  1Principles of the Economic Philosophy of Society, Government and Industry, by Van Buren Denslow, LL.D., New York, 1888, p. 99. 2Ibid., p. 107. 3Ibid., p. 101. Consult also “Theory of Political Economy,” by W.S. Jevons, p. 92, and “A History of Prices,” by Thomas Tooke, Part II, p. 46. 4Consult Report of the New York State Food Investigating Commission, September, 1912. 5A detailed account of this incident was published in Country Life in America, July 1, 1912, from the pen of Graham F. Blandy, the producer. 6Bourses or Exchanges, as we know them to-day, undoubtedly owe their origin to the Jews. M. Vidal’s scholarly work explains that the persecutions which those untiring and courageous merchants experienced in Spain after the expulsion of the Moors caused them to emigrate to Holland, where the market-place was called Change (Exchange) and where in later years there was to be established, as a result of their labors, the famous Bank of Amsterdam, which was for a century the foremost institution of its kind in the world. The modern use of the word Change or Exchange is thus plainly traced. The word Bourse originated at Bruges, where, according to one authority, merchants gathered at the house of one of their number known as van der Burse. Other historians state that the word originated from the three purses (bourses) carved on the gable of the house in which the meetings were held. 7Charles A. Conant, “The World’s Wealth in Negotiable Securities,” Atlantic Monthly, January, 1908, estimated the total American securities as of 1905, at $34,514,351,382. Since that time there has been added to the securities listed on the New York Stock Exchange alone, a total averaging about one billion dollars per annum. The total given above is, therefore, a conservative one, since I have added to Mr. Conant’s 1905 estimate only Stock Exchange additions, and have taken no account of the millions added by small corporations. 8“The Stock Exchange and the Money Market,” “Annals of the American Academy of Political and Social Science,” Vol. XXXVI, No. 3, November, 1910, p. 567. 9If the discovery had then been made that bits of paper could be used as a medium of giving mobility to capital, there would have been a Stock Exchange at Rome eleven centuries before Christ. M. Edmond Guillard’s study of the subject shows that the argentarii (bankers) were then doing business at the imperial city, and that in addition to their central offices they had established branch offices at the Forum, where they gathered daily at a specified hour, together with the merchants, manufacturers, and capitalists, carrying on a business of money-changing in a public market that was, in its essentials, similar to our public financial markets of to-day (“Les Banquiers Atheniens et Romains, trapÉzites et argentarii,” Paris, 1875 Guillaumin). As the business was introduced into Rome by freed Greek slaves, it is perhaps safe to say that the practice of dealing in public money markets is in reality of still earlier origin. Plautus alludes to the crowd of merchants and bankers in the public square, and many chroniclers record the fact that at the time of Appius Claudius and Publius Sevilius, that is to say, five centuries before Christ, there was a public market in Rome known as the Assembly of Merchants (Collegium mercatorum). 10“A hundred years ago the use of the cheque was hardly known even in London, and an English country gentleman would have had infinitely more trouble in making a small investment than would nowadays a remote Australian squatter, or a wheat-grower in the wildest West of Canada. A letter posted to London from a distant village of Saskatchewan in 1910 would arrive with far more certainty, and perhaps not less speed than a letter posted in 1810 from a village in Sutherland or Argyllshire. A penny stamp with a cheque enclosed in a brief letter of instructions to the banker, and the thing is done. But the thrifty Scot of 1810 would have had the utmost difficulty, and great expense as well as risk, in converting a similar amount of cash savings into an interest-bearing security. In 1710 the thing would have been practically impossible. The Bank of England had only just been called into existence, and, in fact, there were no bankers, no brokers, and no Stock Exchange in the modern sense of the word. A man who wished to invest, without personally employing his capital, had practically no choice but to buy property and let it out at a rent, or lend his money on mortgage. Bank of England Stock or National Debt had just begun to be a political speculation for the moneyed Whigs in London. Merchant venturers might risk a large sum in a joint-stock voyage. Otherwise the average Englishman at the beginning of the eighteenth century A.D. was hardly better off for investment than the average Athenian in the age of Pericles, or the average Roman in the days of Cicero.”—“The Stock Exchange,” by Francis W. Hirst, editor of the Economist, Williams and Norgate, London. 11Article on “Speculation” in Schonberg’s “Handbuch der Politischen Oekonomie” (Tubingen, 1896–98). 12“Scope and Functions of the Stock Market.”—“The Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3. May, 1910. 13Charles A. Conant, “The Uses of Speculation,” Forum (August, 1901). 14Suppose for a moment that the stock markets of the world were closed, that it was no longer possible to learn what railways were paying dividends, what their stocks were worth, how industrial enterprises were faring—whether they were loaded up with surplus goods or had orders ahead. Suppose that the information afforded by public quotations on the stock and produce exchanges were wiped from the slate of human knowledge. How would the average man, how even would a man with the intelligence and foresight of a Pierpont Morgan, determine how new capital should be invested? He would have no guides except the most isolated facts gathered here and there at great trouble and expense. A greater misdirection of capital and energy would result than has been possible since the organization of modern economic machinery. “Wall Street and the Country,” by Charles A. Conant, pp. 92–93.—G.P. Putnam’s Sons, New York, 1904. 15The student who wishes to go more thoroughly into the subject of Stock Exchange usefulness is referred to “The Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910, Philadelphia. “Some Thoughts on Speculation,” by Frank Fayant, New York, 1909; “The Stock Exchange,” by Francis W. Hirst, London, Williams & Norgate, 1911; “Wall Street and the Country,” by Chas. A. Conant, New York, G.P. Putnam’s Sons, 1904; “Story of the Stock Exchange,” by Chas. Duguid, London, New York, E.P. Dutton & Co., 1902; “The Stock Exchange, London,” Methuen & Co., 1904; “The New York Stock Exchange,” by Francis L. Eames, New York, 1894; “Der Deutsche Kapitalmarkt,” by Rudolph Eberstadt, Leipzig, Duncker & Humbolt, 1901; “The Stock Exchange,” (London), by C.D. Ingall & G. Withers, Longmans, Green & Co., 1904; “A Simple Purchase and Sale Through a Stockbroker,” by Eliot Norton, Harvard Law Review, Vol. VIII, No. 8; “Stock Exchange Investments; History, Practice, and Results,” London, Simpkin, Marshall, Hamilton, Kent & Co., 1900. 16The Stock Exchange is an organization of individuals formed for the purpose of listing securities and for facilitating the sale and delivery of stocks.... Through its agency corporations are enabled to sell their shares and get the money capital to conduct their business. The Stock Exchange has come into existence because of a demand for trade facilities that will adjust differences of opinion in reference to future values of corporation securities and give the purchaser some idea of values. (“Modern Industrialism,” by Frank L. McVey, Professor of Political Economy in the University of Minnesota. N.Y., 1904.) 17“Principles of Economics,” by Edwin R.A. Seligman, Professor of Political Economy in Columbia University (N.Y., 1905). 18“Nouveau Dictionnaire d’Economie Politique,” by Paul Leroy-Beaulieu, Paris, 1892. 19Consult “The (London) Stock Exchange,” Francis W. Hirst, London, Chap. VI, p. 164, Williams & Norgate, 1911. 20“Principles of Economics,” by J.R. McCulloch, London, 1825. 21“Speculation on the Stock and Produce Exchanges of the United States,” by Henry Crosby Emery, Professor of Political Economy at Yale University. New York, 1896. 22In its effort to study all possible remedial methods affecting speculation on margins, the Hughes Commissioners in 1909 put this question to the Governors of the Stock Exchange: “Would taxation of loans made on margin transactions tend to discourage margin speculation? If so, would it be desirable to graduate the tax in accordance with the margin ratio?” To which the Governors replied: “In our opinion the taxation of loans could not be made upon margin transactions, as the lender of the money would be absolutely ignorant as to whether the securities pledged with him were carried on margin or whether they were owned absolutely. Any species of taxation upon loans would work a great injury to the money prosperity of the banking institutions of the City of New York. Loans are made to individuals and institutions upon bona fide property; they are also made to borrowers of money upon stocks and bonds offered to the institution, which are marginal in their nature; further, they are made upon securities only in part marginal, and any effort to distinguish would be practically impossible and would retard the entire business of the community. The effect of taxation upon loans would be to drive capital instantly from the city, and would force a species of financial institution to arise in every State which would profit by our inquisitorial laws, should such be enacted, to their own advantage and to our serious detriment. Such a restriction upon the free lending of money is not only unsound, impossible of enforcement, but could not help resulting in a constant evasion of the law.” 23“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, p. 537. 24The governors of the Stock Exchange, when asked by the Hughes Commission, “Would a change in the practice of dealing on margins be desirable?” replied as follows: “The practice of dealing on margins is absolutely essential to the conduct of many transactions, whether in stocks or bonds. To prohibit it would be to deny to a man the right to invest his funds and to purchase property upon such terms as he pleases. As well might the purchase of real estate, where a portion of the consideration is left on mortgage, be prohibited. The responsibility of the individual enters so largely into these transactions that it will be impossible to define specific instances where the margin would be too small or unnecessarily great. It is to be left to the discretion of the bankers, as well as to the judgment of those who furnish the money upon which these transactions are based. There may be certain classes of securities, like city bonds or government bonds, where a very small margin is ample. There may be other transactions in stocks selling at very high prices where a very strong margin should be required. Like many other details of a banking and brokerage business, these matters are frequently subjects of arrangement, whereby the broker protects himself and a satisfactory protection is given to him by his client. It would be manifestly impossible for the enactment of rules or regulations suitable to every case, and, in conclusion, we would say that it is almost unknown for an institution, bank, or trust company, to lose money upon any loans made on margins to members of the Stock Exchange in good standing.” 25“Ten Years’ Regulation of the Stock Exchange in Germany.” Yale Review, May 1908, q. v., post. 26“The Stock Exchange,” by Francis W. Hirst, London, 1911, p. 101. 27“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, pp. 532–3. 28“Board of Trade Case,” 88 Fed. 868. 29“Chicago Board of Trade Case,” May 8, 1905. 30Several authorities among those quoted in this chapter have been taken from Mr. Frank Fayant’s pamphlet, “Some Thoughts on Speculation,” N.Y.., 1909. It would be difficult to compress in small space a more instructive array of data than that presented in Mr. Fayant’s work. 31“Scope and Functions of the Stock Market,” by Prof. S.S. Huebner, Ph. D., University of Pennsylvania. “Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910. 32Journal of Political Economy, October, 1909, pp. 531–2. 33Consult the Wall Street Journal, February 18, 1909. 34“The borrower is also bound to pay the lender whatever interest by way of coupons or dividends or otherwise and all bonuses and accretions that would have been paid to the lender on the securities he has lent had he kept them. These are in practice treated as increases to the market price of the borrowed securities. The reason for this provision is that the lender is the actual owner of the securities and as such owner he is entitled to whatever they may earn by way of interest or in any other way. He has simply temporarily let another have the use of them, and, since the securities can be and are disposed of by the borrower, the lender would lose the interest, etc., which is paid on the borrowed securities between the date that they are borrowed and the date when they are returned and the loan cancelled, unless the borrower paid an equivalent amount to him. On the other hand, any assessment the lender would have had to pay on the borrowed securities during the continuance of the loan is a charge against him; for such an assessment is a burden adherent to ownership. In practice it is treated as a reduction of the market price.”—Eliot Norton “On Short Sales of Securities through a Stockbroker.” The John McBride Co., New York, 1907. 35(Memorial of the stockbrokers addressed to the Minister of Finance, 1843, p. 44, footnote. Quoted by Vidal, q. v., p. 46.) 36Some of those who admit the value of the stock market have subjected to severe criticism those who speculate for the fall of stocks. One reads constantly of the “bears” trying to accomplish such and such results by depressing securities. Napoleon had a long talk with Mollien, his Minister of Finance, in seeking to demonstrate that those who sold “short,” in the belief that national securities would fall, were traitors to their country. He argued that if these men were selling national securities for future delivery at less than their present value they were guilty of treason to the State. But Mollien replied in substance: “These men are not the ones who determine the price; they are only expressing their judgment upon what it will be. If they are wrong, if the credit of our State is to be maintained in the future at its former high standard, in spite of your military preparations, these men will suffer the penalty by having to make delivery at the price for which they sold, for they must go into the market and buy at the price then prevailing. It is their judgment, not their wish, that they express.”—“Wall Street and the Country,” by Charles A. Conant, pp. 111–112, G.P. Putnam’s Sons, New York, 1904. 37“Lombard Street,” p. 158. 38Charles A. Conant, “Principles of Money and Banking” (New York, 1905). The reader is invited to consult, in this connection, that portion of the Report of the Hughes Commission, (see Appendix) having to do with short selling. 39Report of the Commissioner, Washington, 1908. 40Despite the effort to avoid technical terms in these pages, the value of the bear should be considered from still another angle. Smith, a bear, sells short to Jones, a bull. The economic usefulness of Jones then becomes problematical, since he may sell out at any moment. His permanence as a holder or owner is merely optional, and his usefulness in the economic scheme of things is impaired. As a market factor he may be ignored. But there is nothing optional about Smith’s position, for he is now a compulsory buyer; his economic status is fixed; he has become a very real potential force. 41“The Stock Exchange and the Money Market,” by Horace White, “Annals of the American Society of Political and Social Science,” Vol. XXXVI, No. 3, Nov., 1910, pp. 563–573. 42Ibid., p. 564. 43The Stock Exchange authorities were asked by the Hughes Commissioners in 1909 what effect would result if this law were repealed. An interesting historical summary is involved in the reply to this question. “In our opinion the repeal of such a law would simply lead to constant evasions, which would cause the law to be practically a dead letter, and it is far better to leave it as it is, and to allow the supply and demand to regulate the rate for money. “It is reasonable to assume that the repeal of this law would result in a recurrence of the conditions which existed prior to its enactment. Prior to 1882, when this Act was passed, such loans were subject to the drastic provisions of the Usury Law, which imposes the forfeiture of the principal as a penalty for violation. The Usury Law, however, as to this class of loans, had for years been a dead letter, and whatever risks were incurred through its penalties were taken by lenders without hesitation. Demand loans were made at interest plus a commission, and in times of money stringency the interest rate represented by the so-called commission attained proportions which have been unknown since the passage of the Act of 1882. Extreme instances are to be found of a rate as high as 700 per cent. per annum. “Such violent fluctuations in the rate have been unknown since the passage of the Act of 1882. Since that time all quotations of interest on call loans have been at so much per cent. per annum, not, as was formerly the case, at ? or ¼ of 1 per cent. per day. Through the extreme stringency which existed in the autumn of 1907, the rate ran from 12 to 30 per cent., with the exception, perhaps, of one or two days when practically no money was procurable at any price, when the quotation ran up to 100 or 110 per cent. per annum. It would seem demonstrated by experience that the law of 1882 has been a most potent factor in reducing the interest rate in times of stringency and in rendering it at all times more stable and equable.” 44Cf. Mr. White’s article supra, p. 570. 45Report of the Comptroller of the Currency, October, 30, 1912. 46The Wall Street Journal, August 31, 1912. 47December 7, 1912. Consult also p. 235. 48“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, pp. 537–8. 49In his article on “The Hughes Investigation” (Journal of Political Economy, October, 1909, p. 539), Mr. Horace White refers to the attempt of the Hughes Commission to devise a means whereby the company-promoter’s activities might be curbed. He says: “The British ‘Companies Act’ forbids the public advertisement or sale of any securities unless the issuing company has been registered in a bureau of the government with information regarding the business to be transacted, the names of the officers and other persons responsible for the statements of fact, etc. Much time was spent by the committee in discussing the advisability of adopting the English system, regardless of the fact that it would be operative in only one state of the union, and that it would serve as an obstacle to all securities, sound and unsound, alike. Thus, if the Pennsylvania Railroad Company desired to issue a new lot of bonds it could advertise and sell them everywhere except in New York, without the trouble and expense of registration. Would it be worth while to give to other markets such an advantage over that of New York? The opinion of the governors of the Stock Exchange was sought and was given orally, to the effect that it would be unwise to take the risk unless the benefits to be derived from registration were preponderating and reasonably certain. It was their belief, however, that a certificate from state officials that a company was registered at Albany would be interpreted by the class of investors, who are most liable to deception, as a certificate of the soundness of the securities, in which case the act of registration would do more harm than good. The latter consideration prevailed in the committee, but recommendations as to advertising were made, which, if adopted by the legislature, will add something to the responsibilities of greedy and unscrupulous newspapers, while not going upon the doubtful ground of a censorship of the press.” 50“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, p. 529. 51The report of the Hughes Investigating Committee is published in full in the appendix to this volume. 52One of the witnesses before the Hughes Committee actually recommended that the stock ticker be suppressed. Such a suggestion is silly and would lead to great confusion and many complaints from the public. The ticker is essential to publicity and offers the very protection which the Stock Exchange seeks to extend. Speculation was never so unscrupulous and wrongdoing never so abundant as in the days before this instrument was invented. 53L’Economiste FranÇais, Paris, October 5th. 54When the first issue of Union Pacific convertible bonds matured, so many people had failed to notice that their bonds could be exchanged dollar for dollar against the stock, selling at much higher price with greater yield, that the company extended the time for conversion. It would have been entirely warranted in paying off such bondholders at par, but it spent considerable sums in advertising them of a privilege they should have known all about. In the face of all this, bonds came in for conversion many months after the extended time, and the bondholder sincerely believed that he had a grievance because his bond was redeemed at par. The same thing happened in the case of the old St. Paul 7’s, which were convertible into preferred stock. Bondholders allowed themselves to be paid off at par for a bond which had been standing at 170 and apparently had never read the terms of their own mortgage. What can the law, the press, or the banker do against such criminal negligence as this? And if bondholders are remiss, what shall be said of the average stockholder? He is improving undoubtedly, but he has still a great deal to learn. His right to information is unquestionable, but he fails to exercise it in anything like the degree he should. It is to be feared also that he does not take a great deal of trouble in learning to analyze such reports and balance sheets as may be submitted to him. A stockholder should never hesitate to write to the officers of his company for information. He should do it often, and he should get other stockholders to do the same thing. One stockholder writing frequently may be regarded as a nuisance. Ten will be treated with respect, and it will be a very autocratic control which will venture to deny information to a hundred stockholders, taking a legitimate step to protect their own proper interests. The newspapers are glad to furnish any information in their power, but if the stockholder would write to the company first and the newspaper afterward, he would probably derive more ultimate advantage.—Wall Street Journal, September 22, 1909. 55Address by President Finlay of the Southern Railway, before the Transportation Club of Indianapolis, October, 1912. 56“If there is one man who really understands the nature of the transactions in the New York Stock Exchange from day to day, it is Robert L. Doremus, the chairman of the Stock Exchange Clearing House Committee, which has the power to lay bare the character of any broker’s business. His reputation for veracity is of that high character which Wall Street demands from the men in its responsible positions. When he says that the main influence in any day’s trading is a legitimate and widespread demand for sound securities, in lots small enough to be within reach of the investor of moderate means, he is talking facts and not theories. “Our politicians, however, are legislating for a Wall Street of twenty years ago. The stock market is not controlled by large speculators creating deceptive prices by manipulative orders. That kind of business is passing away, and it may be said that another kind, that of the purely gambling accounts carried on the lightest of margins, has practically gone, and is not likely to return. The few houses whose business is still of this character are dying of dry-rot; while the active houses who are doing the real business of the stock market report their speculative accounts so broadly margined as to be of a semi-investment character. “What is still more satisfactory is the wide diffusion in the ownership of industrial and railroad stocks. This is not new. The Illinois Central’s great strength for forty years was in the small stockholder, who made his voice heard to some purpose when “strike” legislation developed in his State legislature or in Congress. But the ever-widening character of the investment area, the recognition of the convenience and convertibility of Stock Exchange securities, safeguarded by sound management and full publicity, is a growth of the most hopeful character. It indicates a force of enlightened conservatism of the greatest value to the country.”—The Wall Street Journal, October 22, 1912. 57It is truthfully declared by Courtois, in his TraitÉ des OpÉrations de Bourse et de Change, that a fictitious movement, even on the part of the most powerful operators, cannot overcome the natural tendencies of values, and that the most that can be accomplished is sometimes to hasten or retard slightly the certain effect of a foreseen event. “Wall Street and the Country,” by Charles A. Conant, p. 88, G.P. Putnam’s Sons, New York, 1904. 58The Wall Street Journal, December 7, 1912. 59The distinction between “panics,” “crises,” and “depressions,” are clearly stated in the opening chapter of “Financial Crises and Periods of Industrial and Commercial Depression,” by Theodore E. Burton, D. Appleton & Co., N.Y., 1902. In the following pages, I use the terms as they are commonly applied in Wall Street, although this application is not always governed by sound etymology. Thus in Wall Street we speak of “the panic of 1907,” meaning broadly the events of that entire year. Strictly speaking a “panic” is the brief period of a day or an hour of unreasoning fear, brought about by the “crisis” of a money scarcity which preceded it. The period of commercial and financial suffering, which continues after the panic and the crisis have passed, is the “depression.” 60“Des Crises Commerciales,” ClÉment Juglar, Paris, 1889, pp. 44–5. 61“Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910, p. 13. 62“Financial Crises and Periods of Industrial and Commercial Depression,” Theodore E. Burton, New York, 1902, p. 234. 63The report of the New York State Superintendent of Banks for the same period emphasizes this point by showing a steady contraction of loans by State banks and trust companies of New York City during the period quoted, while all other authorities reveal a steady expansion in loans by similar institutions outside the city. 64“The Hughes Investigation,” by Horace White, Journal of Political Economy October, 1909, pp. 528–540. Mr. White quotes in this connection an article on “The Panic of 1907,” by Eugene Meyer, Jr., Yale Review, May, 1909, from which many facts in this chapter have been taken. 65Cf. Burton, supra, pp. 49–50–51. 66Ibid., pp. 227–8–9. 67The panic of 1837 was caused by a great expansion of banking and bank credits, and an intense speculation in real estate. In 1830 there were 329 banks in the country with a capital of $110,000,000. In 1857 there were 788 with a capital of $290,000,000. When the crisis was subsequently examined it was found that there had been an actual shrinkage of $2,000,000,000 in the value of the assets of the country, and that $600,000,000 of indebtedness had been wiped out by bankruptcy. The panic of 1857 was due primarily to the influx of gold from California after its discovery in 1848, and to the intense passion for speculative gain which attended it. Suspension of specie payments by the banks lasted fifty-nine days. Complete recovery to the normal standard did not take place until 1860, when it was again interrupted by the events antecedent to the Civil War of 1861. The antecedents of the crisis of 1873 were identical with every other commercial crisis—namely, speculation—the act of buying with a view to selling at a higher price, and overtrading, or the act of buying and selling too much on a given capital. Most commonly these two elements are accompanied by two others, viz.—the destruction or loss of previously accumulated capital, and the rapid conversion of circulating into fixed capital. Speculation and destruction of capital usually go together in preparing the way for a crisis.—Horace White, Fortnightly Review, Vol. XXV, p. 819. The panic of 1893 was distinctly a currency panic. By a curious paradox it came at a time when the volume of currency was unprecedentedly large and constantly increasing. But the inception of the disaster had to do with its quality rather than its quantity. The repeal of the silver purchasing clause of the Sherman Law, November 1, 1893, restored confidence by assuring the commercial world that the existing volume of silver coin would be maintained on a parity with gold. 68Real Estate Record and Guide, 1906–7. 69Consult Bradstreet’s, 1907; the Construction News, Chicago, 1907; the Engineering News, 1907. 70“The New York Stock Exchange and the Panic of 1907,” by Eugene Meyer, Jr., Yale Review, May, 1909. 71“Credit Cycles and the Origin of Commercial Panics,” Manchester Statistical Society, December 11, 1867. 72Remarks of Joseph French Johnson, dean of the New York University School of Commerce, at the American Institute of Banking, October 25, 1907. 73Consult Burton, supra, pp. 109–110; Muhleman. “Monetary Systems of the World,” pp. 128, 130, 135, 140. 74“The Banking and Currency Problem in the United States,” Victor Morawetz, New York, North American Review Publishing Company, 1909, pp. 87, et. seq. 75“Collected Works,” Vol II, p. 2. 76Senator Burton “Crises and Depressions,” pp. 51, 52, enumerates the important indicia of crisis-producing conditions as follows:
Not one of these indications of trouble was lacking in the period preceding the panic of 1907. 77The student who wishes to inquire at length into the subject of panics, crises, and depressions will find useful aids in the authorities already quoted, and in the following additional works: A. Allard, La Crise Agricole et manufacturiere devant la Conference monetaire de Bruxelles; Brussels, 1893. A. Baring (Lord Ashburton), The Financial and Commercial Crises Considered; London, Murray, 1847. C.W. Smith, Commercial gambling, the principal cause of depression in agriculture and trade; London, Low, 1893. C. Wooley, Phases of Panics; a brief historical review; London, Good, 1897. C. Juglar, A brief history of panics and their periodical occurrences in the United States; New York, Putnam, 1893. E. Goodby & W. Watt, The present depression in trade, its causes and remedies. Henry Wood, The Political Economy of Natural Law, Boston, Lee & Sheppard, 1894. H.M. Hyndman, Commercial Crises of the Nineteenth Century; London, Swan Sonnenschein & Co., 1892. H. Denis, La DÉpression Économique et Sociale et l’histoire des prix; Brussels, 1895. J. Eadie, Panics in the money market, etc.; New York, 1893. Michael G. Mulhall, History of Prices Since 1850; London, Longmans, Green & Co., 1885. R. Browning, The Currency considered with a view to the effectual prevention of panics; London, 1869. The Pears prize essays. London, Chatto, 1885. W.W. Lloyd, Panics and their panaceas; London, Harrison, 1869. W.H. Crocker, The cause of hard times; Boston, Little, Brown & Co., 1896. 78(8 and 9 Will, III, Ch. 32.) 79(6 Anne, Ch. 16.) 82For a legal opinion concerning the rights of plaintiffs arising from memberships in a corporation as contrasted with those arising from memberships in a voluntarily unincorporated association the reader is referred to White vs. Brownell (2 Daly at p. 337), opinion at Special Term by Justice Van Vorst; and the same case at General Term, opinion by Justice Daly. The courts of New York State have on a number of occasions expressed their approval of the manner in which the Stock Exchange has discharged its functions under this form of organization. The reader’s attention is called to Belton vs. Hatch, 109, New York, 597, Court of Appeals. 83“The German Exchange Act of 1896,” by Dr. Ernst Loeb, in the Quarterly Journal of Economics, July, 1897. 84“Ten Years Regulation of the Stock Exchange in Germany,” by Henry Crosby Emery in the Yale Review, May, 1908. 85Ibid. 86“The German Bourse Law,” by G. Plochmann, North American Review, May, 1908. 87“An act to regulate sales at public auction and to prevent stock-jobbing,” New York State Legislature, 1812. 88“An act to regulate sales at public auction and to prevent stock-jobbing,” New York State Legislature, 1858, repealing act of 1812. 89“Statutes at Large,” Ch. 127 and Ch. 209, repealing Ch. 127. 90“Economics,” by Arthur T. Hadley, New York, 1896. 91“Money and Banking,” by Horace White, New York, 1895. 92In the appendix to his work, “Some Thoughts on Speculation,” New York, 1909, Mr. Frank Fayant gives a summary of the laws of all the States, pp. 57–58. I am greatly indebted to this pamphlet for many authorities quoted in this chapter. 93The London Stock Exchange is also an unincorporated body. See pp. 231 et seq. for the report of the royal commission bearing on this matter. 94The question put to sureties on the London Stock Exchange is, “Would you take this man’s cheque for £3000 in the ordinary way of business?” to which an unprepared sponsor once replied, “Well, I should not pick it out.” A similar question by the governors of the New York Stock Exchange once met with the reply, “Yes, but I would have it certified as quickly as possible.” 95A similar cry, “Fourteen hundred,” was long used for the same purpose on the London Stock Exchange. For a time there were but 1399 members, and each stranger who appeared was thought to be number 1400. Hence, the words came to be applied to all new members, long after the membership exceeded that figure. 96The celerity and accuracy of the cable service between New York and foreign centres, as perfected in arbitraging, has no parallel elsewhere. Twenty minutes are often required to complete a cable transaction between the London Stock Exchange and the Paris Bourse, and so it frequently happens, where speed is required, that messages between those two centres are cabled by way of New York. 97Consult “The World’s Wealth in Negotiable Securities,” by Charles A. Conant, Atlantic Monthly, (July, 1908). 98Hopkinson Smith, in the World’s Work (August, 1912). 99“They are like unto children sitting in the market-place and calling one to another, and saying, ‘We have piped unto you, and ye have not danced; we have mourned to you, and ye have not wept.’” 100July, 1912, p. 94. 101“Worry, the Disease of the Age,” by C.W. Saleeby, M.D., F.A. Stokes Co. (New York, 1907). 102The English Exchequer has left a permanent impression on the language no less than on the world’s finance. Such words as “cheque,” “tally,” and “stocks,” in the sense of securities, possess an interesting history easy to trace. If one lent money to the Bank of England down to so comparatively recent a period as one hundred years ago, tallies for the amount were cut on willow sticks just as they were cut at the Exchequer in the time of the Crusades; the bank kept the “foil,” and the lender the “stock”—the earliest “bank-stock” on record. Very recently a bag of Exchequer tallies was found in a chapel of Westminster Abbey. 103The first Stock Exchange book was published in 1761—“Every Man His Own Broker, or a Guide to Exchange Alley,” by J. Mortimer. Mortimer, Mr. Hirst tells us, had been British Consul in Holland, and had seen the workings of the Amsterdam Bourse and the arbitrage business between London and Amsterdam, which was considerable in the middle of the eighteenth century. The book shows that many phases of speculation were already in vogue before the Stock Exchange was formally organized. 104“The (London) Stock Exchange,” Francis W. Hirst, London, Williams and Norgate, 1910. The attention of the reader is invited to this book. As a short study of investment and speculation in England it is exceedingly instructive, doubly so in that it comes from the pen of the editor of the Economist. 105The Quarterly Review, July, 1912. 106There are 20,000 shares (£13 paid) and £416,700 debentures outstanding. 107It should be said, in fairness to the London jobber, that the incident here mentioned by Mr. Hirst is a rare exception. 108L’Economiste FranÇais, Paris, October 5, 1912. 109Rule 150 reads as follows: “The committee will not fix a special settling day for bargains in shares or securities issued to the vendors, credited as full or partly paid, until six months after the date fixed for the special settlement in the shares or securities of the same class subscribed for by the public, but this does not necessarily apply to reorganizations or amalgamations of existing companies, or to cases where no public shares are issued for cash.”—Rules and Regulations of the Stock Exchange. London, June 3, 1911, pp. 64–5. 110These figures are taken from Mr. Hirst’s Chapter VIII on “The Creation of New Debt and Capital,” pp. 212–241. 111It should be said that at least a part of the decline in these securities had taken place before the Balkan scare became a reality. A foreknowledge of what was impending may have influenced the earlier decline; certainly the event itself accentuated and hastened it. 112London jobbers were, in a way, instrumental in checking the furious speculation in “rubbers” toward the culmination of the boom of 1909–10. Their absolute refusal to carry rubber shares for brokers, and their concerted insistence that such shares should be paid for in full on the ensuing account day, undoubtedly put the brakes on a furious speculation, and prevented many failures. 113The Wall Street Journal, November 13, 1912. 114On the New York Stock Exchange the minimum difference between prices is one eighth and splitting of this fraction is prohibited save in the case of “rights” to subscribe or similar instances. 115In the settling room on ticket day stocks that are not cleared pass by ticket from broker to broker in much the same way as that provided by the Clearing House. 116Although an effort has been made in these pages to avoid complicated Stock Exchange technique, the contango, which is not fully understood in America, requires technical explanation. It may be defined as a double-bargain, in that it consists of a sale for cash of the stock previously bought which the broker does not wish to carry, and a repurchase for the new settlement two weeks ahead, of the same stock at the same price as the sale, plus interest agreed upon up to the date of that settlement. 117The methods of transacting business on the London Stock Exchange are admirably stated in condensed form in an article by Walter Landells in the Quarterly Review, July, 1912, pp. 88–109, and I am indebted to his article for many of the foregoing facts, and for this brief summary of London’s booms and crises. 118In addition to the authorities quoted in the foregoing chapter, the attention of the reader is directed to the following works having to do with the London Stock Exchange: Lombard Street, by Walter Bagehot, New York, Chas. Scribner’s, and Sons. Stocks and Shares, by Hartley Withers, London, Smith Elder, 1910. Stock Exchange Law and Practice, by W.A. Bewes, London, Sweet & Maxwell, 1910. Rise of the London Money Market, 1640–1826, by W.R. Bisschop, London, King, 1910. The Mechanism of the City, by Ellis T. Powell, London, King, 1910. 119Anatole Leroy-Beaulieu, La RÉgence de l’argent, “Revue des Deux Mondes.” February 25, 1897, pp. 894 and 895. (M. Leroy-Beaulieu is the elder brother of Paul, the French economist. In 1881 he became professor of modern history at the Ecole Libre des Sciences Politiques, and in 1887 was made a member of the Academy of Moral and Political Sciences. His fame as a publicist is established.) 120John Law was the inventor of “bearer” certificates. 121“The History and Methods of the Paris Bourse,” by E. Vidal, Senate Document No. 573, Sixty-first Congress (Second session), pp. 161–2. 122“OpÉrations de Bourse et de Change,” Courtois, 13th ed., p. 239. 123Provincial bourses in France are divided into two classes—those with parquets, and those without them. Bourses with parquets are those at Lyons, Bordeaux, Marseilles, Nantes, Toulouse, and Lille. The Minister of Finance is in control of these parquet bourses, while the Minister of Commerce controls those that have no parquet. 124“History and Methods of the Paris Bourse,” by E. Vidal, published by the National Monetary Commission, Washington, 1910, pp. 262–3–4. 125The report of the Paris Chamber of Commerce, February 8, 1882, which paved the way for this reform, is interesting reading: “An administration of justice which would permit a speculator to carry on two deals of equal importance with two different brokers, one for a rise and the other for a fall, and, while collecting from one the profit he had made to advance the plea of gambling toward the other, in order to avoid paying the loss which the operation showed—such an administration, I say, could not hold any longer; that fact alone would condemn it. “Experience shows that the plea of gambling has never protected anybody but those of bad faith, and has only encouraged the excess of speculation, as was stated by M. Andrieux in his report presented to the Chamber in 1877, in the name of the Seventh Commission of Initiative. “Prompted by these reasons, and, considering that the present legislation, far from preventing gambling, encourages it; considering that bad faith finds protection in the jurisprudence sanctioned; and, further considering that in commercial affairs, as in any other, it behooves to allow every one his full freedom, as well as to hold him responsible for his actions—I beg to suggest that an address be sent to the Minister of Commerce, confirming the letter of the Chamber of Commerce of November 25, 1877, and requesting the Government to introduce a bill in the Chambers, declaring that article 1965 of the Code civil does not apply to debts resulting from dealings for future delivery, and that articles 421 and 422 of the Code penal are repealed.” The law legalizing dealings for future delivery was enacted March 28, 1885, and formally promulgated April 8, 1885. 126Vidal, p. 217, supra. 127Ibid, p. 276. 128Ibid, pp. 192–3. 129Remarks of M. Alfred Neymarck, at the International Congress of Securities, 1900, quoted by Vidal, pp. 166–7. |
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