Leverage

“ The advance which he has in view is to come out of the prospective earnings of the capital for which he negotiates. What he has in view as his ulterior end in the transaction is the conversion of the values for which he negotiates into a larger outcome of money values, - whatever process of production and the like may intervene between the inception and the goal of his traffic. ”

“ I was vexed at this; but the chief of the brokers said to me, ‘O my lord, I will tell thee how thou mayst make a profit of thy goods. Thou shouldst do as the other merchants do and sell thy goods on credit, for a fixed period, on a contract drawn up by a scrivener, and duly witnessed, and employ a money-changer and take thy money every Monday and Thursday. So shalt thou profit two dirhems for every one; and besides this, thou canst amuse thyself meanwhile at leisure in viewing Cairo and the Nile.’ Quoth I, ‘This advice is good;’ and carried the brokers to the Khan. ”

“ We have a million or a million and a half of capital, and, conducting the business of the bank within the law applied to bankers, we can earn any dividend we like, and we can divide it, even up to 40 or 50 per cent., and it has been done, and nobody finds any fault. Now, we might start a manufacturing establishment and we can divide any profits that we can legally make up to 40 or 50 or 100 per cent., or we can start a mercantile establishment and conduct it so as to bring any profit—there is no limit so long as we are within the laws of trade. ”

“ So a sale upon credit, instead of being for ready money, under a general authority to sell, and in a trade where the usage is to sell for ready money only, creates to contract between the owner and the buyer, and the thing sold may be recovered in an action of trover. ”

“ The company were to be enabled to purchase lands, &c., and to exercise all the usual powers of bodies corporate; but were not to trade in the buying or selling of any goods or merchandise, except that they might deal in bills of exchange, and in buying and selling of bullion, gold, or silver, and in selling of any goods or merchandise which should be pledged to them for money lent thereon, and might also sell the produce of their own lands. ”

“ The manufacturer supplies the wholesale dealer; the wholesale dealer provides the retail tradesman; and the retail tradesman carries on his business with his customers upon the sure foundation of credit. Not a coin is seen in the hands of either party from one year’s end to the other; and a man’s wealth is known not by the mere exchangeable property he possesses, but by the extent of the credit he is allowed. Political economy is a wonderful science, sir; and the ancients were entirely ignorant of its true principles. ”

“ Those who are creditors on Paris, fear a balance due to London; those who are debtors to Paris, dread a balance due to Paris. The interest of the first is to dissemble what they fear; that of the last, to exaggerate what they wish. The brokers are those who determine the course of the day: and the most intelligent merchants are those who dispatch their business before the fact is known.
314Now I ask, how trade, in general, is interested in the question, who shall outwit, and who shall be outwitted, in this complicated operation of exchange among merchants? ”

“ It is his greatest prudence, therefore, after he has considered his own fund, and the stock he has to rest upon—I say, his next business is to take care of his credit, and, next to limiting his buying-liberty, let him be sure to limit his selling. Could the tradesman buy all upon credit, and sell all for ready money, he might turn usurer, and put his own stock out to interest, or buy land with it, for he would have no occasion for one shilling of it ”

“ This would give them great influence with all about them; for the borrower is servant to the lender. It may be meant of trade and commerce, that they should export abundantly more than they should import, which would keep the balance on their side. ”

“ Modern historical jurists are pretty well agreed that not only the real contracts of loan (mutuum and commodatum) , deposit, and pledge, but also the consensual ones of sale, location, partnership, and mandate, and the verbal one of suretyship, were as yet barely recognized by law. The law recognized conveyance but hardly contract. Sale was the offspring of barter—of instant exchange of one thing for another. With such instant exchange there was no room for obligation to deliver on either side. ”

“ The business in which its members are engaged, and the manner in which it is transacted, necessitate and develop promptness of judgment and the faculty of instantaneous decision; the strict and rigidly enforced laws of the Stock Exchange, as well as the high tone of public sentiment among its members, enforce honorable dealing independently of legal obligations; while the habit of and familiarity with large pecuniary transactions, and a kind of reliance on mutual good will and consideration among themselves, promote magnanimity in their pecuniary relations with each other. ”

“ A, having 100l. Stock in Trade, though pretty much in debt, gives it out to be worth 300l. on account of many privileges and advantages to which he is entitled. B, relying on his great wisdom and integrity, sues to be admitted a partner on those terms, and accordingly brings 300l. into the partnership. The trade being afterwards given out or discovered to be very improving, C comes in at 500l.; and afterwards D, at 1100l.; and the capital is then completed to 2000l. If the partnership had gone on no farther than A and B, then A had got and B had lost 100l. ”

“ Now I must tell you this, that these four men who have dined with me here to-night, with myself, are under a solemn covenant to conduct all our operations upon the market and in finance, whether in this country or in Europe, absolutely in unison. We control practically an unlimited capital, and we pool all profits. We never speculate individually, at least that is a condition of our agreement. ”

“ Dealers in money (as lenders by profession are improperly called) desire, like other dealers, to stretch their operations beyond what can be carried on by their own means: they wish to lend, not their capital merely, but their credit, and not only such portion of their credit as consists of funds actually deposited with them, but their power of obtaining credit from the public generally, so far as they think they can safely employ it. ”

“ When a merchant treated with a seller who had come into the town, any of his fellows who happened to come in at the moment when the earnest-money was paid and the striking of hands in ratification of the bargain took place, had the right to claim a share in the transaction and to obtain the goods in question at the same price. ”

“ In any trade that is made it will first be necessary for you to turn your property over to us to manage in conjunction with our own. When the public see it in our hands, our securities will advance and we can, by issuing additional Bay State stock, sell it and secure whatever sum it will be necessary for us to have beyond what we can borrow on your securities. ”

“ Were they united in Civil Polity in Trade and Interest, would they Buy and Sell with one another, abstract their Stocks, erect Banks and Companies in Trade of their own, lend their Cash to the Government in a Body, and as a Body. ”

“ So that the party who has received the money, the seller, has only thus obtained a power to make subsequently an inverse operation, that is a purchase where and when it pleases him. The operation of selling and buying is then nothing less than the exchange of a thing for a power. ”

“ Associated with the promoter in the organization of these combinations have usually been bankers or other financiers who stood ready, for an amount of stock or other promised profit sufficiently large to compensate them for their risk, to furnish to the combinations cash sufficient to start the business and to provide other needed capital. ”

“ Applied to a permanent undertaking, and to men who had no property to invest, but depended for their livelihood on what they could earn, this system was certain to break down, and the natural result was that the Company’s servants made use of the information they gained in their official capacity to engage in trade on their own account. ”

“ The combination in a single corporation or person, by an exchange of stock, of the power of many stockholders holding the same proportions, respectively, of the majority of the stock of each of the several corporations engaged in commerce in the same articles among the States, or with foreign nations, to restrict competition therein, renders the power thus vested in the former greater, more easily exercised, more durable, and more effective than that previously held by the stockholders, and it is illegal. ”

“ Seeking to free itself from the shifting influence of speculative trading, by taking the business out of the hands of middlemen at home, the Exchange found it quite as important to maintain the control of its own affairs in the markets. ”

“ One partner may sell and give credit, and deliver parcels of goods to what sum, or what quantity, he thinks fit, and to whom, and so, by his indiscretion, or perhaps by connivance and knavery, lose to the stock what parcel of goods he pleases, to the ruin of the other partner, and bring themselves to be both bankrupt together. ”

“ I know the intrinsic value of the chief securities in the market, so, by lending conservatively and keeping an eye on the Stock Exchange, I can realise at once in case of a decline if sufficient margin is not instantly placed in my possession to protect the loan. ”

“ Here is more poor stuff; for when I know the current prices of my Wares, both here and beyond the Seas, I may easily conjecture whether the profit of the Exchange or the gain which I expect upon my Wares will be greater. And again, as every Merchant knows well what he gains upon the Wares he buyeth and selleth, so may any other man do the like that can tell how the said Merchant hath proceeded: But what is all this to make us admire the Exchange? ”

“ Now therefore let the learned Lawyer fall cheerfully to his books again, for the Merchant cannot put him down, if he have no more skill than is in his Exchange. Are these such admirable feats, when they may be so easily know and done in the course of trade? ”

“ The big industrial combinations in America have contributed to the business of the trust companies as registrars or transfer agents for capital stock, agents for the issue of bonds and payment of interest thereon, agents for underwriting and distributing new securities, and depositories of securities and cash under plans of reorganization or while held in escrow. ”

“ We very frequently see that great trading companies become the means of establishing public credit; on which occasions, it is proper to distinguish between the trading stock of the company, which remains in their possession, and the actions, bonds, annuities, contracts, &c. ”

“ The rules established, in the interests of commerce, to facilitate the negotiation of mercantile paper, which, for all practical purposes, passes by delivery as money, and is the representative of money, ought not, in reason, to embrace instruments conveying or transferring real or personal property as security for the payment of money. ”

“ But every branch of trade in which the merchant can sell his goods for a price which replaces to him, with the ordinary profits of stock, the whole capital employed in preparing and sending them to market, can be carried on without a bounty. ”

“ The broker of the Exchange who bulls and bears, and buys and sells, and dabbles with lying loans, and trades on State secrets, what is he but a gamester? The merchant who deals in teas and tallow, is he any better? ”

“ Whenever a local dealer consigns a car load of wheat to a responsible merchant he can deposit the bill of lading with his banker and draw upon the merchant for some 90 per cent of the value of the grain, providing the dealer has [280] hedged so that there is no chance of loss. The banker will honor the dealer’s checks and hold the credit of the merchant as collateral. ”

“ The dealer who can employ his whole stock in one single branch of business, has an advantage of the same kind with the workman who can employ his whole labour in one single operation. As the latter acquires a dexterity which enables him, with the same two hands, to perform a much greater quantity of work, so the former acquires so easy and ready a method of transacting his business, of buying and disposing of his goods, that with the same capital he can transact a much greater quantity of business. ”

“ Second, we may call attention to those exchange dealers whose principal business is to buy commercial and bankers' bills, and to resell them, chiefly to banks. Third are the independent brokers who make small commissions by bringing buyers and sellers together. These do not invest their own capital, do not, that is, buy bills of exchange in the market, but assist those desiring to sell bills to find buyers, and vice versa.... ”

“ On the same grounds on which you leave the seller of gloves and the buyer of gloves to make their own contract, you ought to leave the seller of labour and the buyer of labour to make their own contract. ”

“ One partner may confess judgment, or give bonds, or current notes in the name, and as for the account of the company, and yet convert the effects to his own private use, leaving the stock to be answerable for the value. ”

“ This is the constant multiplication of intervening agents—middle-men, factors, brokers, speculators, contractors, and distributors of every sort—between the producer and the consumer, or between the primary owner and the ultimate owner of almost everything which is the subject of ownership and trade. Those two, who are the actual persons brought chiefly into relationship by the thing in question, are put quite out of sight of one another in most of the transactions of modern industry and commerce ”