Maynard Keynes in section VI in chapter 12 of his General Theory of Employment, Interest & Money writes:

If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment market improves, the risk of the predominance of speculation does, however, increase.

In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market...

...Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.

The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism - which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

These tendencies are a scarcely avoidable outcome of our having successfully organised 'liquid' investment markets. It is usually agreed that casinos, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges...

The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view of mitigating the predominance of speculation over enterprise in the United States.

One such transfer tax is the Tobin Tax but this seems very specific in that it is applied to 'spot conversions of one currency into another'; what other specific proposals in line with Keynes suggestion are there? And have any been implemented and if so what have been the results?


1 Answer 1


I am afraid that "speculation" can be policed only very indirectly, since it is impossible to tell what "speculation" is and isn't. Look at Keynes' definition: speculation for the activity of forecasting the psychology of the market In other words, you know the INTENTION of the speculator. You must see inside his head. I am not aware of any agreed-upon distinction of "enterprise" and "speculation," that can be perceived and judged objectively, from the outside. One activity can be speculation in one context and not in another.

  • $\begingroup$ But nevertheless the distinction does stand whether or not it's easy to police. It may mean that more resources need to be allocated to it. $\endgroup$ Aug 14, 2018 at 9:38

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