Common stock

“ If the goodwill of the concern makes a great and rapid gain, e.g. through manoeuvres which put it in a position of monopoly or through changes in the goods market which greatly increase the demand for the concern's product, and the like, it is the quotation of the common stock that measures and registers the advantage which thereby accrues to the concern, and the market fluctuation of the common stock is likewise the instrument by means of which manipulations are carried through that affect these intangible assets. ”

“ They are regulated altogether by the value of the stock employed, and are greater or smaller in proportion to the extent of this stock. Let us suppose, for example, that in some particular place, where the common annual profits of manufacturing stock are ten per cent. there are two different manufactures, in each of which twenty workmen are employed, at the rate of fifteen pounds a year each, or at the expense of three hundred a-year in each manufactory. ”

“ A provision in the first instructions directing the settlers to live, work, and trade together in a common stock through a period of five years suggests the possibility of a five-year terminable stock, i.e., a fund that would be invested and reinvested through a term of five years before it was divided, together with the earnings thereon. ”

“ They sell to the new company all of their real estate, buildings, machinery, tools, fixtures, merchandise, and supplies, in consideration of $1,500,000, and agree to accept in payment $750,000 of preferred and $750,000 of common stock of the United States Manufacturing Corporation at par. The vendors donate to the treasury of the company $150,000 of preferred stock and $150,000 of common stock to provide for working capital. The company sells $100,000 of its preferred stock in the treasury for 80% cash, giving a bonus to the purchaser of 20% in common stock. ”

“ It has outstanding $10,500,000 seven per cent preferred stock, convertible into common at the rate of $115 par value for $100 par value of common stock, but the amount of authorized preferred stock is $25,000,000. ”

“ Or, again, it may be to the advantage of speculative stockholders to pay dividends to themselves by means of the accumulation of a floating debt, and to sell out at top quotations, leaving the floating debt to take precedence even of mortgage bonds.681 Both this and the preceding operation are facilitated by the control which the least valuable portion of the capital, the common stock, usually has over the policy of the entire company. ”

“ The management and control of a great public business, especially one that has long survived public criticism, is no light matter. It requires more than common industry, and more than common ability. What the Stock Exchange asks of you and of every thoughtful citizen in the land is a recognition of these matters, and a patient survey of all that enters into them. ”

“ The common practice is for a number of persons to band together, and put the price of a certain article or stock up by buying a large quantity and making it scarce. When the higher price has been maintained for some little time, so that it meets the public eye in price currents, the process of putting the public in is commenced. ”

“ When those companies do not trade upon a joint stock, but are obliged to admit any person, properly qualified, upon paying a certain fine, and agreeing to submit to the regulations of the company, each member trading upon his own stock, and at his own risk, they are called regulated companies. When they trade upon a joint stock, each member sharing in the common profit or loss in proportion to his share in this stock, they are called joint stock companies. ”

“ Many of these so-called investment trusts accumulated thousands upon thousands of highly speculative common shares that paid less than 2% income on their market value. Indeed one day in September, 1929, a statistician figured that the twelve most active stocks on the New York Stock Exchange averaged a return of only one and three-fifths per cent. ”

“ Contrary to the prevailing notion that there is no public utility in anything which does not produce something, or that does not transform and improve products by the processes of manufacture, or interchange them by the operations of commerce, the Stock Exchange is an institution of the highest utility and of vital necessity in an age and country of progress, of commercial and financial activity and of material development. ”

“ Every day we hear of combinations, Farmers’ Alliances, rural co-operative movements, etc., each designed to regulate the market for eggs, butter, potatoes, and such things, and each having for its purpose the very functions which govern a Stock Exchange in its own field—namely, the establishment of a fair price under the nearest possible approach to ideal conditions. ”

“ 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. ”

“ Since the total net profits or losses are determined largely by the average turnover of circulating capital invested in the merchandise, the control of the quantity of merchandise, as well as the price, is a question which must have very careful attention and intelligent supervision. The stock on hand must be that quantity which will insure a supply adequate at all times to meet the demands of the trade, and which at the same time will be the minimum necessary to accomplish such a result. ”

“ It will at once be seen that although the Stock Exchange may be defined as a mere market, the wares that are displayed and dealt in are of such importance as to entitle it to the more ambitious definitions with which it has been exalted. It is worthy of being defined as the mart of the world, because these wares represent property in every part of the world, and because the orders which are executed in this mere market emanate from all over the world. The business of the Stock Exchange is more varied and cosmopolitan than that of any other mart, except, perhaps, the Money Market. ”

“ Dangers of the new system of business; promotion of unprofitable enterprises.—The appeal of joint stock companies to the public through the medium of the stock exchange proved to be so effective in gathering capital that a great many worthless undertakings were floated. When times were good, that is, when enterprises had proved successful, when people had saved money for investment and looked with confidence to the future, almost anything in the shape of a158 company could get subscribers to its stock. ”

“ The United States will not yet supply us with this perfect demonstration, but the progress towards the same point has been as rapid as was the progress of England, from the commencement of her stock career. In debt and bank stock we only pay about ten millions of dollars annually, to obtain the enhancement of price or value, which we are taught to expect from stock, on about forty millions worth of exported labour. ”

“ It may be noticed, too, that sales of "rights," of puts and calls and straddles, and other contract rights, are regular factors in the organized exchanges. Wherever profits are to be made by leveling values as between different places or different times, speculation arises, and, with dynamic change, this means everywhere, in every business, and all the time! The shifting of labor and capital from industry to industry, leveling returns to capital and labor, involves an enormous amount of trading that would not occur in a "normal equilibrium." Much of this the Stock Exchange does. ”

“ If the market value-perhaps the closest approximation to the true value in money-of the corporate property as a whole were inquired into, the market value of the capital stock would become a controlling factor in fixing the value of the property. * * * The market value of the capital stock, it is urged, has no necessary relation to the value of the tangible property of the corporation. ”

“ It is too powerful a weapon in the hands of those alive to its possibilities, enabling a small group of men with a relatively insignificant investment of capital to control a country-wide industry. Take the simplest possible illustration: The industry of manufacturing a particular commodity is carried on by a number of corporations scattered throughout the country with an aggregate capitalization of, say, $10,000,000. A, B, and C form a holding company to acquire a bare majority of the stock of each corporation, say $5,100,000 in the aggregate. ”

“ A fund may be seeking for productive employment, and find none, adapted to the inclinations of its possessor: it then is capital still, but unemployed capital. Or the stock may consist of unsold goods, not susceptible of direct application to productive uses, and not, at the moment, marketable: these, until sold, are in the condition of unemployed capital. Again, artificial or accidental circumstances may render it necessary to possess a larger stock in advance, that is, a larger capital before entering on production, than is required by the nature of things. ”

“ Those manufacturers who act as merchants aim to retain the merchant profit and must employ a merchant capital in stocks. There has been a tendency, indeed, to make the manufacturer the stock-keeper, and some merchants do little more than pass on the goods a stage after taking toll. The great improvement in trade during 1905 and 1906 checked this tendency, and probably the manufacturing extensions owed something to the capital set free by the reductions of stocks. ”

“ The older economists doubted whether anything but banking and insurance could be carried on by joint stock enterprise: now every conceivable industry, down to baking and milk-selling, is successfully managed by the salaried officers of large corporations of idle shareholders. More than one-third of the whole business of England, measured by the capital employed, [32] is now done by joint stock companies, whose shareholders could be expropriated by the community with no more dislocation of the industries carried on by them than is caused by the daily purchase of shares on the Stock Exchange. ”

“ Production on a large scale is greatly promoted by the practice of forming a large capital by the combination of many small contributions; or, in other words, by the formation of joint stock companies. The advantages of the joint stock principle are numerous and important. ”

“ The society sells its goods at the current rates charged by retail merchants, thus avoiding the direct underselling of shopkeepers, and withholding the profits of their system from non-subscribers. Buyers are given metal tokens, representing the value of the cash they pay in. Quarterly stock is taken, and the rate of profit ascertained; then, after paying subscribers to capital their interest at five per cent, per annum, buyers are paid in cash, or credited in the ledger, as they choose, with the amount of their dividends, computed on the tokens brought in. ”

“ When this corporation was first organized I subscribed for some stock and was in its first board of directors and its vice-president. If there was to be a new source of supply of the commodity I dealt in so largely, it was important I should know of it. As soon as I became satisfied that it was nothing but a scheme to make money by the sale of stock, I resigned and disposed of my holdings to one of the promoters at a profit of eight dollars per share. ”

“ While the Stock Exchange is in theory a private institution, it fulfills in fact a public function of great national importance.
That function is to afford a free and fair, broad and genuine market for securities and particularly for the tokens of the industrial wealth and enterprise of the country, i.e., stocks and bonds of corporations. ”

“ If a railway or other industry, in launching a new enterprise, had to depend on the chance investors at the time of42 the issue of the securities, it would be seriously hampered. The mere knowledge that at any moment there will be a ready sale on the Exchange greatly increases the circle of purchasers, many of whom may not intend to be permanent investors. The Stock Exchange aids the investment of capital, as the Produce Exchange aids the production of finished commodities. ”

“ The investor lends his money on perfectly safe security to the aid of commerce and industry, expecting a comparatively small return, but that a safe one. By so doing he is encouraged in thrift, whilst commerce and industry enjoys the benefit of the capital, and the Stock Exchange is the medium of it all. The speculator, less conservative, risks money, the loss of which he is perfectly well able to afford, in the furtherance of experiments in commerce and industry, be it the trial of a patent or the opening up of a mine. ”

“ Pessimists may blind their eyes to the manifold evidences of material progress on every hand, but just as the workshop, the farm, the school, the hospital, and the bank, each supplies proof of continuing improvement, so also in its sphere of usefulness does the Stock Exchange. ”

“ Of course it becomes the interest of these stock-holders, or pre-emption right companies, to use all possible means of accomplishing the end they have in view; and from the almost incalculable increase of the value of the stock, they can well afford to be at any expense, that may be necessary. ”

“ That is to say, if ten thousand purchasers throughout the country should buy even small amounts of a certain stock on a given day, the combined effect of all these purchases would undoubtedly lift its price on the Stock Exchange, and thus we see that each buyer’s action carries with it a privilege of no inconsiderable proportions. ”

“ Two-thirds of American industry is concentrated in a few hundred corporations, and actually managed by not more than five thousand men. More than half of the savings of the country are invested in corporation stocks and bonds, which have been made the sport of the American stock markets. Fewer than three dozen private banking houses, and stock-selling adjuncts in the commercial banks, have directed the flow of capital within the country and outside it. Economic power is concentrated in a few hands. ”