You have probably heard it before: „Dishonest speculators are manipulating asset prices extensively. They make unjust and therefore undeserved profits. These vicious individuals only enrich themselves immorally at the expense of society as a whole, whose members, unlike them, depend on honest work to obtain scarce resources. Not only are they of no benefit to society, but they are the very embodiment of evil, for their behavior is highly harmful and despicable. Shame on them!” But are speculators really such pariahs, or are they instead beneficial and indispensable to society?

Let us begin with an unexpected statement – everyone is a speculator, without exception. Don’t you believe that? You will soon prove me right anyway.

Human action is necessarily embedded in space-time. Human judgments involve experience derived from sensory knowledge and rational classification of the consequences of previously performed actions as well as expectations about future circumstances. It can even be said that the uncertain future is directly linked to human action in the present by an inseparable bond. For in making decisions one always takes into account (nolens volens) the satisfaction that a given possibility will bring to one’s future self. But beware, the future is inevitably shrouded in a dark cloak of daunting uncertainty.

The obvious implication, therefore, is the indisputable fact that human action involves considerable uncertainty. This is its very characteristic feature. After all, as Murray N. Rothbard writes, “If man knew future events completely, he would never act, since no act of his could change the situation.“ But what does this imply? Ludwig von Mises gives us the answer: „The outcome of action is always uncertain. Action is always speculation” 

Well, well! Isn’t everyone a speculator? But then, after all, it would be utterly disingenuous to spread animosity against these people if their critic is necessarily one of them. All human action is really nothing but mere speculation based on a judgment as to the course of future events, the ultimate purpose of which is only to increase the degree of perceived satisfaction or, in the language of the pessimists, to decrease the degree of perceived suffering. Since uncertainty is associated with inaccurate expectations and the resulting sense of surprise or disappointment, Israel Kirzner concludes that „every individual act constitutes, necessarily, an act of discovery“.

Speculators profit if and only if their expectations turn out to be correct. Having specific information about factors that could affect the price of the good in question and which are not yet known to other market participants, they decide to fearlessly face the omnipresent uncertainty, and this courage is rewarded by profits if they are correct in their judgments about the forthcoming development of the price of the good concerned. Such action, however, was not only for their own benefit but for the benefit of society as a whole.

Speculators, while looking solely for their own benefit and maximizing their profits, contribute to smooth out fluctuations in prices and help the market move closer to equilibrium prices. They make the prices of goods somehow more comprehensive since more relevant factors are involved in their level. And then they can be a more effective tool for searching, which Hayek likened to a telescope extending the range of vision for the soldier or hunter.

Speculation is thus not a redundant, unnecessary, or even outright undesirable activity, but, in its literal sense, a creative activity that plays an absolutely cardinal and indispensable role in a market economy. As Nietzsche’s Zarathustra aptly says: „Valuing is creating: listen, ye who are creative! To value is the treasure and jewel among all things valued.“

Written by Štěpán Drábek – analyst at CETA.

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