Paris Bourse

“ Without the extensiveness of the Paris market, and the stimulus given to our capitalists through speculation, how many things would have remained unaccomplished in the recklessly overdriven condition of our finances? We should have been unable to complete our railroad system, or renew our national stock of tools, or create beyond the seas a colonial empire which shall cause France to be again one387 of the great world powers. When the Bourse is on trial, such credentials should not be overlooked. ”

“ To begin at the very beginning, consider how favorable a field is the American market for the employment of Europe's spare banking capital. Almost invariably loaning rates in New York are higher than they are in London or Paris. ”

“ The shares of this bank must have a fixed value in regard to the coin of the realm. There must be no altering of the value of our coin. Grant that the coin does not fluctuate, and I promise you that my bank actions, notes of the chief bank of Paris, shall soon be found better than gold or silver in the eyes of France. Moreover, given a greater safety to foreign gold, and I promise you that too shall pour into Paris in such fashion as has never yet been seen. Moreover, the people will follow their coin. Paris will be the greatest capital of Europe. ”

“ The chance to make even a slight profit by shifting balances is so quickly availed of that in the constant demand for exchange wherever any relative weakness is shown, there exists a force which keeps the whole structure at parity. The ability to buy drafts on Paris relatively much cheaper at London than at New York, for instance, would be so quickly taken advantage of by half a dozen watchful exchange men that the London rate on Paris would quickly enough be driven up to its right relative position. ”

“ Stock Exchange, the number of securities quoted in the official list, and the number of securities dealt in, have expanded greatly, and the markets in New York and Paris, especially the former, have acquired enhanced importance. ”

“ In large cities the brokers naturally unite for convenience of business in the so-called stock exchange, in which the market price of all current forms of indebtedness or deferred payments is fixed from day to day, or from hour to hour, by the higgling of the market, just as the price of produce is fixed in the produce exchange. Naturally, as in the case of produce, a fictitious business, purely speculative, grows up around the legitimate dealing [pg 163] in stocks and bonds. ”

“ Instantly a flow of capital begins in that direction. In New York, Paris, Berlin, and other centres it is realized that London is bidding better rates for money than are obtainable locally, and bankers forthwith make preparations to increase the sterling balances they are employing in London. Exchange on that particular point being in such demand, rates begin to rise, and continue to rise, according to the urgency of the demand. ”

“ Behind Paris stands the enormous power of the thrifty French investor, who probably accumulates a greater proportion of his income than anybody in the world, except, perhaps, some classes of Scotsmen. This accumulating power of the French gives the Paris money market a position of first-rate importance in the financial world, because capital has to be saved, and a saving people has capital to lend. The advantage that London holds in its more elastic credit system is partly balanced by the advantage given to Paris by the thrifty habits of the French people. ”

“ The many thousands of brokerage offices throughout the country were jammed to the doors by eager onlookers and participants who devoted themselves exclusively to the market from the opening to the close. Office boys, elevator men, manicures, hotel waiters, hairdressers, cab drivers, and even rural farmers initiated themselves into the game and discussed mergers, split-ups, stock dividends, and all such subjects in high finance with more profuseness and profundity than was ever displayed at a bankers’ convention. ”

“ In these circumstances it is easy to see why the Bourse is an institution of enormous strength, notwithstanding the fact that, because of the deep-rooted conservatism of the French in financial matters, it stands a poor second to London in international business. ”

“ The aggregate market value of seats on the New York Stock Exchange is nearly $100,000,000. It costs more than a hundred million dollars more every year to gather and transact through offices and branch offices the speculative business which forms the bulk of the transactions of the members. The "kitty," or "rake-off," is enormous. Who pays it? You hear of the stockbroker going to Europe in his yacht every Summer. How many of his trading customers travel that way? ”

“ But when railway shares and bonds, based upon lines of road which were constructed through the rich regions of the Union lying between the Atlantic and the Mississippi river, came upon the market in large amounts, affording ample security for investment and loans, the great banks of Wall Street were quick to appreciate the advantages of loans made upon such undoubted values, which were at all times convertible into cash on the stock exchange. In times of pressure, commercial paper is an inferior asset for a bank, all of whose obligations are payable on demand. ”

“ The Bourse is a private establishment—Its membership and its regulations—Statistics of business done during the last ten years—Securities quoted on the Buenos Ayres Bourse—Decrease in the total amount of business done during the last five years—The monetary reform of 1901 as a factor of this decrease—The place occupied by the Stock Exchange in the life of the nation. ”

“ When there is a large volume of [Pg 343] bills offered to bankers, perhaps by grain and cotton exporters, and but little demand from buyers of exchange, the market gradually declines in price, while New York bankers, sending abroad the bills they buy, with little occasion to draw against them, accumulate large sums to their credit in London, with no way of getting the money back to New York through operations in the exchange market. They are not, however, helpless ”

“ The paper money experiences of France during the French Revolution, of England during the Napoleonic wars, of Austria, the American colonies, the United States, and the Confederacy have been briefly reviewed. We have noted that in these cases, as in others, prices depended on the quantity of money, its velocity, and the volume of business. We have seen that the apparent exceptions due to lack of confidence in paper money are not really exceptions, because lack of confidence works itself out through the magnitudes in the equation of exchange. ”

“ Here we recognize the close connection that exists between trade and finance. The severe depression on the Stock Exchange so far impaired the market value of stocks and bonds as to make the banks and other money lenders everywhere distrustful of credits, the result being this inability to borrow, or at least to borrow all that was necessary. So it was not surprising that those with insufficient working capital were badly cramped, and had to curtail their business and make sacrifices, or go to the wall. ”

“ These constitute the important intermediary which transforms stock exchange securities into the basis of bank-loans. The commercial banker buys, in general, not the stocks, but the note of the private banker, broker, speculator, or investor, with the stocks as collateral. If investment bankers, speculators and investors decide to support old ways of doing things, the banks lend on the securities of the old kinds of businesses; if investment bankers, speculators and investors turn to new things, the commercial banks follow suit. ”

“ The heavy selling of securities, which closed the bourses of the world, grew out of men's efforts to get money and bank-credit as a "bearer of options" for the old reasons. The old reasons explain in large measure the accumulation of gold by the Banque de France, and by the German Government, referred to above. But to-day, in general, the main purpose of those who use money, or other things, as a "bearer of options" is to make gains, or avoid losses, in industry and trade. ”

“ A little gathering of men met under a buttonwood-tree in 1792, opposite what is now No. 60 Wall Street, and formed an association for the purpose of exchange and more ready current transaction of business. From this crude organization has grown the present New York Stock Exchange with its immense capital. Installed in a dignified edifice between Broad and New streets, with an entrance on Wall Street, its eleven hundred members transact business daily between 10 a.m. ”

“ If the volume of money in circulation be made to bear a direct and steady ratio to population and business, prices will be maintained at a steady level, and, what is of supreme importance, money will be kept of unchanging value. With an advancing civilization, in which a large volume of business is conducted on a basis of credit extending over long periods, it is of the uttermost importance that money, which is the measure of all equities, should be kept unchanging in value through time. ”

“ All these influences for the better would promote public confidence in our ways of doing business, and indirectly also contribute to the stability of our monetary position. What we greatly need is a more stable money market in Wall Street. Such erratic changes in the rates for Stock Exchange loans that we sometimes see would create a convulsion in Europe if they were possible there. ”

“ August, 1866.—London markets were first quoted by Atlantic cable in New York.
November, 1866.—There was heavy speculation in stocks, produce, dry goods and real estate. Poor men became rich by a single turn of the wheel. Unexpectedly the Treasury drew about $15,000,000 for its own purposes, money became tight and the bears became very active. ”

“ An industrial stock, once listed, frequently becomes the subject of active speculation; and speculation feeds the Money Trust indirectly in many ways. It draws the money of the country to New York. The New York bankers handle the loans of other people’s money on the Stock Exchange; and members of the Stock Exchange receive large amounts from commissions. ”

“ When some favorite railroad stocks are to be forced upon the market, these brokers, who can do so at pleasure, supply the money market, and sell the stocks at a large profit; and when the object is to reduce the value of stocks, they withdraw from circulation a sufficient amount of the currency to cause a stringency in the market, until their end is accomplished. ”

“ Competition for an advance, which is covered by tangible securities, is keen both in London and the provinces, and competition, we must remember, tends to reduce the rate. Then, again, assuming that the Bank rate be 3 per cent., and that a banker suggests 4 per cent. on an advance covered by railway debentures, the customer may not see the force of maintaining a margin of 10 per cent. between the market-price of his stock for the protection of his banker, and paying him, say, 3⁄4 per cent. ”

“ It is often remarked upon as singular that no official prices are sent over from Wall Street; the arbitrage firms who deal between London and New York alone know the prices cabled across, but by their offering or bidding for shares it is obvious whether Wall Street opens in good humour or bad. ”

“ When industry and trade brought money out of its repositories, when the necessity of permitting interest appeared evident to the church, the coin then began to make its appearance, and was ready to be lent. This opened a market for money. The price of money is the rate of interest. At this market, the borrowers and lenders appear in competition among themselves, according to circumstances. If more money is demanded to be borrowed than is offered to be lent, the competition takes place among the borrowers, and interest rises. ”

“ The multiplicity of items dealt in gives stability to that business which deals with all—the banking business. The London Stock Exchange is no provincial affair, easily demoralized by an adverse rate decision! ”

“ If the critics are correct in their contention that pressure of easy money in the New York market holds out inducements for foolhardy speculation on the Stock Exchange, the year 1909, just cited, should have witnessed a great boom in securities. If speculators could borrow at 11⁄2 per cent. on securities that netted 5 and 6 per cent., the theory117 of our adversaries is that this disproportion entices a large number of people into such speculative ventures that inflation takes place, followed by collapse. ”

“ This broker's shop was the resort of scores of people of small means, trades-folk, clerks, salaried dependents and some women, keen to acquire from the fluctuations of the speculative markets a few crumbs of the huge gains garnered by the magnates of Wall Street, of which they read emulously in the newspapers. To put up one's thirty dollars, and to have one's margin of venture or profit wiped out within twenty-four hours, was the normal experience, sooner or later, of ninety per cent. ”

“ In this splendid work of conquering a continent the Stock Exchange has kept pace with the march of industry. It has supplied the one great central market for the expression of the country’s progress as measured by the country’s securities, and it will continue to do so as long as an evergreen faith in America exists among its people. ”

“ Every day in the great speculative centres, and very especially in Wall Street, enormous advances are made to brokers, which are canceled during the day, but which, during their short life, are a real addition to bank-credit. To attempt to estimate this with any accuracy is hopeless, but the total on any ordinary day is enormous, and most of it is extended in connection with stock market transactions. ”