Stuart Banner


On his book Speculation: A History of the Fine Line between Gambling and Investing

Cover Interview of September 11, 2017

The wide angle

In the aftermath of the recent financial crisis, we heard many critiques of speculation for having contributed to the problem, and many defenses of speculation as necessary for robust markets. The thing I found most interesting about this debate was how similar it sounded to the debates that took place after analogous episodes, such as the stock market crash of 1929-32, the sharp fall in commodity prices that took place in the early 1890s, and the recurring panics of the 1800s. The details changed from one era to another, and some of the arguments for and against speculation changed as well, but much of our own debate would have been familiar two centuries ago.

For example, consider these common reactions to the financial crisis: The crisis was caused by overspeculation; the victims included small investors lured by unscrupulous speculators with promises of high returns; and the government should have intervened before prices rose too high. These are familiar sentiments today, but these particular samples are reactions to the financial crisis of 1792. Similar views have been expressed after every market downturn up to the present. They have been countered by equally recurring arguments on the other side.

These continuities suggest that the issue of how the law should handle speculation is not merely a technical question capable of being answered with economic reasoning. It is also a deeply moral and political question. Advances in economics over the past two centuries have narrowed the scope of disagreement over the technical aspects of the issue, at least among well-informed people, but the moral and political aspects of the question are just as open to debate as they ever were.