The Expanded and Annotated My Life and Work

SPECULATION AND BUBBLES
The Introduction already warned that “speculation in things already pro-
duced—that is not business. It is just more or less respectable graft.” This 
kind of speculation was responsible for disasters ranging from Dutch tulip 
mania in the seventeenth century to the more recent collapse of the dot-
com stock bubble and the mortgage-backed security debacle.
* * *
No one will deny that if prices are sufficiently low, buyers will always be 
found, no matter what are supposed to be the business conditions. That is one 
of the elemental facts of business. Sometimes raw materials will not move, 
no matter how low the price. We have seen something of that during the last 
year [1921], but that is because the manufacturers and the distributors were 
trying to dispose of high-cost stocks before making new engagements. The 
markets were stagnant, but not “saturated” with goods. What is called a 
“saturated” market is only one in which the prices are above the purchasing 
power.
Unduly high prices are always a sign of unsound business, because they 
are always due to some abnormal condition. A healthy patient has a nor-
mal temperature; a healthy market has normal prices. High prices come 

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126  •  The Expanded and Annotated My Life and Work
about commonly by reason of speculation following the report of a shortage. 
Although there is never a shortage in everything, a shortage in just a few 
important commodities, or even in one, serves to start speculation. Or again, 
goods may not be short at all. An inflation of currency or credit will cause 
a quick bulge in apparent buying power and the consequent opportunity to 
speculate. There may be a combination of actual shortages and a currency 
inflation—as frequently happens during war. But in any condition of unduly 
high prices, no matter what the real cause, the people pay the high prices 
because they think there is going to be a shortage. They may buy bread ahead 
of their own needs, so as not to be left later in the lurch, or they may buy in 
the hope of reselling at a profit. When there was talk of a sugar shortage, 
housewives who had never in their lives bought more than ten pounds of 
sugar at once tried to get stocks of one hundred or two hundred pounds, and 
while they were doing this, speculators were buying sugar to store in ware-
houses. Nearly all our war shortages were caused by speculation or buying 
ahead of need.
No matter how short the supply of an article is supposed to be, no matter 
if the Government takes control and seizes every ounce of that article, a man 
who is willing to pay the money can always get whatever supply he is willing 
to pay for. No one ever knows actually how great or how small is the national 
stock of any commodity. The very best figures are not more than guesses; 
estimates of the world’s stock of a commodity are still wilder. We may think 
we know how much of a commodity is produced on a certain day or in a 
certain month, but that does not tell us how much will be produced the next 
day or the next month. Likewise we do not know how much is consumed. By 
spending a great deal of money we might, in the course of time, get at fairly 
accurate figures on how much of a particular commodity was consumed over 
a period, but by the time those figures were compiled they would be utterly 
useless except for historical purposes, because in the next period the con-
sumption might be double or half as much. People do not stay put. That is the 
trouble with all the framers of Socialistic and Communistic, and of all other 
plans for the ideal regulation of society. They all presume that people will stay 
put. The reactionary has the same idea. He insists that everyone ought to stay 
put. Nobody does, and for that I am thankful.
Consumption varies according to the price and the quality, and nobody 
knows or can figure out what future consumption will amount to, because 
every time a price is lowered a new stratum of buying power is reached. 
Everyone knows that, but many refuse to recognize it by their acts. When 
a storekeeper buys goods at a wrong price and finds they will not move, he 
reduces the price by degrees until they do move. If he is wise, instead of nib-
bling at the price and encouraging in his customers the hope of even lower 
prices, he takes a great big bite out of the price and gets the stuff out of his 

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How Cheaply Can Things Be Made?  •  127
place. Everyone takes a loss on some proposition of sales. The common hope 
is that after the loss there may be a big profit to make up for the loss. That 
is usually a delusion. The profit out of which the loss has to be taken must 
be found in the business preceding the cut. Any one who was foolish enough 
to regard the high profits of the boom period as permanent profits got into 
financial trouble when the drop came. However, there is a belief, and a very 
strong one, that business consists of a series of profits and losses, and good 
business is one in which the profits exceed the losses. Therefore some men 
reason that the best price to sell at is the highest price which may be had. 
That is supposed to be good business practice. Is it? We have not found it so.