Speculation and Economic Stability

  • N. Kaldor


The purpose of the following paper is to examine, in the light of recent doctrines, the effects of speculation on economic stability. Speculation, for the purposes of this paper, may be defined as the purchase (or sale) of goods with a view to re-sale (re-purchase) at a later date, where the motive behind such action is the expectation of a change in the relevant prices relatively to the ruling price and not a gain accruing through their use, or any kind of transformation effected in them or their transfer between different markets. Thus, while merchants and other dealers do make purchases and sales which might be termed ‘speculative’, their ordinary transactions do not fall within this category. What distinguishes speculative purchases and sales from other kinds of purchases and sales is the expectation of an impending change in the ruling market price as the sole motive of action. Hence ‘speculative stocks’ of anything may be defined as the difference between the amount actually held and the amount that would be held if, other things being the same, the price of that thing were expected to remain unchanged; and they can be either positive or negative.1


Risk Premium Future Price Current Price Economic Stability Spot Price 
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  1. 12.
    This section is a revised amalgam of § 4 as published in the original version of the article, Review of Economic Studies 1939–40, pp. 5–7, and of my contribution to the Symposium, ‘A Note on the Theory of the Forward Market’, Review of Economic Studies 1939–40. pp. 196–201.]Google Scholar
  2. 16.
    I use the term ‘futures’ here as equivalent to a forward purchase or sale; in other words, I assume that the commodity dealt in is completely standardised - as in the case of the foreign exchange market - and hence there is no difference in the obligations assumed in a spot contract or a futures contract. If there are differences then as Mr. Dow has shown, they can be introduced as an additional element causing some further deviation in the futures price from the spot price. Cf. J. C. R. Dow, ‘A Theoretical Account of Futures Markets’, Review of Economic Studies 1939–40, pp. 185–95.Google Scholar

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© Palgrave Macmillan, a division of Macmillan Publishers Limited 1976

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  • N. Kaldor

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