to its debit every crime of which the gambler can be guilty. And all the
abuse would have a sediment of truth beneath it, for infinite are the
evils that have grown up and spread their roots far and wide through all
strata of modern society since the day when dealing in stocks and shares
first became a passion or a habit. True as this is, and numberless as may
be the demoralising consequences of indulgence in the habit of stock and
share “bulling” and “bearing,” it would be none the less false and unjust
to lay upon Stock Exchanges and their members all, or even half, the
blame for the moral undermining of society that may ensue from subjection
to the hazards of the play. In many of its functions the Stock Exchange
has always done admirable service to civilised mankind, and the great
majority of the members of all such institutions are men as upright, as
humane and high-principled as could be found among any body of merchants
in the world. It is not their fault but often their misfortune that the
spirit of unbridled lust after unearned wealth should so continually
strive for the mastery and so often become dominant in their business.
From the point of view, however, of the highest ideal of national
morality, it is unquestionable that the trade of the stockbroker is
of tainted origin. In this country the business began in an organised
sense when William III. founded the National Debt and called the Bank
of England into existence to furnish him easily with the means to carry
on his Continental wars; and an evil day surely it was for the peace
of the world, for the progress of mankind and civilisation, for the
masses of those who toiled in all countries endowed with a settled form
of government, when national debts were invented—debts laid upon the
shoulders of the people without either the intelligent or deliberate
sanction of those called upon to bear the load, or adequate estimate of
the consequences in any direction.
We must, however, in most things take the world as we find it, and in
spite of my hatred of all debts, and of my belief that debt never paid
off in the long run ruins the debtor, whether individual or state, it has
to be admitted that good of many kinds came out of evil in this instance.
Debt, by the intermediary of the banker, begat credit; and credit, based
upon a security which was reliable, the fruits of a nation’s labour
and enterprise, gave an irresistible impetus to that industrial and
mercantile expansion which has carried the prosperity of the United
Kingdom to heights never before seen on earth, and changed the course
of human progress everywhere. Imagine what might have happened if the
banker’s utilitarian fiction, which treated the symbols or book entries
of moneys spent in wars as so much realised wealth, capable of being
utilised to call still more wealth into existence, had never been
allowed to have free play. The nation would have perished beneath the
dead weight of its obligations. Called upon to find the interests of the
debts imposed upon it, out of resources suffering continual depletion,
unstimulated by any new capital beyond what the minority might or might
not have been able to furnish at the moment out of its savings, it would
have sunk lower and lower in poverty, until its condition might have
become one of hopeless anarchy.
The banker and the stock-jobber between them saved England from that
fate—unconsciously, perhaps, but they none the less saved it. Their
operations often exhibited a kind of inverted, topsy-turvy communism.
Gravely treating the promises to pay emitted by governments of all
degrees of irresponsibility as the inviolable obligations of the people
at large, they used these promises and symbols of wealth already
dissipated as the bases on which to rest further credits granted to
joint-stock enterprises—to South Sea bubbles no doubt, but also to East
India companies, Hudson Bay companies, mining companies, canal companies,
adventures of all kinds, some of which outlived the manias amid which
they came into existence, and survive in one form or another to this
hour. Throughout modern history, the part played by debt in engendering
credit, in calling capital into existence as it were out of nothing, and
providing the means to carry out great undertakings by whose completion
alone could the credit-born capital become living and real, has been such
as to transform the world, girdle and seam it with railways, bind it
together by electric cables, and cover its oceans with ships almost as
sure and safe in their comings and goings as a suburban railway train.
In ways almost infinite, credit was created to represent assets not yet
in being; and, by putting in pawn of previously existing debts, and
through the intermediary of banks, it drew out hoards from the keeping of
the thrifty. Dead capital—capital spent—came to life again as it were,
and was a potent agent for the advancement of mankind in civilisation.
By this means modern nations not only stimulated their manufacturing
industries, awoke and encouraged inventiveness, spread their productions
over the whole world, but developed cities at home and made life bearable
for aggregates of population whose healthy existence would have been
impossible under the conditions prevalent, say, at the close of the
Napoleonic wars and for long after.
Many other forces doubtless were at work so far as England alone is
concerned—wealth drawn from India, the tireless energy of the race, the
backwardness of other nations—but it was in no small measure the impetus
supplied by those portions of our otherwise intolerable National Debt,
utilised as a means of creating credit through our banks, that the
resources and energies of the nation, and such forces as it drew from
the yearly accretions of its savings, the ever-increasing fruition of
its accomplished enterprises, were given full scope. In this development
the Stock Exchange played a leading part. Without it as intermediary,
little progress could have been made. Human nature rather than the share
market must therefore be blamed for the manias and delirious gambling
by which every step in the triumph of man over the forces of nature, of
time and space, has been accompanied. The younger generation does not
remember the days of the railway mania, when men went demented over wild
and hopeless-looking projects, and rushed worthless shares to fantastic
premiums in the height of the disease; but amid that insanity the warp
and woof of our present network of roads came into being. There were
enormous losses inflicted upon the multitude by the collapse, the always
inevitable collapse; but good work was none the less done, progress made.
Again, I may say, had the masses of mankind been capable of obeying high
ideals, all this could have been avoided. It is possible to conceive a
state governed by a spirit of mutual help and wholesome brotherliness in
citizenship, wherein all would have been united according to their means
to build these new iron highways for the good of the whole community,
not for private gain; but it is vanity to think thoughts like these,
men being what they are. The one effective force that could be relied
on to attract the necessary capital to any enterprise is cupidity in
one degree or another, the desire for individual profit. It may be the
restrained and wholesome acquisitiveness of the man who merely seeks a
safe repository for the fruits of his thrift, but more often it is the
greed which cherishes the desire and hope of excessive and untoiled-for
profit.
A subject full of temptation to the student of human passions is provided
by the history of Stock Exchange _furores_, but I cannot pursue it. I
will only cite some characteristics as ground for suggestions towards
the abatement of admitted evils. Their eradication, I fear, is beyond
hope until the spirit of mankind changes and its ideals. Certain
characteristics stand out prominently to distinguish Stock Exchange
gambling of the present day from that prevalent before the first Limited
Liability Act, that of 1862, came into force. Previous to that date
gambling in stocks had been confined to a limited class of the wealthy,
whether aristocratic or professional—to the narrow, plutocratic classes
and their immediate flunkies and hangers-on; but after the Limited
Liability Act of 1862 gave definite form to this kind of joint-stock
enterprise and enlarged the field of operations, speculation gradually
became the fashion with classes of people hitherto unfamiliar with it,
and the fascinations of the play attracted wider and ever-widening
circles of society. After 1870 education came to the help of the share
manufacturer, and by and by the financial newspaper, the professional
tipster, the “bucket-shop” agencies outside the Stock Exchange, conducted
with the avowed purpose of guiding the play so as to bring wealth to
the gamblers, exercised their malign influence. Then came the £1
share, fully paid up, with no further liability, as the most attractive
speculative instrument of them all. When I first knew the City, more than
thirty years ago, no joint-stock undertaking whose projectors wished to
be thought respectable could have been launched with a capital composed
of £1 shares, whereas now very few companies of any sort are constructed
on any more substantial-looking foundation. Mines, even gold-mines, in
the early days of limited liability were rarely launched as joint-stock
undertakings with shares of merely £1 nominal value. Nowadays, shares of
5s. nominal value are not uncommon in the case of such companies, and a
few months ago the shares of several prosperous Indian gold-mines were
subdivided into half-crown units, really in order to facilitate market
dealings, _i.e._ gambling, in them over a wider field.
By the aid of the £1 share, all manner of enterprises have during the
last fifteen years, or since 1890, been converted into joint-stock
companies on the basis of an excessive capitalisation that would have
been impossible to the same extent under the old fashion of the £10,
£20, £50, or £100 share; and the losses consequent upon the unprincipled
rapacity of the promoter, gratified by means of this ensnaring instrument
of speculation, have been greater and more widespread than those
inflicted upon an easily deluded public by all other forms of joint-stock
swindling put together. When the new fashion was just coming into favour,
one of the shrewdest members of the Stock Exchange, a broker of high
character, predicted to me that it would be so. Talking of railway
manias, shipping manias, and the losses they have caused, he remarked
that they were “trifles to what the public is going to suffer through the
£1 share.” Not many years after this opinion was expressed to me, the
nation plunged into the South African gold and diamond mine dementia,
with results not yet by any means fully visible, but whose harvest of
loss and affliction has already transcended in magnitude and in the
numbers of the victims all the plagues of this sort that have preceded it.
It looks so easy for the “small man,” as the City slang would put it,
to have his “little fling” with a £1 share. Even when such share rises
to five, ten, or twenty times its nominal value, it still seems easy,
tempts the multitude more perhaps than when it may be at a discount, and
there are such facilities for indulgence in the passion to make money
without effort, with “no risk at all,” as the bucket-shop puffer is
ever iterating. The market gives every facility, is ready to lend its
means to the player, to smooth the field for him at the start. He need
not pay for the shares he buys. The dealer and broker will “carry” them
for him fortnight after fortnight, as each market “settlement” comes
round, lending the money at handsome rates of interest, and charging
an infinitesimal commission, or, perhaps, no commission at all, for
performing this necessary operation. A man possessed of £50 may in this
way be induced to speculate in £500 or £1000 worth of these small shares,
staking his all. If the buyer wins, as in seasons of fever he often
for a time does, the heavy interest he is charged does not affect him.
Each fortnight, as the Stock Exchange account comes round, he pockets
his “difference,” the sum left over as product of the advance in price
after all charges have been met, and thinks himself on the high road to
affluence. Initial success inflames the appetite, fresh purchases are
made, probably before the earlier speculations are closed, and while
the profits already reaped by the earlier gambles are being spent as
fast as received. By and by reaction comes, losses accrue, expressed in
“differences” to be paid instead of received, and the end is usually
misery for years, for a lifetime, or sudden and irretrievable ruin.
Slowly, and amid infinite suffering, this harvest of the South African,
the Kaffir market insanity is now being reaped, as that of more than one
Australasian and American rage of speculative abandon has been again and
again during the present generation.
Is the disease thus indicated incurable—a disease whose course is
invariable, whose end is profit, wealth perhaps, to one in a quarter of
a million among the players, and to all the others various gradations
of loss, from a few pounds disbursed in exchange for wisdom-fraught
experience to complete ruin and social degradation? Yes, I believe
it to be incurable, especially in a society constructed with such
all-pervading artificiality as ours. One’s first impulse is to cast
unmitigated censure upon the gambler; but that also would be unjust.
The motives of mankind are mixed always, and at the beginning the
impulse which starts the speculator in shares on his downward course is
oftener than not at least half laudable, is at the worst the product
of a man’s surroundings, of the vanities of life by which he may be
lured. Constituted, moreover, as the social economy of modern England
is, the great bulk of our fellow-citizens have no assured foothold in
the land of their birth. They toil without hope, and see only privation
or absolute want at the end of the day’s work—be it long, be it short.
Essentially we are a nation of nomads, uprooted from the soil, and with
no assured hold on the means of existence, speaking of the mass, beyond
what the weekly wage or yearly salary furnishes. What more natural, one
may say inevitable, than that this divorcement should generate in a
vigorous race a hunger after security, a craving for some refuge, some
shield against the uncertainties of existence, a way of escape, perhaps,
from the irksomeness of individual surroundings, the tyranny of a hard
taskmaster, the caprices of employers, whose power over all beneath them
is too often almost that of life and death. By their surroundings, by the
circumscribed horizon of their life, the minds of many men are prepared
for the tempter who comes to them with the promise of deliverance by
means of a successful gamble on the Stock Exchange. Others, again, are
moved merely by vanity, by false standards of social wellbeing, by
jealous emulation of those who may seem richer than they are, for is
not the possession of money our one standard of “wealth” and wellbeing?
To all such, once the plunge is taken, degeneration comes. A habit is
established, and may become a craze, a passion, a lust that in time will
devour all that is best in the heart and intellect.
Such seems to me a fair summary of the psychology of gambling, and I
do not see how its ravages are to be stayed, the disease eliminated
from society, without radical changes in its structure implying loss of
privilege and an abatement of class selfishness by the few who now stand
apart, the nation’s drones and hive-harriers, or without the cultivation
of higher ideals than those implied in mere purse-proud social emulation.
And of one thing I am sure; the London Stock Exchange can do little or
nothing to check the ravages of this social canker, nothing effectual
can be done in any Stock Exchange of them all. To expect bodies of men,
associated together for purposes of gain, in the conduct of their daily
business to lay down self-denying rules for their conduct, is not merely
unwise but futile. The more the organised groups of stock-jobbers and
brokers doing business at particular centres called Stock Exchanges
hemmed themselves in by restrictions established with a view to limit the
facilities for play, for buying and selling, the more such business would
be thrown into the hands of irresponsible outsiders, most, if not all, of
whom are mere vultures and cormorants, devourers of the substance of all
who fall into their hands. In a very real sense the saying is just that
the less restricted, within well-regulated limits, the constituted market
may be the greater is the safety of the public from fraud and loss.
Often when the London Stock Exchange, by far the most powerful and best
organised institution of the kind in the world, has attempted to bar the
way to the mere speculator in certain directions it has been defeated. It
refused many years ago to sanction dealings before allotment, that is to
say, purchases and sales of a security before it was really in the hands
of the market or the public. The dealings went on all the same, until the
liberty had to be restored. Unto this hour many members of the “House,”
as the Stock Exchange is affectionately called by its members, set their
faces against gambling in “options”—against, that is, the system of play
by which a speculator puts down so much money, parts with it for good, in
exchange for the right to “call” for the delivery, or to give delivery,
of a certain specified amount of a particular security—to “put,” the
slang is—on a certain future day at a price fixed when the transaction is
entered into. But this kind of pure betting business grows every year all
the same, and is now of a magnitude an Act of Parliament could hardly do
much to lessen. Against the force of human passions no Stock Exchange can
hope to war with success, and I do not believe that any such body should
be asked to impose self-denying ordinances upon itself, the only effect
of which would be to drive the business away from it into channels more
fertile still in ruin.
But if there is no root and branch remedy, there must be some
palliatives. It ought to be possible to restrain and diminish the ravages
of the share manufacturer and professional market thief, at the same
time that the range of temptation was narrowed for the multitude. It
should be possible to do this, and with goodwill something might be done
even by the Stock Exchange. Take as example the habit now prevalent
of introducing new securities of all kinds on the market without the
preliminary of a prospectus. This habit has received a great stimulus
from the latest attempts at company law reform, in virtue of which the
liability of directors for statements in prospectus has been sensibly
increased. To escape that risk, new companies are now launched without
preliminary statements of any sort. Certain members of the Stock
Exchange, acting in concert with the schemers outside by whom they are
employed, begin to buy and sell shares in an undertaking whose very name
may be until that moment unknown everywhere, and about which neither
market nor public has any information whatever. By arrangements with the
financial press, whose charges for such services are most remunerative,
quotations representing these unreal sales and purchases are daily and
weekly paraded before the public, often accompanied by vague general
statements regarding the wonderful wealth this particular share
represents. Attracted in this way, the ignorant presently begin to itch
to take a hand in the game, and gradually, if times are favourable and
what the contemptuous broker calls the “fool public” is “on the feed,”
quite a lively market arises, whose end is the stripping of the outsiders
by those who laid the snare. The end of the fraud comes afterwards, when
the plotters have got safely away with their plunder. All that the public
may have left is worthless shares. Dozens, one may say scores, of African
and other swindles of this sort have been perpetrated during recent
times of excitement, and now and then the Stock Exchange itself has been
cheated. Surely it ought to require no great amount of self-denial on
the part of this body to stop peremptorily all impostures conceived and
carried out after this fashion. It need only refuse to grant a settlement
of bargains in any share thus foisted upon the public until the whole of
the facts relating to it are laid before its committee, and quotations
in the official list ought never to be granted to any company until the
whole facts regarding it have been properly laid before the public. In
other words, I think nothing but good could arise even to the market
were the Stock Exchange to enact a rule forbidding the introduction of
any security on its floor by the members until full information had been
published by those responsible for its inception, whether by prospectus
or by properly authenticated and signed declarations.
Another reform within the power of the Stock Exchange that might do
much good would be the prevention of dealings in shares that represent
goodwill, and therefore, as a rule, merely the plunder of promoters.
Often, as it is, vendors’ shares are not “good delivery” until after
a certain time has elapsed. If this irregular and capricious usage,
dependent really upon the action of those who found the company, were to
be made an invariable rule, and if such shares were kept out of the play
altogether until a reserve had been gathered against them to give them
substantial value, one fertile cause of loss would be reduced to small
proportions. The plunderings of the Cecil Rhodeses, Whitaker Wrights,
Hooleys, and the like would in this way be circumscribed, although by
no means stopped. Unhappily, as I hold, the mischief cannot be entirely
stopped until the spirit of the nation changes.
Once the habit of “bulling” and “bearing”—of buying more than one can
pay for or of selling what one does not possess—lays hold of a man, the
disease is too often incurable. When the victim suffers loss—gets caught
by the market, as he would put it—he doubtless suffers more or less acute
mental agony according to his character, the traditions of honourable
conduct he may possess, or the extent of his risk. Then his mood becomes
that of the old rhyme: “When the devil was sick, the devil a monk would
be.” Vows are registered never more to be caught in this snare; the mind
is prey to remorse, and virtue is honoured. But let the danger pass,
the threatened loss become a profit, and all is forgotten when next
temptation comes. The player resumes the game, and, on a “tip” from some
interested source, sells a “bear,” in the hope of robbing the unknown
counter player through a fall in the price that will enable him to buy
back at a profit and pocket the difference drawn out of such counter
player’s resources. Or he buys a “bull” to effect the same purpose when
a rise on the market shows a profit. Morally, I may say, there is not an
atom of difference in the character of these two operations, unless it
be found in the fact that the “bear,” the speculative seller, is on the
average a man of wider intelligence than the “bull.” To the public and
the market he is also by much the more valuable gambling animal of the
two, because in proportion as a speculative account is oversold is the
capacity of a market strengthened to resist shocks from bad news. The
publication of such bad news becomes the signal for those who have sold
what they do not possess to rush into the market and repurchase. This
operation often causes prices to advance on bad news, and always steadies
the market against disturbing influences, to the great benefit of the
real holder, who is thus enabled to sell at a smaller loss than would
otherwise be possible. Bad news on an over-bought account—on a market,
that is, where the great majority of the players are holding securities
for the rise on borrowed money—always brings disaster. From this point
of view, the “bear” is much more useful to the genuine investor than
his opponent; but morally there is nothing to choose, so far as the
individual operator is concerned, between the two methods of speculating.