Stock ownership

“ But it may be accepted as a fact that this enormous mass of corporate securities would not21 have found ownership had there been no Stock Exchange to market them, and standardize them, and establish daily prices for them, and give them the certificate of character that makes them ideal collateral for obtaining credit.
Dr. W. Lexis, of Gottingen, like all other economists, recognizes the fact that Stock Exchanges are economic necessities. Here are his opinions:
“The existence of a broad, continuous market is an economic necessity in the modern scheme of widespread investment of capital. ”

“ Shall the private owners of capital stock be suffered to be themselves in effect holding companies? We do not wish, I suppose, to forbid the purchase of stocks by any person who pleases to buy them in such quantities as he can afford, or in any way arbitrarily to limit the sale of stocks to bona fide purchasers. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ So long as every dollar of stock issued by a corporation is represented by a dollar of property, no harm can result to individuals or the public from distributing stock to stockholders.... All that can be required in any case is that there shall be an actual capital in property representing the amount of share capital issued. ”

“ That was not the first time that the marketable value of a name that is known had been used to exploit a corporation. Any man of standing has many such offers.
The shares of stock that had been purchased for four cents each were peddled on the curb at fifty cents. Then they were advanced to sixty cents. Soon a "market"—so called—was made and the stock found a ready sale. Point by point it was advanced until it actually was eagerly sought by investors, who were not only willing but eager to pay four dollars a share for it. ”

“ 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. ”

“ There is no reason why bonds and shares should not be publicly dealt in—and in large quantities—as well as dry goods, corn or cotton; but, unfortunately, few stock exchanges confine their transactions wholly to legitimate business. You will look in vain in the quotations for the stock of dozens of corporations whose securities are among the choicest investments. It is upon fluctuations that stock speculations prosper, and it is often true that the largest profits are made on the poorest stocks. ”

“ Any desired capitalization above a minimum of one thousand dollars may be fixed. Capital stock may be paid for in cash or by property. If it is paid for in cash, it may be paid for in full or by instalments, and a machinery has been created for protecting the corporation against the failure of the subscribers to stock to pay the balance of their subscriptions. If stock is paid for by property, the incorporators and not the State are to pass upon its value. ”

“ 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. ”

“ 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. ”

“ The stock of a corporation, if limited to a reasonable number of shares and issued only to a few expert investors of high standing, and for tangible considerations, will obviously be considered a safer and more attractive investment than if it be scattered indiscriminately among a class of professional manipulators for stock-jobbing purposes. ”

“ Whereas divers brokers and stock-jobbers have lately set up and carried on most unjust practices, in selling and discounting tallies, bank-stock, bank-bills, shares and interest on joint stock, and other matters, and have and do unlawfully combine to raise or fall the value of such securities, for their own private advantage ”

“ The facilities which these Joint Stock Companies offer for the investment of capital, even of the smallest amount, the temptations which the prospect of large profits hold out, and the low interest obtained on national stock of every description, have attracted a vast body of capitalists, small and great, who have subscribed to these undertakings with the real intention of investment. ”

“ The issue of capital stock is the putting of the incomes of wealth into marketable form. Stock companies, or corporations, are business enterprises which issue stock, or certificates of a share in their wealth and income. Doubtless the convenience of the sale and transfer of invested capital [Pg 128] by the use of stock, has been one of several reasons for the large increase of this form of organization during the past century. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ Furthermore, stocks which have never been issued have no owners and so can command no proprietorship in the enterprise. The most that can be said about them is that they are contingent assets, showing that certain legal formalities have been met which authorize their issue if so desired. The remaining necessary procedure, viz., that the stock be placed on the market and sold, is, however, the condition which must be met to create a real asset and to create proprietorship. ”

“ 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. ”

“ STOCKHOLDERS Or it may be that the manufacturing company does not ask the capitalist to assist, but itself goes to the small investor with a prospectus of the enterprise, and offers to sell stock in the concern at $50 or $100 a share, as the case may be. ”

“ The cotton-seed oil mills of the South, once held by private owners, are now in the hands of a trust whose certificates are quoted on the stock-exchanges, and are held only by men of large capital, or by stock gamblers. This is a typical example of the change which is everywhere occurring. Private enterprise gives way to the stock company, and that in turn gives way to the trust. The salient fact, then, we may express in similar terms to those of our first law of competition, as follows: The congestion of wealth tends to increase inversely with the number of competing units. ”

“ In fine, the ultimate purpose in this regard of all the promotion machinery of Wall Street—the machinery that has been putting out billions of dollars' worth of securities to investors—is to place stock where it will "stay put," that is, not come out on the open market again to embarrass the interests that are behind the enterprise, and who for a long period are compelled to support the market. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ Suppose an express company is incorporated to transact business within the limits of a state, and does business only within such limits, and, for the purpose of transacting that business, purchases and holds a few thousands of dollars' worth of horses and wagons, and yet it so meets the wants of the people dwelling in that state, so uses the tangible property which it possesses, so transacts business therein, that its stock becomes in the markets of the state of the actual cash value of hundreds of thousands of dollars. ”

“ 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. ”