The theory of speculation in the history of economic thought: the contributions of Adam Smith, John Stuart Mill, and Alfred Marshall revisited

Abstract

Although much has been written on speculation, and even on the history of speculation, minimal attention has been given to treatments of speculation by earlier economists. Indeed, it appears that historians of economic thought have not traced the development of economic analysis of speculation in any detail. This study begins to bridge this gap in the literature by revisiting the theories of speculation advanced by Adam Smith, John Stuart Mill, and Alfred Marshall. These economists are appealing for such a study due to their significant influence on the evolution of economic thought. This study considers the following dimensions of speculation. First, the concept is elucidated for each theorist. Second, an exposition of the theory of speculation contained within the writings of each thinker is provided. Each theorist devoted considerable attention to the role of speculative activity within the capitalist economic system. There is also significant similarity within the theories of speculation explored in this study. In particular, these thinkers focused on the stabilising and destabilising tendencies of speculative activity. Furthermore, there are strong points of complementarity among these economists on the ways in which speculative activity produces such tendencies in the market economy. This study suggests that these early thinkers offer some useful lessons and insights for modern economists on the nature and causes of speculation and on appropriate policy responses to the consequences of speculation. In this connection, all three economists suggested that the development of informal institutions may have considerable impact on the extent to which speculative activity produces stabilising or destabilising outcomes.