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SPECULATION
AND THE
Reform of the New York
Stock Exchange
SPECULATIO
AND THE
Reform of he New Yor
Stock Exchange
BY
JAMES TRUSLO
ADAMS,
SUMMIT,
1913
.
J.
M. A.
Copyr i ht 1913
J. T. ADAMS
..
SPECULATION AND THE REFORM OF
THE NEW YORK STOCK EXCHANGE
Tl1e1·e ha probably been at no former
periocl in l1istorv tl1e ,, icle-spreacl interest
in econon1ic problems " rhich has so strongly
111anife:tecl itself in the first clecade of he
t,ventietl1 centu1·:y. In ~1)ite of the di hea1·tening a111ot1nt of n1i ► infor111ation cli ~e111inated, tl1e activiti s of elf-seelring politician ►, the sen ► atio11al exaggeration of y 110,v jo11rnalisn1, ancl tl1e
cli► ·tortions
of
"1nucl{-raking" magazines, the people have
tocla_y a clea1·er l{no,vledge of b11sine s proble111s than they· have ever hacl before. Under
constant attack, capital has remained co111parativelJr sile11t. The 01·gan of public
opinion have been left almo t "'holly to the
attacking party. I believe thi to be an l1nfo1·t11nate er·ror of j11clgment. It is claimed
that the· people are inter ted wholly in th
sensational, that the ca e is prejl1dged, and
that a sane and sober presentation of the
other sifle is l1seless. I lo not believe thi~ to
he so. At times of criNis, Sl1ch as the gold
campaign of 1896, "~e t1·l1 tin the great silent
vote of 011r tl1ink:ing C\tize11s, and have
never as yet been clisappointed. Against the
extravagances of jol11·nalis1n must be placed
the ~ignificant fact that most public libra1·ies 11~-rve f 01111cl it necessar·y to set asicle a
special p11blic rea(ling roon1 for economics
sociolog·y.
The agitation of the past ten years ha ,
I tl1oro11ghly believe, an ethical base. It
is not an agitation of the poor against the
rich, ln1t of the sober citizens, con er·vati,e
as ,vell as raclical, against the evils of our
econon1ic ~yste111. It is nat11ral, therefore,
a11(l
3
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,,Thicl1 thica l q11 ~tio11 ~ a1· b, r 111anJ . 11ppo. d to bP the 1 a ding 011e~, sbou l(l ·011stit11te a c nte1· of at tack . "'\ all ~ trePt~
n111on°·o tl1e l1Ilt1i <·1·in1i11 · tjno·
n, tl1e toek Exchan °·e a111011g tl1( ( ]ear< 1· ,vittec1, i. co11 ► idere(l tl1 ~ c1·0,, 11i11g l)oin t of the sy.~te111 of ~xploit ation . E,c,, ,, 01111 ,, isl1 pe1·l1a1)~ ,yith
t.:~\Yift "th,1 t a 1<1,, ,,. 1· 11a ·t d to l1a11 o· lll)
l1a1f a cloze11 l,a11l~ ~1 ev 1•j v ar ancl tl1ereb,y
i11tei-1)0._e at lea. t 011u' 1:hor t cle1a, to tl1
f111·ther 1·11i11 f lr Ja11cl , , ln1t 111an y a1no11g
ol1r • obe1· ~t a11cl 1110. t . 11b. ta11t ial citiz n .
a o·i-ee onlJ " ri tl1 the ~ ·< 11(1 half of Prof e.. 01·
Ta11 . ► ·ig' ► <.ie. c1·ip ·io11 of t]1e e,v York: to k:
Exch ange a. 'at 011ce tl1e 0 ·1· at t in ►- ti tution i11 tl1 ,Yo1·lcl fo1· facilitati11°· i11v ► ·111 }11t
ancl tl1 °1· ate► ·t of o·an1 hling h lls. ( 1)
Fo111 )..e·11\ ago p11 hli · feeling· on th q uc~tio11 1·a11 Io l1i 0 ·l1 as t< <",ll1 ► e t]1e appoint111 11t
l)~Y Gove r·nor R nghe ► of a " on1n1itte ~ on
t.:~IJ ·l1la tion in ec11ri i anti Co111111o(li tie~',,~hicl1 111ad a 1·e1)oi-t 011 the Exch an °·e J 1111
7, 1909 . The l1ig·l1 standinO' of the 1ne111b }rs
of tl1e eo111111ittee 0 ·ave tl1is r port g·reat
,Yeight. It "a~ on the ,, hole f1·iendlJ i11
tone 111al~ing ·e1·ta,i11 r co1n111en(]a tion~ ,
l10,,reve1·, Jool~i11~ to,Ya r cl r for111. The a O'ita io11 flie1 do,Y11 ~0111(,,l1at a11cl th r:} ,,. aR
a o·e11e1·a] feeli n°· that t he Ex ·han ge sho11lcl
11for t111) give n ti111e to refor111 itsel f.
11ate]y it ap1l,11·e11t]~r clicl not do ► o exce pt
in 111i11 or cletail~, an<l t e Ho ·]tin°· Pool , th
Rock Isla11<l ineid nt, t he Calif or11 ia Pet1·0l 11111 a11cl othP r li. tin° and n1anipl1]atio11.
,vere l)0J)11 lc:l1·l, - take n . th Exel1<111 o·e'. an► '"' r to the p11 h]i s fo1·lleai-a11<·P. Tlia t tbi~
i~ not ~.o, that a ve1·, ~ larg e and infln entia 1
tl1at a111011g ou1· ~11. ti1111io11., th
1
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(1) Tauss ig. Princ iples of Econo mics. Vol. I. 168.
4
f
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J)a1·t of t]1e 1n 1111J 1·:l1i1l of tl1 Ex ·ban g
f L the po. itio11 i11 ,, l1i ·11 th in. titutio11
i Illa d and i. ar-11 ► t] cl ► ir< 11► of n1111 l)U bl· , ho" v r
i11 1 for-111, I lt110 ,,.
nat111·all, Joolc fo1· r:i. t1lt a11cl not 0 ·0 dinte11tion , an l i ► an ► " r a 0 ·ai11 t th E . . . Pu,j o om1nL ► i 11 an l 1 ~ l1a11 ge ,,,.a. tl
11 ,, :}d a O'itation <- t 1ba11 .
\.n ..:"·a111in<1tio11 f tl1 J)robl 111 of th 1 fo1·n1 of the E .. ·ha11g i11 ol, . · tu l of
tl1 ·har- 0 ; ► 111a<1 an<l tl1 1· for11 ► I rop : d.
·ono111i fun ti 11
'l,11 f 1·111 r i11c I 11 j ► th
of a11 E~ . . hano a . uch, and in exa1ninin°~
th latte r, ►-igh · houl d not lle lo t of 1 f r1n
p1·e, iou. lJ at 1111 t{ cl h re or l e"rh 1· and
th i r 1 s t1It .
ha1 g n1a 1 an1ain t th Ex han(Y
'l'h
lil'" th COlll l)lll~o 1·~r 111 bod f ref Illl
,, l1i 11 ,,~ "rill . ?a111ine lat r) fall r adil ""
i11 to t" o clas e , ,, l1i ·h ,, e 111a ... ·all n1aj or
(1ncl 111inor. Th fi1-►_ t i ► fund a1n 11tal a11 l
beli f that p Cl1la ti n i.
.·011 ist►- i11 th
o,, ron°· tl1icall , and u► el ► or ,, or
no111i ·ally ; that pra · i ·all, all d ali11 o\ on
the E./ ·cl1an°·e are p ·11lativ ; an I that th
co1nJ)lete a b0Jjtio11 of tl1e E.~ ·l1an°· i a
11e · s►_ar,v· t ll in tl1 abolitjo11 f . Il ·l1lation it► elf. I11 "ic,, of th fa ·t t11at if thi
·or1· ·t, tl1e1 ,,.. u l d b n
ar 0 ·un1 11 ,v
f11rtl1 r ql1e. tio11 of n1i11or ·l1aro· or 1 m flie. of any < 1·t, ,, 111a~ · ,,rell l)a11._ to on~id r h qu . tio11 of ll 11Jation and th
to ·Jr Ex ·hano- l) for proftll . ion of th
c edin ° furth r.
~JJ ·l1]ation h'-l► , a a rule, r c ived rath r
r }a t111e11t i11 En °-IL 11 trea i .
inadeq11a t
on econon1i ' ► • It► 0 ·reat d v lop111 n in h
OI
J)3. hctlf • ntui-~r a11d it~ o·1·eat i11flu ll
ing
J)1·ir ~ L, g1·adual])- l adi11g- to it..
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- treatec1 a8 an integ1·al 1)a1·t of tl1e econon1ic
sy· te111 of to-{la~, a11d 11ot an excrescence.
Perhap , for ol11· p1111)0► e, thP mo . ati► ~fac
torJT cl fi11ition is tl1at of Horace ,,,..hite:
"~ pec11lation i~ tl1e act of tak:ing nclvantag~
of fll1ct11ations i11 i he J)rice of prope1·t)~. ~ ( 1)
Obv'io11. l~r the1·c 11111~t l>e property, its p1'iee
11111st fl11ct11ate, ancl tl1 re n111st be b11ve1·s
ancl . elle1·s. Obv-io11s1JT, too, s1)ec11]ation ,,Till
tencl to inc1·ea . e, ""itb tl1e increa~e of any
or- all of th se factor. 1. That spe ·l1lation
sJ1011lcl e.·ist to ► on1e e.: ·tent, it is not necessarJ' that a11 01'ga11ize l 111arket or e, e11 a11
or<Tanizerl 1noney or lla11l{ing sy e1n 8ho11lfl
exi~ t. ~ 0111e speenlation ,,rol1lcl l>e possible
'Ven 11ncle1· tl1 Loc1·ia11 laws, ,vhich per111itte<l the sale of g·oo(ls only b,r theit·
111al{er.. . ( 2)
peculati,, t1·a11~aetions, even "corne1·8, '
a1·e not l1nlrno"'"n to tl1e Old Testan1ent.
Regl1la 1· . pec11la tion i► stated to l1ave talre11
pla ·e in Ro111e, ancl s eculative tracling ocCl11·1·ed in co1L icle1·allle voll1111e in the Italian
citie. in t11e Fo111·teent h cent11r:r- It is evi<lent, 110" eve1·, that organized speculatio11
on a o-1•eat scale, s11cl1 a► is 11ncler (lL cussio11
1
to-clav, i essentictll~y a 1nodern phenon1enon.
It i ► {l11e to the g1·eat increase ancl, n1ainly,
tl1e cl1ange in character of p1·operty in the
n1odern ,Yo1·lcl. Joint vent11res have p1·obahl~v l>een 11ndertaken by men ,,To1·king togethe1· in co1nml1nities in all stage► of society. Coi-poration als are not l1nkno,vn to
the an ·ient ancl meflireval pe1·io ls of hi► to1·y,
ll11t the tran. for1nation of an in,1ivi<l11al share
(1) "The Hughes Invest·gation." Journal of Political Economy. Vol. 17.
( 2) Curtius. Hist. of Greece. Vol. II, p. 90.
6
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i11 the vent11r or 011Jo1atio11 into a n g tia b] i 11 t1·l11nen , ,,,hich Ila►- .
rea, lil f1· n1
one to ar1otl1er, a11cl of a11 a111ot1nt a11d val11
e .... a ·tly ql1i, alent to v rJ1 otl1 ~r ~liar i11
t 11 ► an1e v n t111·e, i► for all . n tial pt11-I)O. e
J1o]Jy· 111odE 1·n. It i , id nt tha for
:-;pe ·t1la tion 011 an ,1 ·ti, e orO'anized ba. i.
P,1sy n gotiauilitJ a11 l ► tanclar liza ion ar
l)otl1 e .. ·ential. The l1are. a11 l b nd of
011r- 1110 lern cor1 oration and government
uffor<l tl1e qualitie. i11 absol11t I e1·f ,ion
and it i f1·01n tl1P 1·i. of the corporatio11
that ,Ye 111aJr elate 1110d rn spec11Jation ( 1 ,
s11bseq11e11tl~v dev ~101)f)] lJ" r tl1 cr1·ea is tl
of 0 ·overnn1ent loa11 in Et1rope bet,,r en
17;-o Ull<l lu15. The in rea ~ of J) 11lation
lia. tl1er )foi·e con1 about 11atl11·ally fro1n the
inc1· ase in 01)portl1nitie afforclecl an(l from
1nan ► 11atural in ti11 ·t to tak:e a :lvanta<Y of
the111 for hi o,vn benefit.
,·v tJro blen1. , 110,, e e1·, have ari~e11, ,vith
tlJe progre. , of tl1 i11clu ti·ial 1· volution.
Tl1e 111t1·oclu ·tion of 111achiner5, makin o- p1 ofll1ction po.. ibl lIJ)On an eno1·1nol1 ancl llllJlrececlentecl R ·a1e, tl1e exten io11 a11 l ·h a1J~ning' of 1·a1 id t1·an ►_po1·tatio11 for-ming f
the ,,.. hole ""01·1<1 011e con► l1n1ing mar·l{et, ha
·hanged the s111all procll1ce1\, sell r , a11cl
ln1ye1 s, "Tit 11 Jo ·al 111a 1·k: ~ts, p1·ice , a11 l rang
of vision, into the g1·eat combinfttions of
p1·op1·ietor'► ◄ 01- ~to ·k:holde1· of the 111ocl rn
g'iant corpo1·ation ,,..ith it. ,vorld-,vide ramification~.
o • 11tl1i-i • a(J'o the incliviclt1al
,Yho had ave(1 111011 ~Jr co11Id, ~1)eal{i11g genc-1r-rtll_v, mak: ~ i l)i-od 11ctive, afel), bl1 in
t,l. O ,, aJr , tl1e pl1rcha e of r al e;1tate or
Jen cling on 111ort1)·a O'e. To-cl av a fa rn1 -r i11
1
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T,,
( 1) From the speculation in the shares of the Dutch
East India Company in 1602.
7
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tl1e co1111 i ry can a1·ra 11g<~ by· tel J)hone to
1 ~ncl 500 to the Japa e . e Govern1nent, beeo1t1e a Ila1·tner ,, ith ~i1·. 1\forgan in the
Rt el incl11 ► t1•Jr, len(l his 111oney to an electtic 1·ail,YaJ' i11 . . _ e,, Z alancl, or acq11i1·e t 11
inte1·est in the (lia111<n1cl n1ine of Sol1th
. . f1·ic-a. ,·r'itl1 tl1i~ cha11ge fro111 the indivi(l11al to tl1e collecti, } i11Ye. t1nent of ~n1rpl11s
fllll(1. 11pcn1 tl1e l)Ul"t of 11eai-l~r evers· per. on
,Yho has s11ch ft111<l ►, J1as co111e a change i11
the J)oint of vie,v- as to the inclivid11c1l s r·PRpon._il)ilit.r to tl1e co n111nitJ,. at la 1· 0 ·e fo1·
J1iR ln1 'in ss t1·anRactio11~ an<l 1nethods. v\Te
hear· 11111ch of the g1·o"ring ~olicli1rity of
labor. TI1ere ha~ also l)een a gro,r"ing solida1·itJr of ea1lital. Tb <.Iliestio11 of specl1lation, ther fo1·e, L 110 longer an i11cli, i<ll1al
ln1t a ocial one, j11st a . peculation is no
l<)ng·er in<li,ric111nl ln1t ( 1·ganizecl.
,,. .e co111e, tl111R, to th legiti111ate q11estio11,
Has specu]atio11 a11 econo111ic l1 ► ~? I .,peak:
l1e1·e of ~pecl1la ti 011, a tte111ptin °· later to <li~ting11L h bet,,Te 11 that ctncl gan1bling. The
ans,v·e1· of al1110Rt all econo111ic antho1·itie~
j. e111phatiea11Jr that it ha . ,-of al111ost nll
a11tho1·itie~·, tl1at i~, ,vl o l>elieve in the eapitali~ tic a11<] pi-ivate p r operty for111 of societ~T. F,01· tho.·e ,Yho believe that that SJ ste111 i neces._aril~r one of ex1)loitation, tl1e
~ tock: Ex('l1anges a11d Bou1·~es are logical!).,
centers of attack:. '\ re as t1111e that no
<·l1ar1g·e in the f11ncla111Pntal 01·ganizatio11 of
◄ oeiet~r i. conte1nplatecl, ho,veve1·, 1>:V the
ge11e1·al 1)11 l)lic at prese t.
Excl1anges ancl 01· anizecl spec11lation
thereo11 have for thei1 cl1ief f1111ctio11. tl1P
gi·vi11g of "111ol>j]it~r to ea pita]~, ( 1), tl1r. leR► ening· of noi-1nal inhP1·en t hn~ines. 1·iskR
i
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( 1) Conant.
Wall Street and the Country.
8
1904.
and al. o of th ► u] 1 11 ho ·lt of I ani . Th
latte1· -,, o 111ay ·al1 ► • llrpri anion O' ·ho
110. fan1i liar ,\ ith do1n . i · and in 1natio11a l fi11a11 ·e, IJ11t let t1 e£"'"amin th m in
01·d
r.
,,r l1ay
alr- ad, s 11 tl1 g1 at ·l1an °·
'' I1icl1 ha. o · ·111·1 ed i11 tl1 ~ ·01)
f 11 in' e. t111- 11t field, ll akj11g 0 • 11 ral] . L t u.
l> a 1itt1 111or ► I ·ifi ·. It '" a. ► i11 at d
i11 190-, 111ak:ing aJl allo,, a11 · ► fo1· dlII licatio1 , n1a1·k: Jt l)ri ·e a11cl otl1 ~1· fa ·t J\ that
n 1·ities f 01·n ed 2:-- lle1· ·en . of t
al th
of th
11ited tat .~ a111ou11ting ap roxi111atelJ to tl1 11n1 of ,t2-! 393,9 3... ,6 · 2 .
'I h.L a.1nol111 l1a~ of 0111-. b n · no1·1n u. ]
in 1· )a. eel . i11 ·e a]th t1gh tl1 IJ r n ag•
111 a,) 11ot l1a v
l>e 11 i11 ·1· :)a. cl a. 1·aI i 11 .
, , jt]1 the ·1· atio11
f thi n ,, i11 ett1n 11t
fie]cl, 11 ,,T · 11di ion. l1a
ttl. o b n · · at d
f o1· t 11 i 11 vc. to 1·. ~ o 1on~ a. 11 b ll ~ 11t a
lJi of land i11 bi 11 i hborh o d, or Joan d
111011e) to a 11 i 0 ·11 b r, IJr-i e~ or on li tio11.
dL ta11t 11 . I ac or ti111e ,,. . ◄ 1· of littl:} imllo1· to l1i1n. I~e 11 P] cl 11eith 1 i11fo11na'-
:1
1
, , , .
:1
tion nor acl, i . ,i\Tl1en, ho,\" ver h I)la
J1i~ 111oneJ' in 11tei-11·i . 11 "a. no fa111ilia1
"itl1, i11 di~ ·a11t J)a1·t ►, of 11 ,, orld p 1·hap.
11nder t11 111a11 ag
111e11t of 111 11 11
,Yo 1I]
•
t, l1is diffi ·11lties grc atly· i11 r a~ cl.
TJ1e a►- an<:l ,--a1·i t:y of inv . 111 n , · r
int 11 ti ve. to av , bt1 t th 11 ,,r f or1n had
11eve1· 111
t
t 11 )ir 1·L 1{~. Th
,, er overcon1e i11 part
ho,, ever·, )J the c1· atio11 of 1·ga11izecl 11 a1·lret~ ,,·lier 11 ·ot1lcl bl1 a11d ► 11 at 1Jubli ·
l)ric:}
,,,lier th ► p1·i ·:) r or-cl d dail. ~
l~ ] bim i11 tol1 ·11 ,, ith p11blic opinio11, th r
1· fl · · d, a. to th valu of Iii pro1 r·ty and
9
I •
(2) Huebn er. Scope and Functi ons of the Stock
'1arket. Annua l Read. Social and Politic al Scienc e.
9
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,,.. 11 1·E, if he (leeid:)] o h{ 11in1: 1 lf co11l(l RP11
,vith 111axi111u111 ea ► • Tb( J)r-ese11ce of a
h1·oac1 111a1·l~ t 1)ei-n1it ► 111i~1 a kes to l>e ·01·1·( ctPfl " .. j tl1 ~11tal 1 lo► s ·on1pa1·e,I to tho ►
n1adP i11 ► e ·111·ii ie► ,Y,l1icl1, aR it is said, l1(1ve
110 111ark:et. • J01·eove1·, 1he pl1 lllic in tc1·e~t
tl111. ce11t 1· ~<1 a ho11t a 111a1·ket ealls i11to t]1p
J)1·e► s a V<1► t Yol111 1 of i11fo1·111atio11 al>out
th se ·111·itie~ deaJ t i11, ,, l1ich is co11SJlie11011 ► I~,, lae k:i11g· i11 tl1ose 11ot clea l t in, i11 ,, l1je h
''nol>of1,r
is i11tcre terl. ,~ The ll1·oafler te11,
fle11cie · of the ti111es to Yarcl i1111)1·ov :i<J eon<litio11s 01· otl1e1•,,"ise, tl1 ~ g·1·ad11al ► hift of capital fro111 011e fl lcl of e11terp1·ise to anotl1e1
is also 111a11if( sted. Tl1at this . e1·vice of tliP
01·g·aniz<:1d excl1a,11g ► i ► .~0111e,v·ha t i11terfe1·e<l
,Yith hy 1111~c1·11p111fn1s < pe1·ator8 is, of co111-. <,
a,1111itte(l, ln1t tl1at ,lo< s 11ot alte1· lie ln·< a<l
faet tl1at co1·1)orate i1r, est111e11t con1c1 not l>e
car1·iecl 011 if everJ' bn. e1· hac1 to fi11cl an i111
1
<livi(l11al ~ell( r of tl1e ► a111e k:i11fl ancl a1no1111t
of ~to ·k:. R1·ok:e1·~ a1 e e► sential, ancl i ra11. ;_
action~ a1·e of. 11cl1 n1ag11it11<le that 01·ga11ization of broke1·s c111cl 11 blicit:r of transa< tio11R a 1·e 11eeessa r,, a11d p1·oteeti, e eon8Eq11e11ceR •
..t\.11 ln1 ►s inr~s J1aR it. inherent 1·isk:s, ~111,l
1lie ~i1nple1· tl1e l>n~inc ss 01·ganization of a
ro1n1n1111it~. . tl1e 11101·e 1·i~I~s fall 11po11 a11 i11<1ivi<1nal, and the g·reate1 tl1e fl11ct11atio11~ i11
1)1·ire.~. Tal~e a ► n1a11 con111111nity, ~l111t off
f1·01n the ,Yo1·1c1 in a 1nol1ntain valle,.
ThP
•
fa1·n1e1·R, ,,~e ,,Till RHJ", raiRe tl1ei1· 0,,.,,11 ,,1 l1eat,
n1i11 it, a11rl ~ell tl1e fl<n11· to tl1e in<lividnal
<·ons11111e1·. ]f the1·e i~ a c1·op failu1·e, the1·P
i~ al1110Rt 110 li1nit to the J)1·ice of ~uch \YhPat
01· 1lou1· as 111a. have hee11 hc}l<l.
~nJ)J)o~1<1,
l1o"reve1·, tl1a t tlu 1·e i. a ~( c-011fl , a]lc- .Y, ·n
\Y11i<·l1 thr1·e has hPP11 n 1101·111ul <·1·01) . nn<l
10
i. olat d l,t1t
~01n n111nica tion e./·i. ts. , Th at, in tha,t ca.
is n1erelv ·ve1:,.. ► ·ate , pri
,Yill b high,
p r·haps 1nor-e than clot1lJ1 no1111a1, b11t 110
such ·011clition ,vi I xL t a~ 11pon the fir t
► UJ)l)O. ition. E .... tend the Jxau11)le to in lu]
tl1e ,, orlcl, and the eff ·t 11pon the ► teal~ ing
of pri ·e. i. evident 1Jrovi 1 d th m a11. ar
adcled of instant i11fot1natio11 as to ·onditio11►
ever~y,vh 1·e and the fa ·ilitie fo1·
clirecting the flo,v of "heat to any s tio11.
Tbes a.r p1·ovidecl ll, the organiz cl n1a1·l{Pt .
,, have, 110,,, v r, ft1rthei- ► u1lpo. ed in tht
fi1-. t ca e, that the fa1·111er raise , mill. a11d
sells ]1is "rheat to the ·on. t1111er. n time
of sca1· ·itJ· the co11sl11ner i► obviol1 ► ly at lie
111ercy of the fa1·111er, ancl the 1·ever e i tru ~
in tin1e of abuncla11 ·e. Suppo , ho ;,tever·
that a ne". trading cla com s into exi tence, ,,-rith free capita], and bu..
he "'h at
,vl1e11 it is al)l1n<la11t, ancl ll "hen it i ►
scarce. In thi
a., e the ptice n1ovem 11t,
,vhile . till ,vi.de, ,vill be less ._o than in th
fii-~t, d11e to the pre8ence of cl 0 ·reater s11p1 l ...
'fl1e g1·011 of . p Cl1la tor-s 1nay still hav the
co1n11111nitj at 1l1Pir n1ercJ, b11t le►~ o t11an
if the far111i11g gro111J alon had ,,rh at.
,, 11 n ,, e extend the e condition , a~ we
rli<l the fir► t to tl1e ,,,orld, ,,Te ge anothe1
. teaclJring infill 11ce i11 the 0 ·reat 1narl{ ..
l\foreo,·er, if tl1e 1·i8l{ of g1·eat fl11ctl1ation
to the p11b]ic i. le~ , it is al o to the farm 1·.
The g1·eat c1a~► of traclei-~, or s1Jec11lator
,vhich ha~ g1·o"·n llp i11 stock:►- an(l co1nmoclitie i. ,villi11g to 11 ► e its a1)ita1 and a~ um
the 1·isk:. "rhi ·h forme1·l ,ve1·e born al r11a tel) hj 1)1•0,Ju · :)1• and con 11111er.
Al" a. ~
1·ea<lJ to b11. · a. pric ► l)1•eak 01· • 11 if the~r
tl1at 110,v th
va]l \
t
ai-
11ot
:l
1
11
aclva11ce, th()Y l)oth st ad~ the 111ice ancl as1
►
11111e the 1·L k. ( 1)
(] onsicl Ji-ing· the st cl~ 1narket more ~pecifical ly, a l)i-oa<l, acti e n1ark:et ( ,,rl1ich ca11
neve1· 1·e► 11lt fton1 in, l?~t111e11t only) affords
tl1e llank.. an Ol1tlet for· their s11rpl11. fl1n(ls
111 lou11 . on co11att ral , rhich a1·e 11otablv
.., safe
ancl ,Yl1ich fo1·111 a . teadJ ing infl11enc llpon
the n1ercantile i11tere. t 1·ate. It is nat11ral
tl1at hank:er. sho11ld atten1pt to e1npl0Jr thei1·
f11n(l.· J)1·ofitalll~ to a . g1·eat an extent as
po sible. v\ e1·e tl1et no Sl1cl1 thin o·.. a►
loan~ 11pon 1·eadil . . 111ar-l{etallle collateral,
tl1e ten<le11c~r ,, 011 lcl l)e to loan lipon 11nn1arketa ble pitpe1· a11<l i11 othe1· less liquicl "aJ ~,
ancl, the11, ,vl1en the strain came, ther ~
"?Olllfl not l)e, a~ at p1·e."ent, a "safety valve.'
As it i., v\ all Street loans are callecl, n1oney
is re ·eive<l pro111 JJtl, , i terest rate. (for tl1e
l)ro k:er, not tl1e 111a n 11 fa ·t11 re1· or 111 1·c han t)
soar to pcrha1)s 12:-- p lJ• cent., an(l the ge11e1·al fi11ancial 111achin 1·J· Rlo"?s (lo",.n g1·adl1allJ. Wei·e it not fo1· t l1i., the c1·ises ,,To11l(l
he 11101·e :11<lflen ,ind 1ore co1npletely felt
h~v "legiti1nate 1>11:inP~s. ' l\Io1·eo, er, the
p1·esence of a g-1·eat 111a ~ of ► c111·ities ,,Tl1ich
al"e 1·eac1i1~ Raleahle (" l1ich cle1)e11fl 11pon
organize<] n1a1·k:ets and . pec11lation) is t11P
~1·eat safeg11a1·fl of indivi<l11als an,l co111m11•
nities at ti111e~ of strP. s. ~Ia11,r a solvent
'
fi 1·111 ha. g·one cl ow11 lleca n se their assets,
tl1011gh goo(l, ,,,. re "► lo,,y.
The i11ternationa lizi11g· of sec111·iti s l1as gr atly tencle<l
to le~..en ► ho ·I~s at anv one ce11ter. A rec nt
exa111ple ,,,.as the ·1·i~i. 011 tl1e E11ropean
1~0111\ es 11 pon tl1e op ning of the Ball{an
1
1
1
1
1
t
( 1) For an elaborate discussion see H. C. Emery
"Speculation on the Stock and Produce Exchanges of
the U. S.," in Studies in Hist., Economics and Public
La"r· Col. Univ., 1896.
12
Hacl all tl1 ► :lcl1ritie►, of B 1·li11,
, ie1111a, Pari~, been lo ·al a11 l "itl1 11a1·10,,,.
n a1~k:et► , ,yicl 1)1· al r11in ,, ot1ld ha,1 e r su l e<l. l► it ,va►-, th( ~y ,, e1·e 1<1 h a il~ t<
Hpec11la tor in Lo11do11, ,, ho a► 11111 d a lar 0 •
pa 1·t of the bl11·cl 11 and i-i► k, a11d in 111·11
~o](l 200,000 shar :\ of ._to ·l~ i11 ev.
1·lr
tra11 ► fe1·ri11g· ► ◄ 0111e of tl1e 1·i I--- to tha c nt r.
T]1
af :lty valv a ye 1 a,n . r1)lO ► io11.
Fi:0111 thi► .. ver,/ ln·i f and ina,i.1q11at tr at111 nt of the q11estion, it ,Youlcl ► e 111 a ► if
hotl1 ► pe ·11lation a11cl the Exchang ~ had tl1 :}it
11. e .
V\ e "Till p1·oceecl to consider ~01n of ·h ir
~11Juses. These ar , general! ll ak:in , l1at
specl1lation 1·eacliJ~~ pa ►► e► into ga1nblin<Y
that a lat 0 e pe1· :)ntage of the b11 i11e s co11cil1 tecl on tl1e Exchan °·es i o-a1n blin ° t)Ur
and. si111ple, that the true fl111ction of Ex·l1ange p1·ices as in]ices of ,Yalu . and conclitio11► i rendered f11tile by n1ani.p11lation
that he Exchange~ tlo 11ot exer ·i ► e 11ffi. i nt
car·e in li ting ~ e ·111·itie~, that th J)l1 blic i~
11ot ~11fficie11tl~ af g11a1·cled a. to the
Ivency of Exchange n1 n1l)ers, a11d that sp c11latio11 ab► ·01·b~ money ,, hich ► l1ot1lcl be u~ d
ii 111ore legiti111ate ·ha11nel .
It 11111►~ t be adn1itted that ll c11la ion
1·eadilJ1 pa► s in o f·a1nlllin °·, that a 1arg
part of the tran. a tion ar· of th la, t r
character, and tl1at their influ n · 11pon i11flivid11al ancl he ·011111111nit i alm ► •
,,Tl1oll.v bacl. Effo1:t have b 11 n1ad , · 1bough I hink: ► 0111e,,1 hat un._t1 ·ce f11llJ, ·o
di i11gl1i h bet,vee11 ►~ l) Cl1lation and gan1bling b, ► 0111e q11alit. oth r than in ·ent.
Th11s P1:ofe ► 01 Emer.J' (1 fine "Ga111bling'
as; "· tran~ a tion in ,, hich one })art.. J)a, s
ov< r a sn1n of n1one ... f1·0111 hi~ o" n ,, al 11
,, ar.
.A-
•
I
1
'
13
l>ecause of tl1 ~ occ11rrc ce of a cl1an e eve11t."
"Specl1latio11" as "a ti-an ► ·a ·tion in ,, hicl1
one acql1i1·0. bJr pl11·chase th right to a ·ettain propert.r (not ~pecifical1Ji cle.·ig11ate<l
lle1·ha l)S) a11tl ~;ain. ( or lo► Js) for l1in1. elf
the differenc h
eP11 tl1e val11e of the prOJlei·tJ' at tl1e ti111e of the ► ale an<l the ·valt1e at
tl1e tin1e of tl1e pl1r ·J1a~e. ( 1) V\ hi]e tl1e
clL ti11ction i., as lie . t·:1teR, a Rignifi ant on~,
it is of little n101·e n ► e i11 p1·eventing stock:
ga111l)lin~: than is tl1e i pst ancl clisti11ctio11 of
i11te11t. Pe1•f4onal]~. ., I belie,,e inte11t to be
the t1·l1e, tl1ougl1 not a legallJ l1sef11l te t,
ctncl that g·a111l)li11g i ► 11ot change(l bJ tl1e
l'e1·y ea► J' ancl si1n1)le clothing of it in the
for111. of leµJti111ate t1·,uling;. Unfortl1natelJ1 ,
ther seerns 110 ,va)"" of legally clistingl1L l1i11g
het,v·een legiti111ate s e11lation an(l gan1"bling, 11nless ,v-e acceJlt P1·of. Emory s flefi11itio11.~, ,Yllich '' 011lcl J a, e "\\ hat tl1e pllb]ic
call..=-1 '' tock: b0 ·a111hlin°·""
J·11st ,vhe1·e it i~.
'
•
Tak:e, fo1· exam1lle, t,Yo 111en engagecl i11 a11
apparentlJT icle11tical tranRactio11.
Ec1cl1
ln1~~s 100 sl1a1·e~ of tl1e Ra111e stock:, ,vith thP
~arne an1011nt of 111ar 'in. Tl1e fir~t bl1ys,
he ·a11se he l1a~ ca1·ef11 ll,T st11cliecl the con<1itio11s of tl1e in<l11. try i11 general anfl of the
particl11a1· co1·po1·ation in q11estio11.
He
k:110,,~s that conditions a1·e s11ch aR to 1·es11lti11 la1·gel. inc1·eaRec1
ai-nings an<l tl1at cle' elo1)111ents a1·e tak:i11g place which ,,,.ill
111al~e tl1e Rtocl{ n101·e Ya1ua1)1e. B11Ri11eR~
j11clg111e11t flicta tes it~ p11r-cl1ase an<l convenience paJ~i11g- for it 011lJ' i11 })art, tho11~·I1
l1i► i-eR0111·ces are ~11cl1 that lie co11l(l amply
protect l1i111s lf if n ce. ~arJ""· The other })111 chaser has no k110,, le<lge of conditionR l)11t
ha. ha<l a "tiJ)"' that tl1e stoc]t is to aclva11ce.
~t,,
1
1
7
( 1) Col. Univ. Studies s pra.
14
·e
ha►
1· ► ·0111
no
e. b yoncl the margin
,vhi·l1 be 1uL llll. I11 th ro11gh a11l read 7
jud 0 '111e11t of th p11bli , ,, hi ·h I b Ii
is
sot1n l, he i. ga111blin°~ ,, n thot10'h h ha.
"i11ct1r-1· d the (l11ties a11cl a qt1ir d th ri 0·ht►of a 11olde1 of 111·01le1·tJ. Altho11gh an 1 rea► 011able ln1~ine. s man i\ 011lcl ·on. ider on
tra11~actio11 1e 0 'iti111t te ancl the oth r not,
th l1•e i. no 1egal cliff re11ce bet,, e n th rn.
Tl1:} <1ifference i n1ental, and on of " rhi ·h
11either the la,,r nor th go,rer-nor· of th
.. itock: Ex ·ha11g·
·ot1ld tak:e ·ognizanc .
I..)11 b]ic 01)i11ion alo11
i\-0111 l . ee11 to b ., of
a11~r avail. 1\.. pec11liar ack:110,, led0'111ent of
tl1i► fact ancl atte111pt to n1ake 11..e of it ,,,ill
he 11oticed later.
n ,,,.e co111 to th question of 1naniJlUlation ,,,e e11ter 111Jon 111or clebt1table gro,111d.
l\[a11ip11la ion 1nav be clefi.11 cl as th 1nalrin ·
of fictitious tra11~a ·tions for the 1)111·1 o e of
incl11cing real 011e. . It is a for1n of ati, rtising, ancl 11othing ls... \.. ·tiv 1nanipulatio11 111aJr oc ·11t at a JJracticallJ7 tatio11a1y
fig11re, to i11cl11ce b11yi11°·, or it may occt1r 11
a ► cale 11p to i11cl11ce th . a111 b11yino· plu a11
aclcli tional pr·ofi , or it n1ay o · ·l1r on a :s ·al
flo,vn to i11 ll1ce sellin~. It i~ n1ainly for
the pl11·po. e of calling 1)111Jli attention t
tl1e ~ecuritv. Tl1e l)l1r-11< .~e 111a'- b hon ~t
the i11tent llei11g 111 ~1· 1. to ·reate an a tive
111a1·k:et fo1· a littl l'"110,v11 . 11r-it)~ lintil
811cl1 tin1e ~1s a uffi ·i 11t n11111b r· f p pl
l1ave llecon1e inte1·e. t d, to . ontinl1e h
acti, it~r ,vitho11t 1na11i1)11l~ io11. Th ·val11
a11cl 11ece. ~·iitJ, of a ·ti v 111arl~et~ ha~ a lr a lJ"
het n tol1cl1ed 11pon above, ancl ,vbere tl1e
► ec11ritv· i~ . Ollll(1 flll(l tlie pri e fair no lllOI
j11~t criti t n1 c~1n b brou 0 ·ht agai11 thi.
than ag·ain~t the 111an ,,Tho open~ a ne" 1· • 1
1
,,,11
,
1
1
15
ta111·ant a11d oi,1
a fr
lllll
·11 to a c r-
tain nuinl> r of p r on the fir
cla to
111al~
he Illac loo].. popl1lar.
The obj t i~ n1l1 11 th ► am , and n on n d
llll~ 01 eat if he do not choo e, 11or i~
ha1·111 cl jf h
do
ith( 1. In ·a e~, ho\\~f.ay 1· ,, her 11 a11j pl1la t io11 i f 01· h pu1·po
of ind 11cing: the I u bli · to l uJ~ at ficti io11 l. ,
hig·h 01· ► 11 at fictitio11 l>,. lo"r pric . to p 111 it the 1nanipt1la 1-. t, r ap
h ill 0 ·iti111a te profit, clC ·01n lla11i cl a it fr q11en tl,y i
bJ· fa1 e info1·111a tior1, or on1e i111e mo1·( effe ·tiv '}l, b, no i11for1 ation the1 e t no d fen to h:} offe1·ecl. 1 1· a O'ain, a. i11 the
·a... of tock: ~a111bli11°·, ,, e ai·e 1ne by <111
aclmittecl e, il. 111 n anil)l1lation on an,,. liffici nt ~ ·al to int r ► t or harm 11 pllll]jc
two ele1n nt► a1·e 1L 11all. nece~ ar~, 111atche<1
f>1·(le14. and l>or1·0,,· d 111onev. The fi.1-► t i
the conce1·n of tl1 ~ ~ 1 to<·l{ Exe hang , tl1e 8e on 1 lnrg·el.r tl1a f>f the l)ank..
fatche(l ord r 111a• l>e divicl d into t". o
cla. ►~ ► , tho e 0 ~i-ven Ollt b, a non-1ne111her of
t
t
tl1e Excha11g·e to
t,, o
differe11t 1ne111ber-.,
ach igno1·ant of h .. i te11 · of th otl1 1·
orcler; or, ► econd]~y, tho. e di t1·il>l1tecl h, ~ a
m 1nb r of th E ./·cban ,,. . In tl1e fi.1-►~ t ca. ,
,vhi ·11 j. a f1· Qll n o , n1an, .. of th big:
op 1·ator., not being memb rs, the Excl1ang
has 110 jl1rL c1i ·tion. In the latter ca. e, of
co11r e, it ha., and I eli ve can clo ml1ch
to p11rge it► elf of at lea t the "ror t form. of
► llch 111anipl1lation. W are here di. cu ing
only the cha1ge again t the Excha11cre, and
"Till ~peak of the remedJ latet.
Thi L tl1e natl1ral place i11 ,vhich to ► })eak
of •~ho1·t llino·, alth 110-11 i11 it. elf it i. not
manipl1lative.
o 11111ch l1aSt b n "'"ritte11
11pon thi. J)artic11Ja11 n1et]1od of tradi11~ that
16
e 111 u11n ·e. ary to di cu it at
length. It~ 111ain f11n ·tion i . :J to IJerform
to,,·arcl Sil cuJ,1tive n1oven1 Jnt of 1)1·ic ~, the
a111e se1·vice ,, hi ·h ,v have e n ► 'Ilect1la
tion it~elf IJer-form to" a1·d the general
111ove111e11t of pri · ►, viz., to limit th ir
ran °·e. A great n1aR► of sec11riti . bougl1t
for ► peculative J)111·po e a. llric . bi- ak
t n<ls to hincler the decline, ju ► t a 11 ir re. ale on an aclvance t =ind to l1i11de1· the ad,·ance ancl ~o na1·ro,v the 1novem Jn . Thi.
narro"ri11g of the . ,,. . i11g L till fu1·th r effe t <l l)y the t1les n1ade b tl1e ' bort.
'"'hen p1·i·e. ai·e hi(·h, ,,ith th impo1·tant
<lifferenc that thei1· ~al s 11ece i a repurcha~e, fo1·n1ing a. gtea
afegua1·cl for th
111a1·l~et i11 tin1e of J)ani , lien inv tor ◄
111a~y not ha, e the 1nonev or fear to u e it,
a11cl . pec11latork n1aJ" be 11nal)le or fear to
bor1·0,v, for· the J)l1rpo e of pl1rcha. in°·. A
the " hort'J pl11·chase► tl1e tock 111 rel, 1 for
th~ pltrpose of ret11r11jng hi~ bo1·ro,, eel c rtificate, hi })t1rcha~e 1·eql1i1·e.~ no ·a. h to
finan · it, and he tl1er "'fo1·e ii.: fre to n1alre
pl11·cl1a~es at tin1e. ,vh n tl1e n1ark t 111a·v
have no oth r l1ppo1·t. It i. ne <lle to a
tl1,1t . elli11g fo1· f11t111· <lelivery i. co111111on
in 111a11v
lines of ,,. hat i► callecl legitin1ate
•
t1·a<1e, ancl that pec11Jative . elli11g of f11tt1re►
in cr1•ai11 ancl cotton pe1·fo1·111s a val11able ono1nic service in pe1·n1itti11g a n1an11factu1 r
to heclge, t1·an. ferring tl1e i-L k: fro111 hin1. If
to the pec11]ator, " . . hich, a. "e ha, ~een i._
on of the f11nction.~ of . pe tilation.
The cl1arge that tl1:) Excha11ae do ~ not
:ixe1·ci. e Sl1flici nt cai- in the Ii tin°~ of
., c111·itje., ha~, I think, . ome foundati n i11
fa ·t. Tl1e1·e J1a e been . 0111e ra tl1 1· t1·iki11g
<xa1n1J1e~ of late in ",.l1ic]1 t]1e ca1Jita]izatio11
it ,vo11ld
,,r
7
4
'
17
'
of 'aootl ,vill, etc.,~ ha. 1·<1ached ..: ·a<~g ri11°,
po1·tion ►
► 111 o ► •
~•
·u1·i ie are br ll o·b
ol1 t lly la1·g ba11ltin °· 11 >lL • , the r ► po11► il>ilit~. . ,,ro11]d . lll to ]· ► t I rin1a1· lJ llp011
them, ln1t if tl1e Ex ·11( 11g <1 ► i1· . ·o n1aintain ~1 pla ·e of 1·e~pe ·t in publi e timation,
a fir111er ta11cl n1l1 t b tak 11 i11 thi 111a er.
It i► pr·oballle, ]10,,r V( 1·, that this "i]l b<
1 s of a q ll ► ti on ,vi bi11 a f "
ar . Th
ti1n for the I 0 ·t1]atio1 of 11
~ ·111 iti S is
at th ir i. :ue, not i11 th 111, eql1 n tradi11°,
in th n1, a11d I b Ji Y t ]1at 1 tat or a ional
s111)etvision i~ s111·e to e n11e, a it ha alrc, cl)r
·0111 in tl1
a. of rail i·oad a11d pu b]i ·orpr
•
0
~,,r
:1.
po1·a tion ► •
Th complaint that tl1e p11blic i not giv ~n
► 11ffi ·i nt a. 11ra11 · of th . olven · of E "'~chan <re 1n<: 111 be1-►" l1a~ al~o, I belie, e, ► 0111
fol111clatio11, altho11o·h he . . . ,v York E ""~change co111pa1· ► 1110._ t favo1·al>ly i11 tl1is r ~pect ,,~ith h Lonrlon Exchanrre. Th
trl1th i~, ho""ev r, 11at o,,~ing to th fa that
th onl~y 111ark:et of con i(le1·al)le ma <Y11it11d
in p1·acticall. all of . . erican 1·ail"rc1J·► a11 l
1nost of 011r ]eaclinp; incl11."t1·iat cxi~t on tl1 ~
Ex ·hange, a . pe ulator or in estor in he111
i. bo1111cl to t1•afle, lirectly or indi1·e ·tly,
,v'ith an E~Tchang 1nem e1·. I11 thi. 1· • pect
a practical 111011opo1~ e. i t , a]n10. t a. ·on1Il1 te as the legal mono1Joly of tl1 Arr nts
cle hange 011 the Pari BolII'► e. Tl1is; le' elop1nent into a qua i-n1onopoly ha. eon1c
al)o11t natl1ralI-, and, it ► hol1ld l>e noted, 011
ac ·ol1nt of the . 11p rior ervice afford d llJ..
the Ex ·ha11 °·e.
evertl1eles.. it . . ..i. t. and
a. th 1·i o-h of an inve t o1· or s;p l1la toi· to
deal in th
ecl1rities li tea i. 11nclo11 htP<l
the in titl1 ·io11 ,,rhi h h . th 111011opol, of
11ch (]ealin o-► • hould se to it that in so fa 1·
1.
1
•
18
---
•
-
,r
- -
-
~
-
-~
-.
•
~
,..--....
4,-
~
1
.1► i ►
Jl ► • i J1 , th JJ 11 lll i · i 111 t t l a ain ► t
fra11d 01 ·11 ► ol 11c
11 tl1 I ar
f it. m mh 1·•.
, h ·01111llai11 that I ulc ti
1 alin .
11 n th Ex ·h· ,ng ab ~oru n1 n :
l1i ·h
• 11011 J<1 b c ,Tail a bl f 01· ·011 1n r ·ial 1 t1 r1 o ..
ha ► , l1·ead
be 11 a11. ,, r- cl
n1
..""t nt.
,, in~ to he i11 la ti ·itJ of our ·ur1 n
. J. t 111, 111011e ... i. · · 1·tai11 to 11 n1or I 1 1 tift1l at ► 111
t. 11. of th
(, · than a
111 1-. .
t ti111 . tl1 i· i. lJ u11 l t b a
g1· at . l11·1 Ju.
· ·
11]
f r
f ,,
1no11tlL · 11d "1 i ·11 11111.
th r f r l k It
]iq11i<l. ~r 1· th 1· 110 llll ]o 111 ll f I' tl1i
"' - - · p in tl1 01·c1ina1·. ·han11 L of rad
,, l1icb ar ~ 1110 t liquid., ,,v ;\ ou lcl l1a
itl1e1
a g1· at i 11 fu11d, or, a. tat l abov an
11ntll1
t 1111)01·a1·~· • i11 l1la. ion of bu~ in ► ► ,
t]1 Io ·k:in er U]J ,f f1111d.
on to b n d ;
an 1 ~Y
arl .. . ·ri . in 1 a 1 ► l1 ·h a 11
fi· '
qnentl~ · ·t1r 011 tl1e E .... ·hang'.}), '"'i h on~ q 11 11
1 ~,,.. i11 ~· of t11 ·0111111 1· ·ial di. cou11 1·ate and fli. 1 ation of no1·111al bu i11e~. .
gai11 tl1L i~ a11 exa1111)1
f tl1 a) ~11111i11g of 1·L k: and tl1e . · acl. i11g < f pri .
fo1· ]eo'itin1ut ln1. i11 ~s ll~ ·le ·111ati, 1J11.:i1
,,,,i
11 .•.
ha, tl111. ~Ja11 · cl at h g 11 r( 1 q11e t io11 f ~ 1 ·11 latio11 tl1 f1111 ·tio11 f 11 Ex·l1ang . a11 L t 11
il. ·011n · el ,Yitl1 tl1
,
T
<,
.~)~~ en1. ,7\ l1a ""< 11 ,y· t ·011~i 1 r J o~. ible
n1etho J. of 1·<: 1ne lyi11g 01· l ► ~ ni11g tl1e.
<: , i ls.
The. 111 · b oc1. 111 '- y lle •o111]) u l. o1·. ~, in ol, ing a tio11 b~ the ~ tat or , ol t1nta1·
i11 ol, i11g a ·tio11 >)""" th · n~tit11t <l a11tho1·iti . of ,h Ex ·l1a11~ . ., ·a a ·tio1111 a . . a 0 ·ai11
,e di~ id d i11t 111aj< 1· ~ 11d 111i11, 1·.
11 fir~t
eont 1nJ)latrl thP i11 ·01·1)oratio11 of the E ....~
(
19
,
......,_,...
'
- ...
-
·-
- ••
-
-
.
. ·-
.
.,
#-
•
-
--
-
-
.,.
~
-
-
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~
-
·J1a11 °·
a11(l ·011; q ue11 con1 1 ~ ·l1a1 .0 • in
i . tatu., ,,·hi] tl1e. co11c1 011t n11)la . tl1
pa ► age of la". ·o, 1·i11g n1i1101 poin - , 11ch
a. tl1e 111i11i1n1111t a111ou11 >f 111a1· 0 'i111· q11ired.
,, } ,Yi1I eo11si<l 1· co1n1)111~or~ refo1·n1 fir~t.
Ea ·h ~: 11e1·a ti on of r f 01·111 r · i. ..l I t to
tl1ink~ tl1e PYiL att< ·k: d a11d 1·en1ecli ~ 1)1· >l)O. fl ell· b otl1 p ct1l iar to thei1· in1 ~ b11t
:i, il. ar a. old a~ tl1 1·aee, and fort11natel.
for rna11l~ind th . JJii·it f r·efo1·111 i.~ qt1a11 ....
a11 ·ient. Gov ~1·11111e11 . al control of <111110. t
eve1·y· ,·a 1·i tv i11 1·el a tio11 to Ex ·ha11g} a11<l
. p c11latio11 ha. al1 ady· lteen t1·i(:ld a11,l thei·e
i~ no 1· tl. 011 to lai111 tl1at th fi lcl i. ex1J 1 i111enta]. I11 ti 11tion~ a1· 11at111·alI tin°· cl
,, ith the ·hai-a ·t 1·L ti ·~ < f th r·a ·e a111ong-►
,Yhich tl1 ~ r cley· lop. Th clel gation to pri, ate n t<"l1•p1·L e of yery 111a tt 1· IJO 8i bl I1aR
')ee11 the t1neo11 ► cio1L l1n bit of 111i11cl of tl1e
... nglo- axo11 a11d 11 11 • ,, fincl tl1 Ex·l1a11g . in En(Tland and the nit d tat .
f1· e JJ1·iyat i11. tit11tio11. a11d anJ I oi. ]atio11 att n1pt cl of t]1 n1i11 1· ·]a~•. Th t 11(le11cj of t11 1·a ·<:., 011 tht on tin ~11t, 011 tl1e
othe1· hand, l1as a1,vaJ1 been to,, a1·(l a pate1·11al, l>l1t·eal1 ·ratic c 11 1 alized control ov ~r
all po. ► ;illle 111att 1·s a1 I, < • xp t d, ,, fi11tl
all tl1
onti11 :i11tal Bo111· s l111<..l 1· li1· ·t
gove1·11111 11tal . 11p 1·, i j , if 11 •t a ·tl1a1l . .
gove1·n111e11tal i11. titutio11s. Tl1i.
011trol
1naJ· 1)e n1l1nieiJ)al, a in Relgin111, 01· in1JJP1·ial, as in ... 11~t1·ia. I11 t he latter co1111tr~·,
for e .. ·an1ple ·011t1·ol i , <. tecl jointl. jn tl1e
Fi11anc l\1 i11i ► tf\1• a11d tl1 ... iinL t r of Trade.
1\.Il 1·11IP. 111ad or chano~ea Jllll ► b . 11l)111ittecl to th ~ fu11 tio11ari .~ ,,rl10 aL o l1av
IJO"...e1· to re1110, 111e 11hr1·., of tl1e b0 ·o, 1·11ino~
hodJ", a Pl)Oint their o,v11 rep1•p~e11 ta ti ,. .e~
,y·h :}tl1er 111e1n br1-. of the Excl1a11ge 01 11ot
J
1
,
1
~
\
20
-
,,
~
_ ..
!_
a11<l to clo ·e the E .. rchang ten1po1ari1y or
pe1·111anentlJ
I11 acldi ion, ~t I e ·ial ·om111i ► sio11 i. appoi11ted for each Exchange o
see that the reql1jre111e11t~ ar ·arr·ecl ot1t
ancl repo1·t anjr l>1·eucl1.
The governn1ent
ha ► access to all ln ok:er
l ook. , ancl th
fo1·111 of he l)ook~ ► eve11 to tb.e pagination of
tl1e jol11·nal, or "blotter·, is pro·vicled for. ( 1)
I11 Par·L . the Bo111·;1e ex· sts lrv
.. 0 ·over11111ent
<lec1·ee, and the "agent cle changes ar
"110111ina tecl" hj <lec1·ees eol1nte1·si O'Jle<l ll~'
t lie l\iini► t<_)r of Fin~1n ·e or the l\iini t 1 of
(_101n111erce ancl Incl11st1·y. ( 2) An exa1nination of the Bo11rses of 11 ·h cliffer·ent place
as Berlin, ~fa :lr·i 1, Cl1ristiania and 011stanti11ople, all reveal the ► a111e clo . e relatio11 o .governn1e11t.
The ql1estion of inco1·11or-ation i , therefore, 110 ne,,r matte1·. v\ hether· the 111etho ·
he applicable i► 1 a11 ,vl1i ·h has to b a► c rtainec1. In lllJr OI)inion the an►~ '' eI i. tha ·
it L no. 1'e hav ► een above tl1 lifficult
of di~tin °·t1iRhi11g legallJ l)et,, en p culation ancl ga111 bli11g, l>et" ee11 le 0 'iti111a te tracling ancl 1nanipl1lation. All tl1 actions a1·
elothed ,,rith tl1 for111 ► of legitimat tracle.
Cont1·ol 111l1st l,e b)r cli cipline, l)a► ed t1pon
ethics an<l sol111<l h11si11e~s p1·in ·i1)l s, not
11po11 ge11eral la,v► ,vl1i ·h affect all ti·a<ling
of the ~a1ne forn1. Thi. disci11line can lJ~
exercisecl onlJ h~r an a utoc1·atic po" 1. I11
the paternal contine11tal go,1ernn1ent._ the
a11toeratic po,,Ter 1·e► icles in t11e gove1·n111e11t.
: nfle1· A11glo-~axo11 instit11tion. it c1o not.
t J)1·e ent, ho,vever, a. cli~cipli11 i. 1 ot
7•
'
(1) Taeuber. "Die Borsen der Welt." Leipzig, 1911.
( 2) See "La Compagnie des Agents de Change et le
1\1:arche Official a la Bourse de Paris." G. Boissiere.
J?aris, 1908, pp. 367.
21
•
.
.
.
i-ecl b T bei110· i1i-,ol, •cl ,vitl1 a 1nt:1111, 1·\~ leg~a] 1·i 0 ·ht._ a: a . t > ·l~]1olcl · ancl the
f1iffi ·l1ltie.~ >f l)tovi11g violatio11s of I gal
t1·adi110-, tl1i. a11to ·1·atic JJ0,,re1· can a11cl cloe.
0 ·ovr:ir11i110' bo(l
1· id in th ~
of the ~toclc
'
Excl1ang·e. Tl1at it 1nav 11ot halre been Sllfficiently ex r ·i. ed mat be trl1e, bt1t it i~
th i- a11<l the co11trol ove1· 111 nib r ' action►
i. fc:1r 1nore ·0111plete tl1· 11 it co11l(i eve1· ll ~
ove1· 111 111 be1\ of a 11 i11corpo1·~1tecl l>od, .
I. it Io. ibl , it 111av l>e a. ked, to pa.\
1a"""/ co11 trolling 111a11i1)11la tio11 a11cl ot 11 _}r
ab11~e. . o that tlie ·1bo, c1iffic11lt .. ,, ot11(1
11ot a1·i. e ancl tl1e l)l111ish111cn t of tl1e offe11<lP1·
·ol1lcl b ~ lire 11pon I 0 ·al gi-01111cl. ? I11 h
ahov·e l)1•ief .·k~et ·h of tl1 ~ 11bject I haye e11f1ea-rorecl to ► 110"· tl1e di cl1ltt ·, if no in1po ► ibility, of cloinry . o. "Ha ►.)t~ attempt.
to co11trol pec11Iatio11 ll,r im1)le enact111ent.
have invariabl. llrOY l i her f11tile 01 n1L hi y·o11. "' ( 1) i~ tl1e con ·l nsion of on of he
lea lin °· Eng·Ii h cono1ni t. . v\ e a1·e not
1 ft to theo1·ize 11pon the 11l)ject, ho,,'"ever,
n. tat11to1·y· enactn1 11t. l1ave been freq11ent
ancl va1·i cl. The a1·lie t enact111ent in r f( 1·en ·e to an. forn1 of "111 ok: r'' ,va pa. secl
h. Pa1·lia111 nt in 12 :--, co111plai11ing that tl1e
l>rok: r► clo ,, a1· fine clothi11<Y an(l clo at
co tly 111eat and food. (2) It 1nl1 t l>e ad111i tt cl that thiR ha ► 1· n1ain cl a d acl Jett r.
I"'ate1· stat11t ► l1ave al1110. t q11ally done 80
01· el ►
11 n 1· peal eel. In 1733 ,Ya. pa~► e,1
~ ir J ol1n Barna1·fl ► A ·t, "'"hicl1 fo1·l)ade
among other tl1ing all ales of stock: by·
partie. no - o,,,..ni11g tl1 ~ a1ne 11ncler p nalt.v
-
-
]1a1111)
1
t
j
1
(. _
7
( 1) Marshall, A. Principles of Economics. London, 1910, page 719.
(2) Quoted by Dos Passos. A Treatise in the Law
of Stock Brokers. New York, 1 82.
22
r
of £500 fine for ea h tran a ·tion. Thi. hacl
110 effe · a11 l ,Ya. r Il :1a] cl in 1 60. L n1an A ·t, p~l► cl i11 1 67, ,,rhic h forba d
a11 aJe t f l>ank: ·o ·l{ ,,Titl1011t a ~p ·ifi atio11 of the · rtifit· ate n un11J r. i11 the ·011tract , ha re111ainecl a. deal le te1·.
In .,..e" Yoi-k a11 a·t ,vs 1a► el in 11:.,
<le ~larin°· all ·011t1·a t~ fo1· th . al of. to ·k.
void linle ► the ~ el] r ,, a. at h
01 bond
tin1e a ·tual o" ne1·, a igne , or a11 horiz l
l>, o,, 11er or a · ► ig11 to 11. Thi ,, a. r pa. ~
l)ea l e<l in 1 5 ( 1. ) A i111ilar .l\..ct
in ~fa sacl1u ett~ i11 1 36 a11cl o fa1· a~ I
ha, e been al)Je to a~ ertai11 . till 1· inain s on
the . ta tl1 te book:.-., llll( l>se1·ve(l. 111 P nn~J lra11i a, in 1 41, ► hort . 1li11g for d liv r-.
u1ade a mL dem a11or
,Ya
aft :l1• fiv la,~
•
p1111i ► hable llv fine of from , 100 to 1,000,
a11d anJ· 11 one~y l)aid ,, a► 1· co, era bl . Thi
The 111 s • rik:in c
,, <l► r pea led in 1 6:..
ea ~ of I O'L_J a ion clt1e to pop11la1· f :)1in°· o ·e111·1· d at the ti111e of the boll ►- pe ·l11a ion in
luH4, '"' h 11 ongre pa ed a la,, forbid(ling· all ·on tr·act~ for he ale or J l11· ha
of g·old )ullio n fo1· cleliv er ~ on an la, ► t1b~eqne nt to the da, of th cont1·a ·t, all ont1·act ► for tl1 ~ . ale of gold not actua llJr i11
f
tl1e po~~e... io11 of tl1e s< 11er ·1 t tl1 tim
eon tract, and all t le not 111a l a th
or·dinai·J Illt1 ·e of h11~i11 iss of ( 11e of th:} ·ontracti 11g JJa 1·ti es. In~t ad of eli111i11a ting th
ff ·t ,, a.
JJ1• ~111iu111 i11 gold, ·11 in1111:} ]iat
to fo1·ce golcl f1·0111 19 to 250, a11d the . tato " ek: .
ute ,, a 1·e1) alecl in
The 1110.,t ear f11l a11cl . t 111a i · att 111pt
to co11ti-ol ~pPc-1 1l:ttio1 1 lia► 110,,r V 1·, b 11
111a<le in Ger1na11, . n 1 91 th 1· ,, 1· la1·g
failn1·( ~ a11d ~0111e . ·anclc: l. follo, , i11g the
'I
,,ra.
1
1
ll
•
•
t,,
~
(1) Colum bia Studie s supra.
23
ll c111a1 io11 of t be 11· eclin°· ,,T
o
... ar. . P11bli · fe lin °· ,Ya de lllJ tirr d,
action ,,~a. l 111an 1 1 b, tl1:) R jell._tag a11cl
a ·0111111i. • ion ,,~a ► a JlJloi11 t fl of 2 111em1J 1-. ,
i11 ll1cli11g· ha11l~e1-. 111<11· ·l1ant► 111a11t1fact11re1·s, tate offi. ·ia1., ]an l d J)1·01)1·ieto1-.., :} ·0110111 i t. a11 cl j t11·i. t~.
\. 1· J><H·t ,,,,a. 1nacle, ln1t
the R ich tn°· ,yent far h yo11cl tl1e 1·eco1n111 11clatio11 ► i11 th la,v I a~. eel hJr it i11 1 9fl.
The la"T ,Ya 111ainl~ ba~( cl 11po11 t"ro icl ~ 1s
fi1-► ~t, that, a. tl1 bi-1no11t lJT ._ettl 111en
.
ten1 in. tea of clailJ, a here) "Ta jn for
ancl a. 1110._ ,l) c11lt ti, ti·an~a ·tion. ,, (.l1•
"fo1· th accol1nt, that i me "a. an importa11 t l n1en t in ► pecl1lati 011, ancl, econdlJ,
that l)lil)lic opinion, aR 11otecl above, "ra one
of th ► 1 afeg11ard agai11 t ex ·e._ ive ga1111Jling. The la" th 1· for , fo1·ba(l all E .... cha11g·e lealing· for futl11· delivery in grain
an<1 flol1r all clealing. "for the accol1nt i11
111ining anel incllL, rial h re ancl ·reated a
' r g·i . t 1·'" in ",.bich "ra. to be e11terecl th
name of ev· :}r~ p I-► 0n ,,Th ""i heel to enga 0
i11 .tra11saction..: for f11t11 ~e clelivery. Co11t1·act► b t"yeen pe1'► ons, eithe1· of " rhon1
This la,,T
,,,.a. l1n1·egi . tered, ,, ere voicl.
totall~,. failecl to prodl1C . he re ults onte1111llatecl, l,11 p1·ocll1c d di a trouN one ,
,vhicb ,, e1·e not. In 1907 the governme11t
1· ~1)oi-te<l tl1at fll1Ctl1atio11►
had inc1·ea. e<l
i11st acl <)f dimini heel, that the greate1·
11ee(l of f1111<l► fo1· the ca h basis mpha "izecl tl1e dan°,e1· of collap · , that the
po.\ il}ilit. of 111i u ing i ide informatio11
had h en nlarged, ha the 1none, r 1nark t l1a<l h e11 clen1oraliz d, that tl1e b11 i11 • •
of the O'r at ban]'··. had in ·rea. ed
at tl1e expen.
of th
1na11 that b11. i11Ps.
l1a<1 h~ n lriven abroad ancl thP
a ·ti,
►
1
T
24
IJ ,, 1· of tl1e 1, 1·lin 111011 ~ • 11a1·l~ t ,,~ ak< 11 cl. L . ► • ha11 00 p 01Jl ha l r ·L t r d
1Jank1 hacl
·011se1·, a ti
-'Y n th
a11
]eali ng
n ('iv-in°· 111 ► uri
1
·hoo►
or d ali11°· ,Yi ·h p 1 1-► 011~ "110 ·ol1Icl (l cla1·
el ve J ar► a
111 i r cont ract. Yoicl. For
Ja 1·ge pft1· of al I b11si11 R in <TI <.tin and ► to ·Ir.
l1ad to l)e ·(11·r-i l 011 ,Yith ol1t I gal I rot tion. ( 1) Th la,, ,, a. 1·t ll ale(l in 190 .
It i► 1 icle11t tl1at a► P1·ofe.. 01· 1'Iar~l1all
J1as. tatec l legL ·latio n ha. ·on~ ist -'Il l, fail d
to ► e ·111·e the a . ire<l 1· for-in.. I► th 1· th 11,
110 1·e111 :1<JJ for th ad1n itt cl vil:? I beJi ve that a c 1·tai n, ~v 11 a , 1·, on. i l ra ble, a111011nt of thos e,iL ca1111ot b li111i11a e(l ,, i thol1 t inc111·1·i11 °· far 0·1· :}a 1 on •
Bl1 I clo b li , e hat n111 ·h can 11 :1 clon
ancl tl1at tl1e reine d Ji in a 111 re ff cti,e
d
11 e of the br·oacl 110,v-e1-►~ ali-e adJ7 po~
hJ the Excl 1ang Go, e1 nor: for th 0 ·en ra l
o, er ight of thP b11 ►_ine~ ► affai1·s ancl 111 ltl1od. of it. 111en1bei-s. On ll e of 11ch 110, 1.
,Yl1ich ,, ould , I think:, be mo . t h lpf11l, and
,, hicl1 I beli , to be prac tical ,, ot1ld b
th exa111i11atio11 ( <- ► in \ i 1111a) of tl1e 1 ook.
of the b1 ok.e1·a 0 ·e hol1~e., ei h r q11a1 · 1 ly 01·
at .'l1cl1 fi-eq11e11t irre 0 ·ular inte1·val. a._ tJ1:i
fi11a11cial . itua tion 111ight ► e 111 o , "a1·1·ant .
.. 11 ·l1 e,~a111inatio11., ,Yo11lcl go fa1· to,, ar l clt_elo~ ing concli io11~ l111on ,, hi ·h ·ha1· 0 • s of
111anipl1lation, r·e kles. trad ing, or othe r"ac t
fl ~tri111ental to tl1e ,velf are of the Ex ·han g ,
c:ln<i incic lenta 11J· to tl1a t of tl1e pll bli , coul d
he l,a. ed. Tl1e p11bli ,v-ol1l l b reas ur d
n. to th ol y .l11 .,. . of indivicll1al fir111 an l
111an3 fail u 1·e , a. ,v-el l a. the a1 c ver f or111
of 111ani1)l1lation co11lcl be prev entec l or con-
t,,.
1
t,,
~,
t
(1) Ten Years ' Regu lation of the Germ an Stock
Exch ange. Yale Rev., 1908.
25
(
troll cl. I realize he diffict1lties in connection with Sl1ch exan1ination , bl1t do not be1ieve that they are prohibitor,1 •
notl1e1· ~t ~p " l1icl1 "ro lcl be of distinct
aclvantage to tl1e p111Jlic in lie ca~e of an
in~ olY nt 1ne111b( r, ,,. on]d lle the release of
the J)1·ior tlaini► no,,? 111ade an(l legally , . .ali(l,
to tl1e p1·oce<1(l ► of the .. eat lly the othe1·
n1 1111) rs of the Excha11g . In the case of
th . 1nall r holi ► • the .. eat, " . .01·th fro1n
•tt·40~ 00 to .*90!000, form from one-fourth
to ful -half of tfl capital ,ts ets of the fir1n,
anfl tl1at so large a part of the assets of the
in:ol,rent sho11lcl be tak~en from the public
~tn<l transfer1·e(l to tl1e n1 111llers of the Ex·hange e 111. l1nfair, partic11larly in vie,,,
<lf the fact that the gov-er11ing body has authority to investi~·ate the firms affair prior
to failure, ,vhich the p11lllic cloes not pos.e
On tl1e Pa1·is Bo111.. e, although not
I 0 ·ally l1ouncl to flo o, the clebt► of a mem1) 1· to tl1e pl1bli · are paid by hi~ fellow111eml1e1· . On the . . .. ,.e,, York Stock Excl1ange hL fellow-men1lJe1\ practically conRtit11t th m► elve preferr d creditors.
Tl1ese, ho"·eyer, are n1atters of detail.
Th r i►- no do11bt that 1·eform is neecle<l,
tl1at the pl1blic demands it, ancl i11tenfl~
to . ee that it i bro11ght abol1t, eithe1·
in ... ll)any or Wa hingto11.
The question
i ►, ,Yill it lle compul . 01·.,,. and wrong or
voll1nta1·v an l 1·ight? It is for the governing l)oclv of the Exchange to ans". .er,
an<l believina in the great economic val11e
ancl 11ece► .. ity of the Exh· nge and in the
l1igh p r~onal character of its meml)ers, I
tr11~ t that that bocly ""ill take s11ch action
a. ,v-ill in . 11re the 1·ight an~"re1· being given.
Fortunatel:r the1·e a1e ► icr ~ that 111any of
1
j;.
1
26
the 1nen1bers have a"rakened to a ense of
the present sit11ation an l th-eir grave responsibility toward the co11ntry. Those who
have not should remember that inaction
means legislation, and legislation means disturbance to business, the gravity of "rhich
cannot be f orecasted. The Exchange t
facing the issl1e.
I
p
