While bankers and brokers, in order to do any business at all, were
required to register, their customers were not compelled to do so.
Consequently the latter could speculate through different brokers on
both sides of the market, pocketing their profits and welching on their
losses as gambling contracts. Numerous cases of this kind arose, and in
some the plea of wagering was entered by men who had previously borne a
good reputation. They had yielded to the temptation which the new law
held out to them.
Another consequence was to turn over to the large banks much of the
business previously done by independent houses. Persons who desired to
make speculative investments in home securities applied directly to the
banks, depositing with them satisfactory security for the purchases. As
the German banks were largely promoters of new enterprises, they could
sell the securities to their depositors and finance the enterprises
with the deposits. This was a profitable and safe business in good
times, but attended by dangers in periods of stringency, since the
claims of depositors were payable on demand. Here again the law worked
grotesquely, since customers whose names were not on the public
register could, if the speculation turned out badly, reclaim the
collateral or the cash that they had deposited as security.
MODIFICATION OF LAW IN 1908
The evil consequences of the law of 1896 brought about its partial
repeal in 1908. By a law then passed the government may, in its
discretion, authorize speculative transactions in industrial and mining
securities of companies capitalized at not less than $5,000,000; the
Stock Exchange Register was abolished; all persons whose names were in
the “Handels-register” (commercial directory), and all persons whose
business was that of dealing in securities, was declared legally bound
by contracts made by them on the Exchange. It provided that other
persons were not legally bound by such contracts, but if such persons
made deposits of cash or collateral security for speculative contracts,
they could not reclaim them on the plea that the contract was illegal.
In so far as the Reichstag in 1896 had aimed to prevent small
speculators from wasting their substance on the Exchange, it not only
failed, but, as we have seen, it added a darker hue to evils previously
existing.
Germany is now seeking to recover the legitimate business thrown away
twelve years ago. She still prohibits short selling of grain and flour,
although the effects of the prohibition have been quite different from
those which its supporters anticipated. As there are no open markets
for those products, and no continuous quotations, both buyers and
sellers are at a disadvantage; prices are more fluctuating than they
were before the passage of the law against short selling.
THANKS TO THE CHAMBER OF COMMERCE
Our cordial thanks are due to the Chamber of Commerce of the State of
New York for the free use of rooms in its building for our sessions,
and of its library, and other facilities.
Respectfully submitted, HORACE WHITE, Chairman,
CHARLES A. SCHIEREN,
DAVID LEVENTRITT,
CLARK WILLIAMS,
JOHN B. CLARK,
WILLARD V. KING,
SAMUEL H. ORDWAY,
EDWARD D. PAGE,
CHARLES SPRAGUE SMITH,
MAURICE L. MUHLEMAN, Secretary.
THE END
FOOTNOTES
[1] Principles of the Economic Philosophy of Society, Government and
Industry, by Van Buren Denslow, LL.D., New York, 1888, p. 99.
[2] _Ibid._, p. 107.
[3] _Ibid._, 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.
[4] Consult Report of the New York State Food Investigating Commission,
September, 1912.
[5] A detailed account of this incident was published in _Country
Life in America_, July 1, 1912, from the pen of Graham F. Blandy, the
producer.
[6] Bourses 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.
[7] Charles 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.
[9] If 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.
[11] Article 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.
[13] Charles A. Conant, “The Uses of Speculation,” _Forum_ (August,
1901).
[14] Suppose 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.
[15] The 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.
[16] The 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.
[19] Consult “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.
[22] In 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.
[24] The 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.
[30] Several 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.
[32] _Journal of Political Economy_, October, 1909, pp. 531–2.
[33] Consult 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.)
[36] Some 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.
[38] Charles 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.
[39] Report of the Commissioner, Washington, 1908.
[40] Despite 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.
[42] _Ibid._, p. 564.
[43] The 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 ⅛ 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.”
[44] Cf. Mr. White’s article _supra_, p. 570.
[45] Report of the Comptroller of the Currency, October, 30, 1912.
[46] The _Wall Street Journal_, August 31, 1912.
[47] December 7, 1912. Consult also p. 235.
[48] “The Hughes Investigation,” by Horace White, _Journal of Political
Economy_, October, 1909, pp. 537–8.
[49] In 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.
[51] The report of the Hughes Investigating Committee is published in
full in the appendix to this volume.
[52] One 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.
[53] _L’Economiste Français_, Paris, October 5th.
[54] When 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.
[55] Address 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.
[57] It 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.
[58] The _Wall Street Journal_, December 7, 1912.
[59] The 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.
[63] The 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.
[65] _Cf._ Burton, _supra_, pp. 49–50–51.
[66] _Ibid._, pp. 227–8–9.
[67] The 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.
[68] _Real Estate Record and Guide_, 1906–7.
[69] Consult _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.
[72] Remarks of Joseph French Johnson, dean of the New York University
School of Commerce, at the American Institute of Banking, October 25,
1907.
[73] Consult 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.
[76] Senator Burton “Crises and Depressions,” pp. 51, 52, enumerates
the important indicia of crisis-producing conditions as follows:
(_a_) An increase in prices of commodities and later of real estate.
(_b_) Increased activity of established enterprises and the
formation of many new ones, especially those which provide for
increased production and improved methods, all requiring the change
of circulating to fixed capital.
(_c_) An active demand for loans at higher rates of interest.
(_d_) The general employment of labor at increasing or
well-sustained wages.
(_e_) Increasing extravagance in private and public expenditure.
(_f_) The development of a mania for speculation, attended by
dishonest methods in business and the gullibility of investors.
(_g_) A great expansion of discounts and loans and a resulting
rise in the rate of interest; also a material increase in wages,
attended by frequent strikes and by difficulty in obtaining a
sufficient number of laborers to meet the demand.
Not one of these indications of trouble was lacking in the period
preceding the panic of 1907.
[77] The 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.)
[80] See appendix.
[81] See p. 140.
[82] For 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.
[85] _Ibid._
[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.
[92] In 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.
[93] The London Stock Exchange is also an unincorporated body. See pp.
231 _et seq._ for the report of the royal commission bearing on this
matter.
[94] The 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.”
[95] A 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.
[96] The 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.
[97] Consult “The World’s Wealth in Negotiable Securities,” by Charles
A. Conant, _Atlantic Monthly_, (July, 1908).
[98] Hopkinson 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.’”
[100] July, 1912, p. 94.
[101] “Worry, the Disease of the Age,” by C. W. Saleeby, M. D., F. A.
Stokes Co. (New York, 1907).
[102] The 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.
[103] The 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_.
[105] The _Quarterly Review_, July, 1912.
[106] There are 20,000 shares (£13 paid) and £416,700 debentures
outstanding.
[107] It should be said, in fairness to the London jobber, that the
incident here mentioned by Mr. Hirst is a rare exception.
[108] _L’Economiste Français_, Paris, October 5, 1912.
[109] Rule 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.
[110] These figures are taken from Mr. Hirst’s Chapter VIII on “The
Creation of New Debt and Capital,” pp. 212–241.
[111] It 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.
[112] London 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.
[113] The _Wall Street Journal_, November 13, 1912.
[114] On 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.
[115] In 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.
[116] Although 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.
[117] The 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.
[118] In 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.
[119] Anatole 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.)
[120] John 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.
[123] Provincial 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.
[125] The 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.
[126] Vidal, p. 217, _supra_.
[127] Ibid, p. 276.
[128] _Ibid_, pp. 192–3.
[129] Remarks of M. Alfred Neymarck, at the International Congress of
Securities, 1900, quoted by Vidal, pp. 166–7.
INDEX
_Asterisks indicate foot-notes_
Account Day, in London, 372.
Advertising, Abuse of, 434.
Advertising, by members prohibited, 56.
Agents de Change, 51.
Agents de Change (see Paris Bourse).
Agora, of Greece, 262.
Aldrich, plan, 101.
Allard A., Crises in France, 219*.
_American Acad. of Polit. and Social Science_, 16*, 26*, 32*,
80*, 102*, 191*.
American Bankers’ Association, 207.
American, finance of future, 377.
American Institute of Banking, 208*.
Arbitrage brokers, duties of, 283.
Ashley, W. T., on Economic History, 224.
Assignats, 390.
_Atlantic Monthly_, 288*.
Bagehot, Walter, on Credulity of Speculators, 92.
Bagehot, Walter, on Banking, 99.
Bagehot, Walter, on Panics, 215–218;
_Lombard Street_, 378*.
Balkan Crisis of 1912, 76, 340, 368, 369.
_Banking and Currency Problem in U. S._, by Victor Morawetz, 209*.
Banking facilities in London, 362.
Bank loans, N. Y. (1904–1907), 190;
in the U. S. (1904–1907), 192;
in London, 362.
Bank of England, 324, 328, 357.
Bank of England, Origin of, 18*.
Bank of France and currency, 209;
and Bourse, 396;
and Germany, 209.
Banks, certifications of checks, 113;
borrowings by London brokers, 353.
Bank, deposits in N. Y., 125.
Bankers as peacemakers, 371.
Bank stock, earliest form of, 324.*
Baring, A., on Financial Crises, 219*.
Baring failure, 156, 376.
Barnard, Sir John, Act to prevent stock-jobbing, 226.
Barometer, The Stock Exchange as a, 23, 190, 308, 309.
Bearer certificates, 365, 374.
Bears, Value of, 76;
in Germany, 77. (See short selling).
Benefactions and charities of members, 317.
Bewes, W. A., _Stock Exchange Law and Practice_, 379*.
Bisschop, W. R., _Rise of the London Money Market_, 379*.
Black Friday, 251.
Blackmar, Frank W. on Legislation against Speculation, 255.
Bond brokers on ’Change, 282.
Borrowing and lending stocks in N. Y.. and London, 353–4.
Bourse, Origin of, 12*.
Bourse, Paris. (See Paris).
Bradstreet’s, 202*.
Branch offices, 426.
Brokers in London, relation to jobbers, 335, 339;
methods, 372 et seq. (See London Stock Exchange).
Browning, R., on Currency, 219*.
Bryce, James, on Good Citizenship, 133.
Bucket-shops, 55, 143, 252, 435.
Bucket-shops, War against, 149.
Burr, Aaron, 31.
Burton, Theodore E., on Financial Crises, 183*;
on Forecasting, 191, 197, 198.
Burton, Theodore E., on Crisis-producing conditions, 216*.
Burton, Theodore E., on Currency, 208.
Business Conduct Committee, 255
Business on ’Change, how conducted, 288, _et seq._
Cable service, Excellence of, 284*.
Cammack, Addison, on publicity, 161.
Capital of brokerage houses, 152.
Capital, reasons for scarcity of, 122;
exports of in London, 366.
Carry-over, contango, 375–6*.
Central Bank in America, 101.
Certificates, registered and bearer, 365, 374.
Certifications of stockbroker’s checks, 113.
Chamber of Commerce, N. Y., 206.
Chambre Syndicale, of Paris Bourse, 393.
Change Alley, 327.
Charities and benefactions of members, 317.
Chicago Board of Trade Case in U. S. Circuit Court, 65;
in U. S. Supreme Court, 66*.
China, Speculative possibilities in, 62.
Clearance Orders, 279.
Clearing House, N. Y. Banks, 109.
Clearing House, N. Y. Stock Exchange, 119, 426;
London, 365, 373.
Clearings, volume of, in N. Y. and London, 344.
Coffee Exchange, 442.
Colbert, and the French manufacturers, 254.
Collectors, on ’Change, 315.
Collegium mercatorum at Rome, 16*.
Commercial honor on ’Change, 264.
Commission dealers in markets for produce, 8.
Commissions, rate of, N. Y., 278, 281;
in London, 342;
in Paris, 395.
Committee of Arrangements, 277.
Committee on Stock List, requirements of, 363.
Companies Act, in England, 147*.
“Comparisons” by stockbrokers, 120.
Competition, essential to freedom of trade, 5.
Comptroller of Currency, Report of, 126*.
Conant, Charles A., on Establishment of prices, 28.
Conant, Charles A., on Short-sales, 89*, 93*;
on manipulation, 175*.
Conant, Charles A., on Stock Exchange Quotations, 29*.
Conant, Charles A., on Value of American Securities, 14*.
Consolidated Stock Exchange, 428.
Consols, as affected by war, 368;
dealings in, 374.
_Construction News_ (Chicago), 202*.
Contango, 375–6*.
Control of members by governors, 265.
Conveniences for members, 304.
Cordage Trust, 30, 311.
Corner in Northern Pacific stock, 290.
Corners, 30;
opinions of Hughes Commission, 423.
_Corn Laws, History of the_, J. Shield Nicholson, 255.
Cost of Living, 8.
Cotton Exchange, 441.
Coulisse, in Paris, 397, _et seq._;
membership, 398;
origin, 401;
progress, 402;
history, 404;
volume of business, 405.
Coulissiers, 51.
Courtois, A., on manipulation, 175*;
_Opérations de Bourse_, 393*.
_Credit Cycles and Origin of Panics_, John Mill, 204*.
Crises and depressions, 183*.
Criticism of the Stock Exchange, 29.
Crocker, W. H., on depressions, 219*.
Curb market, 141, 431–2–3.
Currency and the panic of 1907, 206, 210.
Currency, famines in America, 123;
inadequate laws, 352, 357;
contrasts with London, 353.
Currency, panic of 1893, 199*.
Daily settlements in N. Y., 349.
Daly, Justice, opinion, 236*.
Denis, H., depressions, 219*.
Denslow, Van Buren, on Prices and Values, 6*.
Depositors in banks, number of, 126.
Depressions, in relation to panics, 183*.
Deutsche Bank, opinion on Bourse Law, 78, 243.
_Deutsche Kapitalmarkt_, by Rudolph Eberstadt, 32*.
_Dictionnaire d’Economie Politique_, by Paul Leroy-Beaulieu, 44*.
Discipline, as maintained on ’Change, 266–7, 277.
Disconto-Gesellschaft, opinion on Bourse Law, 244.
Discounting the future, 23.
Disputes and differences, adjustment of, 294.
Diversions of members, 313.
Doremus, Robert L., on transactions, 173*.
Dresdner Bank, opinion on Bourse Law, 78, 244.
Duguid, Chas., _Story of the Stock Exchange_, 32*.
Eadie, J, on panics, 219*.
Eames, Francis L., on The N. Y. Stock Exchange, 32*.
East India Company, 325.
Eberstadt, Rudolph, _Der Deutsche Kapitalmarkt_, 32*.
_Economics_, by Francis W. Blackmar, 255.
_Economiste Français_, 163*, 349*.
Economist, London, 16, 18*, 19, 197. (See Hirst, Francis W.).
Egyptian Speculation, 62.
Emery, Henry Crosby, on Advantages of broad speculative markets, 61.
Emery, Henry Crosby, on German Bourse Law, 239, _et seq._;
on control of speculation, 256–7–8.
Emery, Henry Crosby, on Speculation on the Stock Exchange and Produce
Exchanges of the U. S., 49*.
Employes on ’Change, 289, 318.
_Engineering News_, 202*.
England, capital exports, 28.
England, Laws of, affecting company organizations, 147.
England, Laws, of affecting short sales, 95.
English capital in America, 20.
_English Corn Laws_, History of, by J. Shield Nicholson 255.
_English Economic History, Introduction to_, by W. T. Ashley, 224.
Exchange, Origin of, 12*.
Exchange Register, in Germany, 241.
Exchanges, in London in early days, 323.
Exchequer, English, 324*.
Exports of capital by London, 366.
Failures, of stockbrokers, 112, 152, 156;
in London, 331;
in Paris, 350, 395;
opinion of Hughes Commission, 423.
Fairs, in primitive countries, 5.
Farmers’ Alliance, 7.
Farmers, Speculation by, 83.
Fayant, Frank, _Some Thoughts on Speculation_, 32*, 68*, 239, 252*.
Fictitious transactions, 425.
_Financial Crises_, etc., by Theo. E. Burton, 183*, 191*.
Financial press in London, 348.
_Fortnightly Review_, on panics, 199*.
Forum, at Rome, 262.
France, Volumes of Securities in, 406.
French Government, attitude toward stockbrokers’ monopoly, 401.
Future delivery, transactions for, in France, 402, 410;
in America, 438.
Gambling as distinguished from speculating, 53–54, 417, 419, 421.
Gambling in bucket-shops, 144.
Georges-Levy, on short sales, 93.
_German Bourse Law, The_, by Geo. Plochmann, 245*.
German Bourse Law of 1896, 77, 236 _et seq._, 254;
opinion of Hughes Commission, 444.
German credit in 1912, 372.
_German Exchange Act of 1896_, by Dr. Ernst Loeb, 238*.
German Government bonds, decline in, 368.
Germany, Regulation of the Stock Exchange in, 61*.
Gold Room, 251, 307.
Goldsmiths’ Notes, in England, 324.
Gold Speculation Act of 1864, 249.
Gossip and news on ’Change, 295.
Gould, Jay, 30.
Government bonds, as affected by war, 368.
Governors of the Stock Exchange on Freedom of Margin transactions, 59*;
on Margin transactions, 52*;
on Short sales, 90;
on Usury law, 105*;
on Incorporation, 235.
Governors of the Stock Exchange, their power over members, 139, 154;
method of choosing, 266.
Grain Exchanges, 10.
Grosscup, Judge, on Value of Stock Exchange, 65.
Guarantee of stockbrokers, 154;
in Paris, 395.
Guild of Goldsmiths, 324.
Guillard, Edmond, on Origin of Stock Exchanges, 16*.
Hadley, Arthur T., _Economics_, 250.
_Harvard Law Review_, 32*.
Hatch Anti-Option Bill, 55, 252.
Hazing of new members, 276.
Hedging in cotton futures, 81, 94, 416, 439.
Hirst, Francis W., on Early Exchange in London, 327*;
on Stock Exchange rules, 330;
on functions of jobbers, 336;
on creation of new debt, 365*;
on Chinese Speculation, 63;
Early English Speculation, 18*;
_The Stock Exchange_, 32*, 45*, 63*.
History of N. Y. Stock Exchange, 306.
_History of the People of the U. S._, by McMaster, 30.
Hobbies of members, 312.
Hocking Coal & Iron Company, 30, 311.
Holding Companies, 429.
Holidays on ’Change, 301.
Holmes, Justice, of the U. S. Supreme Court, on speculation, 66.
Honor and character on ’Change, 264.
Huebner, S. S. on Stock Exchange safeguards, 25;
on Usefulness of bears, 78;
on discounting future, 190.
Hughes Commission on German Bourse Law, 245;
on Margins, 52;
on Short selling, 80;
on Curb market 142. (See also Appendix.)
_Hughes Investigation, The_, by Horace White, 64*.
Hyndman, H. M., Commercial Crises, 219.
Incorporation of Stock Exchange (London), 231–5.
Incorporation of Stock Exchange, N. Y., 139, 235, 265;
opinion of Hughes Commission, 427.
Ingall, C. D., _The Stock Exchange_ (London), 32*.
Insurance, as effected by hedging, 81.
Interest, rates of, in 1909–10, 116.
Investors in France, caution of, 408.
Inventor, dependent upon capital, 13.
Investment, its relation to speculation, 44.
Investor, Origin of word, 16.
Jevons, W. S., on prices, 7*.
Jevons, W. S., on sun-spots, 217.
Jobbers, in London, 277, 335;
relation to brokers, 336, 340;
methods, 372 _et seq._
Johnson, Joseph F., on panic of 1907, 208*.
Jonathan’s Coffee House, 327.
_Journal of Accountancy_, regulation of speculation, 258*.
_Journal of Commerce and Commercial Bulletin_, on Volume of Securities
in America, 15, 339.
_Journal of Political Economy_ 53*, 64*, 82*, 143*, 147*, 159*, 196*.
Juglar, Clément, _Des Crises Commerciales_, 185*, 219*.
Kaffir Circus in London, 62, 365, 370, 376.
Keene, James R., 30.
Labor, Dependence on the Stock Exchange, 43.
Labor, Percentage of, in America, 42.
_Laissez faire_, theory of, 253.
Landells, Walter, on London Stock Exchange, 376–7*.
Law in England affecting companies, 147, 434.
Law in England, affecting short sales, 95;
affecting speculation, 225.
Law in N. Y. regulating speculation, 247;
repealed 248.
Law, John, 390*.
Laws affecting short sales in U. S., 95, 246;
repealed, 247;
decision of court, 416, 420.
Laws of France, short sales, 404, 410.
Laws of various states, affecting speculation, 251.
Law, Usury, in N. Y., 105*.
Leeman Act of 1867, 227.
Legislation recommended by Hughes Commission, 435.
Lending and borrowing stocks, N. Y. and London, 354–5.
Leroy-Beaulieu, Anatole, on Paris Bourse, 383 _et seq._, 387*.
Leroy-Beaulieu, Paul, _Nouveau Dictionnaire d’Economie Politique_, 44*;
on Publicity, 163, 349;
on Speculation, 44.
Lexis, Dr. W., on Necessity for Stock Exchanges, 21.
Liability of stockbrokers in Paris, 395.
Listing of new securities, 168;
N. Y. and London 363;
vendor’s shares, 364;
opinion of Hughes Commission, 424.
_Lloyds_, 38.
Lloyd, W. W., on Panics, 219*.
“Loan Crowd,” 290.
Loans by banks to stockbrokers, 110, 190.
_Lombard Street_, by Walter Bagehot, 92*, 379*.
London Exchanges in XVI Century, 323.
_London Money Market, Rise of the_, by W. R. Bisschop, 379*.
London Stock Exchange, history of, 326, _et seq._;
management of, 329;
rules, 330, 364*;
membership, 332, 335;
stockbrokers, 332;
admission, 332–3;
entrance fees, etc., 333;
capital stock, 333*;
precautions against monopoly, 333;
jobbers, 336–7–8;
commissions, 342;
settlement days, 344;
publicity, 347;
borrowings from banks, 353;
transfers, 355;
volume of business, 356–7;
official list, 358 _et seq._;
securities as affected by war, 368;
the day’s work, 372.
London Stock Exchange, unincorporated, 267*.
London, The world’s banker, 366.
Luncheon Club, The, 305.
Manhattan Banking Company, 31.
Manipulation, efforts of governors to suppress, 169, 174.
Manipulation, opinions of Courtois and Conant,175*.
Manipulation, opinion of Emery, 257;
comment of Hughes Commission, 421.
Manipulation prohibited, 254
Manipulation, value of, 170.
Margin, speculation on, 50, 51, 52.
Margins, insufficient margins prohibited, 255 and 256
Margins required by stockbrokers, 147.
Margin Trading a feature of all business, 58.
Margin Trading a matter of contract, 53.
Margin Trading defined by Hughes Commission, 419.
Market in N. Y. compared with London, 340.
Market in Paris as affected by stockbrokers’ monopoly, 397 _et seq._
Markets, defined by Hughes Commission, 415.
Markets for produce, 6.
Marshall, Alfred, on legislation, 255.
Matched orders, 422.
McCulloch, J. R., _Principles of Economics_, 46*.
McMaster on Public Sentiment in Early Days, 30.
McVey, Frank L., on Stock Exchange Usefulness, 41*.
_Mechanism of the City, The_, by Ellis T. Powell, 379*.
Memberships, how obtained, 271;
prices of, 273;
value of, 274.
Members of Stock Exchange, interesting personalities, 312 _et seq._
Memorial of Paris stockbrokers, 88*.
Metal Exchange, 443.
Meyer, Eugene, Jr., on Panic of 1907, 196*, 203*.
Middlemen in markets for produce, 8.
Mills, John, on panics, 204.
Mining shares in London, 365.
Mississippi Bubble, 390.
Mistakes in executing orders, 278, 293–4.
_Modern Industrialism_, by Frank L. McVey, 41*.
Mollien, on short sales in Paris, 89*.
_Monetary Systems of the World_, by Maurice M. Muhleman, 208*.
_Money and Banking_, by Horace White, 251*.
Money, high rates for, 106*, 116, 290, 353.
Money, rates for, as affecting speculation, 118, 430;
as affected by deferred deliveries, 352.
Monopoly, on London Stock Exchange, precaution against, 333;
of Paris Bourse, 388 _et seq._, 399.
Morawetz, Victor, on currency, 209*.
Mortimer, J., _Every man his own broker_, 327*.
Muhleman, Maurice, M., 208*.
Mulhall, Michael G., on Prices, 219*.
Musicians on ’Change, 316.
Napoleon, on short selling, 87, 89*.
National Banks contrasted with State Banks, 103.
National Banks of U. S., loans (1904–1907), 192.
National Monetary Commission, 426.
New Joanthan’s, 327.
News and gossip on ’Change, 295.
Newspapers, attitude toward Stock Exchange, 132.
“New Tennessee,” 276.
New York State Food Investigation Committee’s report, 9*.
Neymarck, Alfred, on volume of French securities, 406, 410.
Nicholson, J. Shield, on Corn Laws. 255.
_North American Review_, 209*, 245*.
Norton, Eliot, on Purchase and sales of securities, 32*.
Norton, Eliot, on short selling, 86*.
Notes, of stockbrokers, 111.
Odd-lot brokers, duties of 281;
extent of business, 282.
Open Board of Brokers, 307.
Opinions of floor-brokers as to market, 297.
Overend, Gurney & Co., failure of, 376.
Panama mania in France, 62, 370, 408.
Panic of 1907, conditions antecedent to, 24.
Panic of 1873, in Austria, 197;
in America, 199*, 308.
Panic of 1825, in England, 197;
of 1847, in England, 376.
Panic of 1912, in Paris, 199, 200, 369.
Panic of 1837, in U. S., 199*, 308.
Panic of 1857, in U. S., 198–9, 308.
Panic of 1893, in U. S., 197–8–9*.
Panic of 1907, its origin, 189;
effect, 201.
Panics, crises and depressions, 183*.
Panics of the future, 184;
opinion of Mills, 204, 377.
Paris Bourse, Balkan Crisis, 369;
after war with Germany, 383–87;
Agents de Change, 388 _et seq._;
history, 388–9;
the form of monopoly, 389;
origin of monopoly, 389–390;
regulations, 391;
“right of introduction,” 392;
exclusive privileges, 393;
settlements 394;
prohibitions, 394;
liabilities, 395;
rates of commission, 395;
methods and transactions, 396 (see coulisse);
objections to monopoly, 398 _et seq._;
differences with the coulisse, 404;
volume of business, 405;
caution of public, 408.
_Paris Bourse, History and Methods of_, by E. Vidal, 392*.
Parquet, in Paris, 397 _et seq._
Partners of members, and partnership agreements, 270–1.
_Pears Prize Essays_, 219*.
Personalities on ’Change, 312 _et seq._
Plochmann, George, on German Bourse Law, 245*.
Powell, Ellis T., _The Mechanism of the City_, 379*.
Pragmatism, in economic phenomena, 127.
Prices, Relation to value, 4.
_Principles of Economics_, by Alfred Marshall, 255.
_Principles of Economics_, by Edwin R. A. Seligman, 42*, 254.
_Principles of Economics_, by J. R. McCulloch, 46*.
_Principles of Money and Banking_, by Chas. A. Conant, 93*.
Produce Exchange, 440.
Promoters, swindles of, 141.
Publicity in N. Y. contrasted with London, 347.
Pujo Committee, 176.
Punishment of members, 267.
Pyramiding, opinion of Hughes Commission, 420.
_Quarterly Review_, London, 300, 332, 377*.
Quotations, the property of the Exchange, 436.
Railroads in U. S., in 1906–7, 212.
Real Estate, Market for, 22.
_Real Estate Record and Guide_, 202*.
Real Estate Speculation, in N. Y., 202;
in other cities, 203.
Receiverships, 430.
Reforms, attitude of members toward, 311;
in listing new securities, 364.
_Regulation of Stock Exchange in Germany_, Henry Crosby Emery, 241*.
Rentes, as affected by war, 368;
settlement days, 394;
market for, 398, 404.
Resolutions adopted by the Exchange;
against manipulation, 254
against light margins, 255
on business conduct, 255
Rhodes, Cecil, 377.
_Rise of the London Money Market_, by W. R. Bisschop, 379*.
Roosevelt, Theodore, and the panic of 1907, 210–212.
Royal Commission of 1877, 238–9, 231–2.
Rubber boom, in London, 62, 369.
Russian government bonds, as affected by war, 368.
Russian industrial securities in France, 62.
Salaries of employees, 318.
“Scalping,” 355.
Scapegoat, making the Stock Exchange a, 137.
Schonberg, “Handbuch” on Speculation, 21*.
Scott, S. R., on incorporation of London Stock Exchange, 233.
Securities, Origin of, 11.
Securities, Owners of in America, 14–15.
Securities, Volume of in America, 14–15.
Securities, Volume of in London, 360;
in Paris, 406, _et seq._;
in N. Y., 359–60.
Seligman, Edwin R. A., on Legislation, 254.
Seligman, Edwin R. A., on Principles of Economics, 42*.
Settlement days, London Stock Exchange, 344, 349;
N. Y. Stock Exchange, 345;
comparisons, 351.
Settling Room, in London, 372.
Shanghai Stock Exchange, 62.
Sherman Law, 199*.
Short selling, opinion of Prof. Huebner, 78;
legalized in Paris, 402*;
opinion of Court, 416;
opinion of Hughes Commission, 420.
Silver purchasing clause, repeal of, 199*.
Smith, Adam, on Speculation, 37.
Smith, Adam, _The Wealth of Nations_, 37.
Smith, C. W., on depressions 219*.
Smith Herbert Knox, on hedging cotton, 94.
Smith, Hopkinson, on methods of brokers, 292.
Smollett, on South Sea Bubble, 325–6.
South Sea Bubble, 226, 325.
Spanish government bonds, as affected by war, 368.
Specialists, duties of, 278;
vindications of, 279;
opinion of Hughes Commission, 426.
Speculation, a feature of all enterprise, 38.
Speculation, in America contrasted with that abroad, 62.
Speculation, in American development, 307;
contrasted with England, 366;
in France, 408–9.
Speculation, in China, 62.
Speculation, in Egypt, 62.
Speculation, in France, 62.
Speculation, in Gold, (1864, 1866), 250.
Speculation, in London, 62.
Speculation, in relation to investment, 44.
Speculation, J. S. Mill, 47.
Speculation not gambling, 53, 54, 416, 417, 419, 421.
_Speculation on the Stock & Produce Exchanges of the U. S._, by Henry
Crosby Emery, 49*.
Speculation, opinion by Judge Grosscup, 65.
Speculation, opinion by U. S. Supreme Court, 66.
Speculation, origin of the word, 36.
_Speculation, Some Thoughts on_, by Frank Fayant, 32*, 68*, 239, 252*.
Speculation, as distinguished from trading, 74.
Sponsors of candidates for memberships, 272.
Sportsmen on ’Change, 317.
Stamp Tax, N. Y., 75;
in London, 355.
Stanhope, Edward, on incorporation of London Stock Exchange, 232.
State Banks contrasted with National Banks, 103.
_Statist, The_ (London) on Hughes Investigation, 256.
Stockbrokers in London (See London Stock Exchange);
in Paris, (Paris Bourse).
Stock certificates, registered and bearer, 365.
Stock companies in France, 410–11.
_Stock Exchange and The Money Market_, by Horace White, 102.
Stock Exchange, Distinction between Wall Street and, 64.
_Stock Exchange Law and Practice_, by W. A. Bewes, 379*.
_Stock Exchange_ (London), by C. D. Ingall & G. Withers, 32*.
Stock Exchange, N. Y., Rules governing brokers, 138;
the day’s work 288 _et seq._
Stock Exchange, N. Y., the building, 304–5;
history, 307;
mechanism, 418.
_Stock Exchange, Story of the_, by Chas. Duguid, 32*.
_Stock Exchange, The_, by Francis W. Hirst, 32*, 45*.
_Stock Exchange, The_ (London) Francis W. Hirst, 327*, 330*, 338, 367*.
_Stock Exchange, The N. Y._, by Francis L. Eames, 32*.
Stockholders, Rights of, 162, 164, 173*.
_Stocks and Shares_, by Hartley Withers, 379*.
“Switching,” 74.
Telephone clerks, on ’Change, their duties, 289.
Temperature of air on ’Change, how regulated, 305.
_Ten years regulation of the Stock Exchange in Germany_, by Henry
Crosby Emery, 61*.
Ticker, value of, 162*;
in London, 341–2;
in N. Y., 347, 437.
Ticket Day in London, 373.
Timidity of capital, 17.
Tontine Coffee House, 307.
Tooke, Thos., on Prices, 7*.
Traders, as distinguished from speculators, 74;
operations of, 285.
Trading posts, on ’Change, 289.
Transactions in securities, panic of 1907, 216.
Transactions on ’Change, how conducted, 288, _et seq._
Transfer of certificates, in London, 355, 365, 374.
Transfer Tax, in N. Y., 75, in London, 355.
Trust Laws, attitude of brokers toward, 311.
Unlisted Department of Stock Exchange, 166.
Usury Law, in N. Y., 105, 431.
Values, Relation to prices, 4.
Van Vorst, Justice, opinion, 236*.
Vendors’ shares, in London, 364.
Vidal, E., _History and methods of Paris Bourse_, 392;
monopoly of Bourse, 399, 401*, 403, 404.
Vidal, E., on Origin of Bourse and Exchanges, 12*.
Villeplaine, Boscary de, on short selling, 88.
Visitors’ Gallery, 286.
_Wall Street and the Country_, by Chas. A. Conant, 29*, 175*.
Wall Street, distinction between the Stock Exchange and, 64.
_Wall Street Journal_, 83*, 136, 139, 145, 165*, 173*, 178*, 372*.
Wall Street not the Stock Exchange, 428.
War, between England and a first-rate power, 367, _et seq._
War, cost of, 367.
War, Franco-German, 383, _et seq._
“Wash Sales,” 168, 422.
“Welchers,” 227, 249; in Paris, 402.
_Wealth of Nations, The_, 37.
White, Horace, on banking laws, 102, 104;
on company promoters, 142, 147*;
on gold speculation, 251;
on margin transactions, 53*;
on money rates, 115;
on short selling, 80;
on Stock market quotations, 15;
on the distinction between Wall Street and the Stock Exchange, 64;
on the Hughes Commission, 159;
on the panic of 1907, 196;
on the panics of 1837, 1857 & 1873, 199*.
Withers, G., _The Stock Exchange_ (London), 32*.
Withers, Hartley, _Stocks and Shares_, 379*.
Witwatersrand, discovery of gold in, 365.
Wood, Henry, _Political Economy_, 219*.
Woolley, C., _Phases of Panics_, 219*.
_World’s Wealth in Securities_, by Chas. A. Conant, 288*.
_World’s Work, The_, 294*.
Worry on Change, 302 _et seq._
_Worry the Disease of the Age_, by Dr. C. W. Saleeby 304*.
_Yale Review_, 61*.
_Yale Review_, on German Stock Exchange Law, 241*.
_Yale Review_, on panic of 1907, 196*.
“Yankee market,” in London, 300.
[Illustration]
THE COUNTRY LIFE PRESS
GARDEN CITY, N. Y.
Transcriber’s Notes
Punctuation, hyphenation, and spelling were made consistent when a
predominant preference was found in the original book; otherwise they
were not changed.
Questionable accent marks in non-English words were neither added nor
removed by Transcriber.
Simple typographical errors were corrected; unbalanced quotation
marks were remedied when the change was obvious, and otherwise left
unbalanced.
Duplicate chapter title pages were removed by Transcriber.
The index was not systematically checked for proper alphabetization or
correct page references. The original book contained a supplement of
omissions to the Index; in this eBook, those omissions have been merged
into the Index.
Footnotes, originally at the bottoms of pages, have been collected,
sequentially renumbered, and moved to follow the Appendix.
The two illustrations are the publisher’s and printer’s logos.
Footnote 30, originally on page 68, was not referenced in the text.
Transcriber added a reference at the end of the text on that page.
Page 255: “Section 5 of Article XVI” was printed imperfectly, so the
“5” may be a “3”.
Page 408: Transcriber added “to” in “from time to time”.
Page 452: The Index reference to a footnote on page 258 is not
correct.