ABSTRACT
Two propositions about private speculation are widely held: first, that speculation is in fact often destabilizing, in the sense that it makes fluctuations in prices wider than they would "otherwise" be; second, that destabilizing speculation necessarily involves economic loss. The empirical generalization about the prevalence of destabilizing speculation, which is what gives the theoretical proposition its interest, seems to be one of those propositions that has gained currency the way a rumor does—each man believes it because the next man does, and despite absence of any substantial body of well documented evidence for it. One reason why actual speculation might not conform to the model described in the preceding three paragraphs is avoidable ignorance. If destabilizing speculation does arise from avoidable ignorance, it must be granted immediately that there is an economic loss. The loss is borne primarily by the speculators, though, if operation is sufficiently large, second order effects on others may not be negligible in the aggregate.
