The Role Of Speculators: Handling Risk From the Tulip Craze to the Decade of Greed
Speculators are often portrayed in literature, film and the media as evil businessmen who prey upon markets. Or they are portrayed as fools, who art with their money. The popular portraits accepted by the culture, while colorful, are ill-informed.
This article looks at the view held of speculators in early bubbles such as Tulip Mania and the South Sea Bubble. It then moves to the 1780s and early 1790s in the United States and looks at the broadsides fired at speculators in Revolutionary War debt by supporters of Jefferson and Madison. Next, the Gilded Age exemplified by Jim Fisk (the great drummer and war profiteer), Daniel Drew (the Speculative Director), Jay Gould (the Dark Genius of Wall Street), and Commodore Vanderbilt (“the public be damned”) is surveyed. The article concludes its survey with the Decade of Greed, the 1980s, as seen through “Other People’s Money” and “Wall Street.”
While the portraits of these culprits are vivid and the fulminations and exhortations against speculation are entertaining, the historic and economic reality is much different. Speculators provide an important and discrete function. They provide capital and liquidity, risk taking, and rationing of resources vital for all market economies.