Stock exchange

“ The Stock Exchange supports its own hospital wards, its own lifeboats, its boys' home, and so on.
Except in the vague idea of the puritanical faddist, the Stock Exchange is an institution as lovable as it is fascinating. It may be, and often is, the cause of ruin to those who abuse its facilities—to those who are gamblers rather than either investors or speculators. It is quite easy to draw the line between the three classes of business, or rather, the two classes of business and the one class of folly. ”

“ The Stock Exchange is losing, to a greater and greater extent, its character, indispensable to economy as a whole, and to the exchange of securities in particular, of being not only the most exact means of measuring, but also of being an almost automatic regulator of economic movements, which are centralised in it. ”

“ As a matter of Stock Exchange experience such a condition seldom arises, because the Stock Exchange discounts the future, foresees those economic conditions that spell prosperity for the country, and advances the prices of securities on a money market that has not yet felt the demands of improved conditions. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ When one talks of a Stock Exchange market, he has in his mind a mere space in the Stock Exchange near some pillar or window; or, much more likely, he has in his mind the group of men who occupy it, dealing, or prepared to deal, in certain securities. Generally speaking, custom alone forms the barrier between the various departments, and the consequence is that when one particular market attracts many members by reason of its animation, the dealers in the busy part frequently overflow the fancy boundaries and press hard upon the neighbouring space. ”

“ Stock Exchanges are a relatively recent product of modern civilization, and like new comers in every field they are suspected and misunderstood. The most complex of all problems are economic problems, and the functions of Stock Exchanges form a most intricate part of political economy. ”

“ Persons who wonder at the magnitude of Stock Exchange transactions, and who jump to hasty conclusions as to the actual capital involved, may well reflect upon the manner in which this method reduces to a minimum the stockbroker’s drafts upon the banks. ”

“ We now turn to the non-professional speculator, and what a pitiable plight is that in which these gentlemen in ninety-nine cases out of one hundred ultimately find themselves. The members of the Stock Exchange liken their place of gathering in Capel Court to a barn, and themselves to fowls inside it, who repair thither every day to pick up the golden grain thrown in by the public. ”

“ A stock exchange is really an organization of professional brokers, which conducts speculation and investment in securities, the paper representatives of transportation, industrial, mining, commercial and other properties. On the American stock exchanges one broker may specialize in the shares of the Union Pacific Railroad, for instance, another in those of the United States Steel Corporation, and so on. ”

“ Critics are invited to remember that the Stock Exchange does not buy or sell anything; it merely acts as a market-place through which, among other things, capital may be directed from channels where it is least needed into those where it may be most beneficially and profitably employed. ”

“ As to the Stock Exchange as a great financial institution, none stands higher in the world. Its transactions involve hundreds of millions in a year, and nowhere is there more regard for strict equity in business. ”

“ He immediately took the omnium to other brokers, represented to them an urgent necessity for money, sold it, and having been paid checks for the amount, immediately presented them to the bankers on whom they were drawn, and received the amount in cash. He then went to all whom he knew, or would trust him, borrowed money on the security of his own checks,—a common practice on the Stock Exchange,—with remarkable boldness, remained in London until near the hour when he knew his own draught would be presented and refused, and then left, laden alike with gold and a guilty conscience. ”

“ Critic, that the Stock Exchange will take pains to suppress all forms of manipulation that are unsound173 and harmful, but until you or some other gifted student of economics can devise a method by which capital may be attracted to excellent channels other than through the medium of an Exchange, manipulation of the sort just described must continue or enterprise must stop. ”

“ At times there has been protest against the stipulation that a member of the Stock Exchange shall not be connected with any other institution of the kind. There have been several movements for the formation of exchanges for mining share business, and even for the establishment of rival stock exchanges, and a year ago one of the great London newspapers established a system of direct dealing between its readers for nominal fees. ”

“ OPTION DEALING There is a class of business, in which some freely indulge on the Stock Exchange, which, if transacted cautiously, results in the limitation of losses, whilst providing full scope for Bull and Bear proclivities and a great deal of fascination for the skilful operator. This class of business is called option dealing, and although it is not practised to nearly the same extent as is ordinary speculative buying and selling, perhaps because of its intricacies, the fact that it is full of fascination attracts to it many staunch votaries. ”

“ 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. ”

“ 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 England, France, and Germany there exist monthly or half-monthly settlements of stock exchange transactions, and as stock exchange loans run from one settlement to the next the amount of money employed on the stock exchange between settlements remains stationary. If, at the settlement, it develops that commitments on the stock exchange have increased and that a larger amount of money is needed there, so much additional money will under normal circumstances be withdrawn from the bill market and go into the stock exchange. ”

“ 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. ”

“ In this way has the Stock Market been established and forced from its original situation by a set of jobbers and brokers, who are all, it will be seen, interested in keeping their transactions from the eye of the public. These men being always ready either to buy or sell, renders it easy for the brokers to get their business done, having no trouble but merely stepping into the Stock Exchange. ”

“ It must be evident that every fresh war, every new loan, and every public peculation, increased the importance of the members of the Stock Exchange; and when men saw the broker and jobber assuming a position the public was unwilling to grant, they mistook the effect for the cause; and a hundred voices were raised, and a hundred essays written, to prove that the brokers of ’Change Alley were the bane of the nation. ”

“ I had in mind also a word of caution to Stock Exchange members themselves. That these gentlemen are more sinned against than sinning is, or it should be, apparent to anybody who has taken the trouble to learn the A B C’s of the business. Such a man knows that Stock Exchanges occupy an important place in the mechanism of modern business; he knows, too, that just in proportion as their functions enlarge and the scope of organized markets increases, so persons will be found who foolishly or dishonestly abuse the facilities there afforded. ”

“ The aggregate amount invested by a nation in trade and commerce should be and is many times the amount invested in stock exchange loans, which latter represent undigested securities and securities carried for speculative investors. Our way of doing business may be illustrated by two adjoining reservoirs, one small and one very large. The small one represents the stock exchange and contains the call loans; the large one represents the general business of the country, as expressed by commerce and industry. ”

“ And don't, please, think mining-stock brokers are alone given to the general practice. If you order the purchase of a block of stock on cash margin from any New York Stock Exchange house or send a certificate of stock as collateral in lieu of cash to one of them for the purchase of more stock, you will receive a confirmation slip of the trade which will generally read something like this:
We reserve the right to mix this stock in our general loans, etc. ”

“ Groups of Stock-Exchange members each day appear to buy from other groups great quantities of shares of different stocks at advancing prices. In reality all the brokers—the ones appearing to buy and those who sell to them—are in league with each other, and none of the transactions is actual. The performance bears the same relation to legitimate Stock-Exchange trading that the purchase and sale of a gold brick among confederates at a circus do to the genuine work of the gamblers and pick-pockets who are really attending to business around them. ”

“ Ten thousand competitors in this business of bringing prices and values together are of course better than one thousand; a hundred thousand would be better still. The Stock Exchange supplies this want, and will continue to supply it until a better plan is devised.16 Meantime, since it has grown to its present stature by forms of speculation necessary to the maintenance of enterprise, any serious interruption of the facilities it affords will bring enterprise to a standstill and cause the whole sensitive structure of credit to collapse in terror. ”

“ The outside market on the curb could not exist if it were not for the stringency of the requirements in the interest of the public which the Stock Exchange imposes in respect of the admission of securities to trading within its walls and jurisdiction. ”

“ Every corporation whose securities are listed on the stock exchange is obliged to make a full and comprehensive report to the exchange at least once a year, and these reports can be found in any brokerage office; they are always open to public inspection, and no one need buy any stock or [91] bond without first satisfying himself regarding the nature of the industry, capitalization, earnings, management and other details. ”

“ The speculating public gets action, likes it, and invests money that might have been used in margin-trading on the New York Stock Exchange or for "investment" in the constantly fluctuating low-priced industrials or higher-priced mining stocks that are sponsored by big interests with New York Stock Exchange affiliations. ”

“ It is natural to suppose that members of the Stock Exchange are better able to operate in stocks and shares, with a view to profit by speculation than the public who, as a rule, are ignorant of the art they endeavour to practise until all they have left is some bitter experience. ”