Here is a risk which the business man can not escape; neither can any one else; it affects us all, and, for the most part, in an evil manner.
2. The rising prices have fostered speculation in all lines of industry and investment. Large profits have been made in recent years only by those who have taken large risks, often foolhardy ones. Cautious investors—inelegantly but clearly expressed—have been stung, while the owners of corporation stock, real estate and other speculative properties have made in many cases scandalous profits. Consequently, more and more people have turned to the riskier investments. The additional demand for them then forced their prices still higher, which in turn furnished an incentive for further speculation. Thus in many instances stocks have climbed to heights which, relative to other values, simply can not be permanently maintained. Likewise, in nearly every city of importance in the United States real estate values, particularly land, have reached such ridiculous figures compared with other prices that they simply must collapse (beholding their own monstrosity).
This means a financial panic. Credit operations in recent years have been based too largely upon uncertain and inflated money values. Some time in the reasonably near future, during a period of rather general liquidation, the paper profits of our speculative classes will show what they really are—phantoms which dissolve into nothingness at the touch of business reality.
The panic of 1907 was perhaps principally due to the speculation of the previous period of rising prices. However, except for a temporary halt after the panic, the movement upward has continued unabated. Moreover, it probably will continue many years to come; at least the fundamental cause of the movement—excessive gold production—gives no promise of lessening its operation for a long time. In the meanwhile, before final adjustments are made, before a final high level of prices is reached, or before a downward swing is started, the writer fears that we are doomed to several panics, probably severe ones, bringing disorganization of values, collapse of business, unemployment and general hard times.
Apart from panics, look at the social waste of speculation! For example, the ordinary dabbler on the stock market has no real interest in the corporation whose stocks and bonds he is buying, and he does not create any substantial values. Nor does he buy because he knows that the stock is selling for less than its intrinsic worth. He has a tip or a "hunch" that the price will go up, and he takes a chance at easy money. But win or lose, he neglects any sound business for which he is trained, and so wastes his time for the public.
Likewise, the multitudes of real estate dealers the country over are not bona-fide real estate men, studying the needs of their community,