be willing to pay the price that the entrepreneur had hoped for. Profit, then, does not come from simply investing money in some production process and waiting for the returns to come in. All production is a speculation. It is possible to make huge mistakes”
“the prevailing market price reflects the price at which the marginal seller is willing to transact with the marginal buyer. The market price of, for example, a house is as influenced by the decisions of all homeowners who prefer to hold on to their property than accept the prevailing market price as it is influenced by those at the margin who consent to such transfers.Therefore, a person in possession of “windfall” information concerning a particular scarce resource still contributes importantly to the welfare of others by causing the price of that resource to move in an information-revealing direction, whether the direction is up, down, or unchanged. The price-effect of the decision to trade or refrain from trading results notwithstanding the fact that the trader may neither have produced the information nor intentionally disclosed it. As before, I do not claim that this information process is perfect, but only that it is both vital and irreplaceable.”
-- Randy Barnett
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