Amen!: "The Speculator As you feast, give thanks for speculators
From the progress of the Pilgrims to the wonders of modern medicine, speculative for-profit ventures have produced the feasts on our table. So this is time to celebrate -- and, by the way, to buy the S&P 500.
By Victor Niederhoffer and Laurel Kenner
The Thanksgiving holiday brings to mind a Shakespearean comedy complete with a panorama of characters displaying the whole vast range of human foibles. There is song, perhaps dancing, games for the children, general merriment and enjoyment of life, and a touch or two of Falstaffian excess as relatives and friends from all over gather to celebrate America’s bounty.
Just as the merchant sailors of Elizabeth’s Renaissance brought all manner of luxuries from far-flung countries to the table, the feast that forms the heart of our Thanksgiving celebrations is likely to include goods from all over -- turkey from an upstate farm, cranberries from New Jersey, pumpkins from the garden, sugar from Hawaii, potatoes from Idaho, wine from California.
All combine to a glorious harmony. But the concord and plenty does not result from the careful craft of a great playwright. Rather, such a celebration is made possible from the spontaneous activities of millions of workers and entrepreneurs, all intent on their own self-interest.
What is the force that coordinates all of these activities? Not, as the Russians used to think when they came to the United States, some infinitely wise planning department or a miraculously powerful computer. The force is simply trade, an instinct in man as basic as self-preservation.
Yesterday's speculators
It has been like this almost from the beginning. Consider that the colonies were originally settled by speculators seeking to make a profit. As Paul Johnson points out in "A History of the American People":
(The Virginia Co.’s Jamestown settlement) was a speculative company investment, in which individuals put their cash into a joint stock to furnish and equip the expedition, and reinforce it. The crown had nothing to do with the money side to begin with. Over the years, this method of financing plantations turned out to be the best one, and is one reason why the English colonies in America proved eventually so successful and created such a numerous and solidly based community: capitalism, financed by private individuals and the competitive money-market, was there from the start. At Jamestown, in return for their investment, each stockholder received 100 acres in fee simple (in effect perpetual freehold) for each share owned; and another 100 acres when the grant was “seated,” that is, actually taken up.
From the very beginning, some people have had what others want, and they have been willing, for a sum, to part with it. To do this, they need to feel secure that their agreements will be enforced and that they will keep the fruits of their efforts. With that in mind, it’s worth retelling the tale of the Pilgrims’ first big harvest, after three very lean years in America.
When the 150 Pilgrim settlers landed at Plymouth Rock in December 1620, they set up a communal society. It seemed fair, but nothing went right. By spring 1623, barely 50 Pilgrims survived. Only half a dozen were healthy at any one time, and they spent their efforts caring for the others.
Bradford's new rules
At that point, Gov. William Bradford decided to make a change. Here is the tale in his words (using modern spellings):
“All their victuals were spent...no supply was heard of, neither knew they when they might expect any. So they began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still then languish in misery. At length, after much debate, the Governor (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves. And so he assigned to every family a parcel of land, according to the proportion of their number, for that end.
“This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means your Governor or any other could use, and saved him a great deal of trouble and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn, which before would allege weakness and inability, whom to have compelled would have been thought great tyranny and oppression.
“The experience that we had in this common course and condition, tried sundry years, and that among godly and sober men, may well evince the vanity of that conceit of Plato and other ancients: that ye taking away of property, and bringing into a common wealth, would make them happy and flourishing as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent, and retard much employment that would have been to their benefit and comfort.
“For the young men, that were most able and fit for labor and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. The strong, or man of parts, had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labors and victuals, clothes, etc., with the meaner and younger men, thought it some indignity and disrespect unto them. And the men’s wives to be commanded to do service for the other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it.”
Bear in mind that these Pilgrims were friends and decent sorts; imagine what would have happened if they had been scoundrels or enemies.
Property rights equal human rights
Sartell Prentice, who wrote a wonderful essay on Bradford in 1960 in “Essays on Liberty,” saw a universal principle at work in that first great harvest: “Each individual is entitled to the fruits of his own labor.” Property rights, Prentice wrote, are inseparable from human rights.
If the Pilgrims had received foreign aid, the writer mused, would they have ever learned the concepts of the dignity of the individual and the sanctity of property, the law of individual freedom and individual responsibility?
In 1626, Gov. Bradford took one more step that resulted in much benefit. He issued a seven-year grant of one acre of land to everyone, rather than assigning land by lot each year. The harvest was so good that year that the Pilgrims were able to export corn, bringing home beaver and other furs.
Back in the Old Country, meanwhile, “farming in common” was practiced for at least another hundred years. Famine was the rule. Even in our century, tens of millions starved in the Soviet Union when Stalin forced the people into communal farming. Until the fall of communism, goods available to common Soviet citizens were miserably few.
Is the United States, the place where Thanksgiving is celebrated, following Bradford’s principles now? No. Our tax system’s aim isn’t simply to pay for maintaining the peace, ensuring property rights and enforcing contracts. Rather, the tax code has become the government’s instrument for subsidizing select businesses and constituencies for the benefit of politicians “in their endless search for votes and personal power,” as Prentice put it. Yet there are still beautiful Thanksgiving tales of entrepreneurship and risk-taking.
Modern-day pioneers
Consider the Swiss drugmaker Novartis (NVS, news, msgs), which in the year 2000 hit on something very rare in the annals of cancer treatment: a drug 88% effective in driving a type of leukemia into remission in the early stages. Ever better, the effects lasted.
The drug, Gleevec, was still in the early stage of testing when news of its success spread over the Internet. The company had planned to make only a few hundred kilograms that year for testing. Employees were so excited about the drug that they volunteered to work weekends. But Swiss labor laws limit overtime.
That’s when a modern-day Gov. Bradford took charge: Novartis Chairman Daniel Vasella ordered annual output to be increased to 20 tons. Production was moved to a new plant authorized to work round-the-clock shifts. The company speeded up trials, and set up hotlines to inform patients about the closest trial site.
The financial risks were substantial, because the patient population is relatively small. Chronic myelogenous leukemia affects only about 50,000 people in the United States and Europe. It accounts for about 15% to 20% of all adult leukemias, amounting to one or two cases per 10,000 population worldwide.
“I told people not to worry about excess supplies that might never be sold,” Vasella, a physician himself, told The Wall Street Journal.
Getting paid is somehow always better than practicing philanthropy -- after all, getting paid makes it possible to give -- and we are happy to report that the Vasella story has a happy ending. In May 2001, the U.S. Food and Drug Administration approved Gleevec after a 10-week review, the quickest ever for a cancer drug. On Nov. 8, European Union regulators followed suit. Sales in the third quarter totaled $85 million. The company is now testing the drug's effectiveness against tumors.
There are many thousands of products in the biotech pipeline that have as much potential for human betterment as Gleevec. The incentives for discovering and developing these products are many. But high on the list is the owners’ desire to make a profit and gain wealth and happiness. There is nothing to be ashamed of in this motive. Quite the contrary. The speculative desire to profit from discovery and husbandry is the source not only of our Thanksgiving but of the enormous material well-being that pervades America.
Celebrate -- and buy stocks
Thanksgiving is generally the start of a festive time for stocks as well as people. Since 1984, the S&P 500 has risen on 15 of 17 occasions from the Wednesday close before Thanksgiving until the end of the year. The only decline of note was a 2% drop in 1996.
This is more than counterbalanced by 3% up moves in 1998 and 1999, a 6% rise in 1991 and a 5% rise in 1985. All told, the expectation is for a rise of 1.4%.
What an ideal time to celebrate the spirit of speculation and the enterprise system that puts turkeys on the table.
At the time of publication, neither Victor Niederhoffer nor Laurel Kenner owned any of the equities mentioned in this column.
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