An unavoidable element of risk enters into all modern business. In the old handicraft stage of industry goods were made upon order; demand preceded supply very definitely, and there was little possibility of mistakes in production. Nowadays, as we have seen, production is for a distant and often uncertain market. It is carried on by machine methods and roundabout processes; sometimes the result is a very remote one and the uncertainty of success is correspondingly great. Production is not based upon order, but upon a forecast of the possible demand, upon a future market. Chance and change are inseparable from productive enterprise--natural chances from the elements, political changes, as war or unfavorable legislation, industrial mistakes or sickness or death of oneself or others, and economic changes, as the invention of a new machine or a change in fashion. These are the unavoidable incidents in industry and are not 52 under the control of the individual business. Some of them, however, are so regularly recurrent that they can be foretold on a large scale for any industrial society, and can be guarded against by insurance. Everyone recognizes the desirability of having such risks as those of fire, shipwreck, lightning, death, etc., assumed by certain individuals or companies who make a business of such risk-taking. A small premium is paid by the individual for protection, and he is freed from anxiety from mischance and is able to devote his whole energies and capital to his business; the insurance company has specialized in this one department and by equalizing the chances over a wide field has practically eliminated them. In doing this it performs a service of recognized and undoubted social value.
There is another kind of risk-taking the social utility of which is not at first sight so clear. Among the chances of productive enterprise are those due to the rise and fall in the prices of the raw materials, the labor, and the finished product between the time when the process of production is begun and the time when it is completed. Every farmer, every manufacturer, every student even who invests capital in his own education, is to some extent a speculator. Along certain lines he can protect himself by insurance, but that is not possible in all. Is there no way, then, by which he can guard himself against price fluctuations and assure himself of the legitimate gains of his business? This, it may be answered, is the function of the speculator in modern business, and in performing this service he is benefiting society in much the same way that the insurance company does. We must, however, clearly distinguish between legitimate and illegitimate speculation; we are discussing only the former.