H S Martin.
The New York Stock Exchange; a discussion of the business done, its relation to other business, to investment, speculation and gambling; online
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THE NEW YORK
STOCK EXCHANGE
H. S. MARTIN
GIFT OF
. S.
THE
NEW YORK STOCK EXCHANGE
A Discussion of the Business Done; Its Relation to Other Business,
to Investment, Speculation and Gambling ; the Safeguards
Provided by the Exchange, and the Means
Taken to Improve the Character
of Speculation.
By H. S. MARTIN
Author of
" The New York Stock Exchange and the Money Trust '
' The Exchange as Seen from its Gallery "
New York
1919
COPYRIGHT 1919
BY H, S. MARTIN
ALL RIGHTS RESERVED
Typography, Presswork and Binding
by Francis Emory Fitch, Incorporated,
of Forty-Seven Broad St., New York
397288
FOREWORD
The New York Stock Exchange can
The be said to have been begun 125 years
Beginning ago 100 years of which it has
of the passed under a formulated Consti-
Exchange tution. Its beginning was three
years after the adoption of the
Constitution of the United States and the first
meeting of Congress, three years after George Wash-
ington first took the oath of office as President;
before coal had come into common use, while houses
were still lighted by candles; 33 years before the
first steam railroad; 53 years before the first tele-
graph message; 64 years before the first ocean cable;
74 years before the first telephone when the whole
population of the country was less than that of New
York City now; when the country's area was not
one-fifth of what it is at present; when not even
the wildest dreamer could have imagined trains
running at sixty miles an hour, wireless telegraphy,
articulated speech transmitted thousands of miles,
aerial navigation, or the gigantic business enter-
prises of the minute.
The Exchange is the great security
Business market of this country; the business
on the done upon its floor is wide-spread
Exchange in its interest and effect. The
Hughes Committee reported in 1909
that "only a small part of the transactions is of an
ii NEW YORK STOCK EXCHANGE
investment character." The 1912 Congressional
Committee reported "that in large measure trans-
actions on it are purely speculative."
Is it a gambling place, as some
Gambling or assert, or a necessary link in the
Business financial chain, as others claim?
Place Is speculation any different from
business? Is speculation the same as
gambling, or is there a wide difference? If specula-
tion is not gambling, should it be restricted because
of inherent tendencies toward evil? If not restricted
should it be encouraged, and its fundamental
principles taught? Does speculation in stocks differ
from investment? Is cash speculation less of an
evil than margin speculation? Is selling for a
decline, or shortselling an evil? Ought speculation
and the Exchange be controlled by Government?
These and other questions arise and should be ex-
amined into.
Examination shows that all busi-
Results of ness is speculation, and that the busi-
Examination ness of speculation is a trade, just
Into These as any other business is a trade;
Questions that to be successful in a business
or trade, the laws of that business
or trade must be known and followed. Examina-
tion also shows that the laws of business govern
in speculation; that what causes success or failure
in business causes it equally in speculation; that
while unhappy and regrettable results have followed
foolish speculation by unfitted persons, earnest
men have sought, have partly provided, and are
seeking further provision against their occurrence.
FOREWORD iii
Examination also shows that most
Progress men are conscious or unconscious
Impossible speculators either they personally
Without use their money in speculation, or
Speculation others use it for them; that the
great business nations are the great
speculating nations that progress is impossible
without it; that a nation without Stock Exchanges
is a nation without commerce or advancement.
Examination also shows that investment and specu-
lation differ in no essential details; that speculation
is never gambling, and gambling is never specula-
tion their nature is unlike, their results dissimilar;
that the very wide distribution of material wealth,
the constantly increasing per capita of wealth, have
flown out of speculation. Examination also shows
that progress would have been impossible without
the formation of corporations and the invention of
the stock certificate; that these have made it pos-
sible for the poorest and least intelligent to become
partners in business with the richest and most
intelligent; that the Exchange has been the great
instrument in producing this -result; that it has
helped honesty in trade; has steadied prices; has
put the man with small capital on the same footing
in trading as the man with large capital; and it has
tried to earn the good will and high regard of its
neighbors. Examination also shows that while
now and again an unworthy mem-
Integrity ber is discovered, the standard of
integrity and business morals on the
Exchange is as high as in any business in the world.
Examination also shows that the interest of the
Exchange has always been to lessen unwise specu-
iv NEW YORK STOCK EXCHANGE
lation, to secure honest corporation manage-
ment, to safeguard stockholders; that it has been
the pioneer in efforts towards those ends, and has
secured more in this direction than the acts of the
Federal and State Governments; and that its rules
are intended to prevent, and its Committees are
working for the prevention of wrongdoing and of
unwise speculation.
CONTENTS
Chapter Page
Foreword i
1. Prejudice Against Markets 1
2. Business and Speculation 19
3. Is Speculation Desirable? 37
4. Evils of Speculation 49
5. Speculation and Betting 61
6. Investment, Speculation and Gambling 69
7. Wealth; Money; Securities 85
8. The Small Investor 99
9. Market Opportunities Ill
10. Margin Trading 129
11. Partnerships and Corporations 143
12. Broker and Customer 153
13. Money, Stocks and Bonds 169
14. Money Used in Speculation 181
15. ShortSelling 195
16. Tools and Terms of Wall Street 211
17. Cautions and Precautions 221
18. What is the Stock Exchange? 229
19. The Association 233
20. The Place of Business 243
21. The Business Done 249
22. The Exchange as a Moral Force 257
23. Appendix.. 269
ILLUSTRATIONS
Page
Broad Street in 1797 Frontispiece
A Trading Post on the Floor 18
Original Agreement of 1792 36
Telegraphers on Exchange Floor 47
A Piece of Tape and Explanation thereof 48
Map of Floor of Exchange 68
Floor of the Exchange 84
A Form of Stock Certificate 98
Part of the Bond Crowd 128
A Form for Registered Bond 152
A Form for Coupon 180
Floor of Exchange decorated for Liberty Loan Rally 194
Ticker and Key-Board 220
The Stock Exchange 228
Map of Wall Street 242
Key to Map.., 248
PREJUDICE AGAINST MARKETS
"In this age of the world, are we to shut our eyes to every
teaching of the English speaking race? Are we to con-
fess ourselves more ignorant than were our forefathers
two hundred years ago? What is the history of English
commerce? What has enabled it to grow and prosper,
carry on its wings the light of civilization and religion
and truth, all over this world? What has done it, sir,
but the energies of the great commercial bodies of the
world, speaking through their chambers of commerce
and their boards of trade?" Senator (now Chief Justice)
White, United States Senate, 1892.
Speculation was born when men
Origin of first exchanged one desirable object
Speculation for another eatables for wearables,
necessities for ornaments. As in-
tercourse widened, and means of communication
increased, the exchange of these commodities
became the vocation of certain men natural traders;
gradually this class of men bought ahead and
stored for future sales, or sold ahead and bought
for future delivery; to do this they must possess
exchangeables of equal or about equal value to the
commodities thus bought or sold.
These possessions, if of similar bulk
Origin of to those to be traded in, would
Money require much space for storage.
As ornaments were more compact
in form and represented greater skill to produce,
they became standards of value; the metals of which
they were made and the glittering shells or stones
with which they were set also became standards;
thus iron, copper, silver, gold and precious jewels
became the money of trade.
2 NEW. ; yp.RK. ST.OCK EXCHANGE
The acquirement of these forms of
Organization wealth in amounts large enough
of Business to^carry on the business thus
developing necessitated protection
against marauders and the ability to readily handle
this wealth. We, therefore, find a growth in two
directions first, organization for protection, and
second, better means for effecting business opera-
tions. These have both led to the same result,
although by widely separated steps, and over a long
period of time; the first, by combinations of persons,
resulting in the establishment of corporations; the
second, by the invention of readily transferable,
transportable and protectable evidences of interest,
such as negotiable paper, checks and drafts, and
bills of exchange, with the stock certificate as the
ultimate form of easily transferable, readily trans-
portable, and most easily safeguarded evidence
of wealth.
These Jtraders were, at first, local;
Traveling'] but gradually peripatetic traders
Traders became common originally the man
with the pack, over small territory,
then their fellowship (for protection, as shown)
resulted in the caravan, composed usually of dealers
in different kinds of goods. Soon their journeyings
became periodic, and from them arose the seasonal
fairs, which originating in the fargone ages, are
still continued in many countries. No matter
how great the despotism controlling the country,
these fairs were not interfered with.
PREJUDICE AGAINST MARKETS 3
These events were great educators
Fairs not only through bringing into a
community unknown, and oftentimes
wonderfully useful and attractive wares, but also
because of the interchange of knowledge which
followed. On the arrival of the traders, the villagers
flocked around them thus a greater number of
people were brought together than by any other
then known means. The value of a market was
seen. Soon local farmers and merchants held
stated meetings for the sale of their produce and
products and the modern market had its beginning.
These markets were of two kinds,
Kinds of food markets, and goods markets
Markets although they gradually became
mixed. The food markets were
held at short intervals, say weekly or oftener;
the goods markets were held not more frequently
than four times a year. The food markets
became divided, by the kinds of foods offered for
sale highly perishable goods requiring frequent
markets; while those less perishable, such as
grains, eggs, butter, and the like, requiring less
frequent markets.
On the adjournment of a food-
Origin of the market day, unsold produce would
Middleman be bought by local dealers, for sale
between market periods to local
consumers, the dealer thus becoming a middle man
between farmer and townsman. By this means,
spoilage or wastage of produce was often reduced,
and the consumer enabled to buy in smaller quan-
tities and on more convenient occasions than on
4 NEW YORK STOCK EXCHANGE
market days, but, of course, at a higher price, due
to expenses incurred by the dealer, such as rent,
return on investment, his own and other labor, and
the like. This heightened price has been the cause
of much conflict between consumer and dealer.
Many efforts have been made to obviate or reduce
these price increases, such as co-operative stores
and other combinations, each seeking to eliminate
the storekeeper or middleman.*
The value to the world of these
Foundation markets is beyond computation;
of Education to them resorted people of all
classes, and this unhindered inter-
course bore great fruit. Not only did the merchants
display staple goods and those of the newest manu-
facture, and, by comparison, fix values and stabilize
prices; but they disseminated news of the world.
And it is not too much to say that the beginnings
of liberty! arose from the traveling packmen and the
growth of the local market.
It must not be supposed, however,
Jealousy of that these steps occurred as smoothly
Local as the telling; where the traveling
Tradesmen packman brought in goods of a
design later or more attractive than
those carried by the local tradesman a trade jealousy
was aroused, the local dealer or producer feeling
that, if outside competition could be prevented, he
could get a higher price and surer sale for his goods.
*The establishment of the Parcels Post has a bearing on this matter,
one hoped-for result of which was that direct contact between farmer and
consumer would occur. This is too recent a development to permit of a
general conclusion; but it is the opinion of some that in many cases, the
farmer is enabled to charge city prices, with no material benefit in price
reduction to the consumer. Through the operation of Produce Exchanges,
the farmer knows the wholesale city price, and is enabled to fix an approxi-
mate retail price to his mail-order customer.
tSee opinion of Chief Justice White (then Senator) on page 257.
PREJUDICE AGAINST MARKETS 5
"Each for himself," was the rule;
Beginnings a license fee was exacted of sales-
of Markets men from other localities; and so
deeply grounded did this feeling
against outside competition take hold, that these
fees continued in this country until within the past
thirty years, when the Supreme Court of the United
States decided it illegal to interfere with commerce
by such taxes.
The license fee referred to above,
Wholesale had its origin in the local market
Markets tax. The setting up of local markets
was followed with rules for their
management; the village authorities charged a tax
to those who brought in goods for sale; later,
standards for goods were established, and where
goods were below standard, spoiled or unfit for
consumption they might be destroyed and the
sellers fined. At markets in the larger cities, it
became impossible, because of the crowds, to bring
the producer into contact with the consumer; so
wholesale markets were established, in which only
producer and dealer met and bargained and where
the consumer was unseen.
The packman was originally a
Produce goods merchant; he soon discovered,
Packmen however, that food products offered
a field for profit; that prices of
foods varied in communities not far removed from
each other; and that by buying in bulk, he could
sell at a profit in smaller quantity elsewhere or
that by buying a crop before it was ripened* he might
*The beginning of "Dealing in Futures."
6 NEW YORK STOCK EXCHANGE
find opportunity to sell it at maturity at a higher
price; and to this class of business he sometimes
turned his entire attention.
To carry on this increased business,
Food he needed more capital, and better
Control hauling facilities than as a goods
merchant; and partnerships arose as
a result. The trader was a marked man, and because
of his greater wealth, was taxed for that wealth by
being charged local license fees. In addition, the
taking from a neighborhood of food products,*
caused the price of the remaining food to rise in cost,
thus irritating neighborhood buyers. The question
of food and its control, to the detriment of the con-
sumer, is perhaps the most important of all questions
to the majority of mankind; and soon laws were
enacted against food monopolization, and the
increase of food prices through such means.
However, markets persisted; their
Beginnings value could not be gainsaid. The
of Exchange middlemen who bought up locally
in quantities would meet in some
central point, usually in the largest city of the
country, and exchange their bargains, one selling to
some one else nearer the point where the goods of the
first were located, and buying from the other the goods
nearest the first one's business headquarters,
thus gaining a profit in addition to saving haulage.
At these,, points of exchange it was found necessary
to establish rules rules as to standards of quality,
*Such removals were made a criminal offense; men were pilloried and
jailed for trading for profit in such goods. (See page 40.)
PREJUDICE AGAINST MARKETS 7
as to means of payment, as to delivery, as to who
might be privileged, by reason of business standing,
to buy and sell. Guilds, composed of merchants
in the same business were instituted. Then the first
grain exchanges were established. Against these
bitterness arose;* producer and consumer each felt
that a third party was exacting tribute from both.
Broadly speaking, there is complaint
Complaint only against the middleman in
against the food products against the man who
Middleman comes in between the farmer and
the consumer. While, in every
other business middlemen exist, one hears no com-
plaint about them. The farmer thinks the store-
keeper cuts him down in buying; the consumer
thinks the storekeeper puts the price up in selling;
and complaint is made by both. The service by
the storekeeper to the farmer, in buying in bulk
and paying at once, is overlooked; the service to
the consumer, in selling in small quantity, in making
delivery, in giving credit, is overlooked. The middle-
man in food products only is complained against.
And this complaint extends to the food exchanges.
The middleman in dry goods, hardware, and other
merchandise is not complained against.
The value of exchanges to the world
Produce has been testified to by men of all
Exchanges classes, in all civilized lands; that
point has been taken up under
another heading. Here it may be said, that except
*"It is & singular fact that markets have been the subject of popular
prejudice and moral objection, almost in proportion to the perfection with
which they economize time, transportation and effort, and equalize prices."
W. S. Jevons, Theory of Political Economy, 1891.
8 NEW YORK STOCK EXCHANGE
as to farm products, there are no exchanges for dealing
in articles of household consumption; exchanges for
dealing in food products therefore come under con-
demnation by those who look at surface conditions
solely.
The stock exchanges have become
Stock heir to the feeling against food
Exchanges exchanges, partly because of similar
organization and membership, partly
because of losses by those engaging in speculation
on an unsound basis, partly because of stock prac-
tices not under the control of the Exchange, and
partly because membership in both kinds of ex-
changes represent great capital. The Stock
Exchange to many people is the embodiment of
corporate wealth.
The struggle for liberty, which has
Struggle for been in progress since man first
Liberty knew he was a man, developed in
him certain fixed prejudices. When
"might meant right," he feared the power of the
overlord, who first, by his own physical strength,
and later by that of his organization, imposed his
will on others. When feudalism was scotched, the
power of money was feared; when corporations
became common, and because of necessity became
of great size, their power was feared. And the place
where shares in corporations are dealt in, came under
the same dislike. The fact that corporations have
conferred upon mankind some of the greatest
benefits* mankind has ever received is forgotten
when this feeling takes possession of the mind.
*See quotation at head of chapter on "Partnerships and Corporations,"
page 143.
PREJUDICE AGAINST MARKETS 9
Dealers on the Stock Exchange and
Stock Trader on other Exchanges must be viewed
Not A from different standpoints. The
Middleman trader on a commodity exchange
may be looked upon as a form of
middleman, in that he stands (even though bene-
ficially) between the producer and the consumer;
but the trader on the Stock Exchange can in no
sense be so looked upon he is not a middleman in
any sense. He never comes between producer and
consumer. This is not a plea against the middleman
or the commodity exchange; but it is a plea that
whatever feeling exists against them should not be
attached to the Stock Exchange.*
In an interview reported in the
Investiga- Wall Street Journal, October 12,
tions 1912, Robert P. Doremus, the great
odd lot dealer said: "Our politicians
are legislating for a Wall Street of twenty years ago.
The stock market is not controlled by large specula-
tors creating deceptive prices by manipulative
orders. That kind of business is passing away, and
it may be also said that another kind, that of purely
gambling accounts, carried on the lightest of mar-
gins has practically gone, and is not likely to return."
The feeling against exchanges has shown it-
self in laws of various kinds, passed sometimes with-
out examination of the facts, and sometimes after
such examination. The chief of these were: (1)
the statute in England in 1734 against short selling,
*Each investigation of grain, cotton, wool and produce exchanges has
resulted in a verdict that such exchanges benefit both producer and con-
sumer.
10 NEW YORK STOCK EXCHANGE
which was proved undesirable and unenforceable;
(2) the statute in New York, in 1857, also against
short selling, and also undesirable and unenforceable;
(3) the United States law against gold speculation,
which was repealed in fourteen days after its passage;
(4) the investigation in 1878 of the London Stock
Exchange resulting in the upholding of their system;
(5) the agitation in 1888, through the sudden growth
of Populism in this country, resulting in the Hatch
commission, an investigation by both houses of Con-
gress, and the complete upholding of grain speculation;
(6) the laws against speculation adopted in Germany
in 1896, and repealed gradually because of their
proved unsound foundation; (7) the investigation in
1908 of the New York Stock Exchange, by the
commission appointed by Governor Hughes, of New
York; (8) the investigation of the Exchange in 1912
and 1913 by Congress, and (9) of 1913 by the
Legislature of New York. With the three latter we are
most concerned, and they will be looked into briefly.
The Hatch Industrial Commission,
Unlisted appointed to investigate trading
Department in grain and other commodities,
incidentally looked into stock trad-
ing; there was about this time trading going on
outside the Stock Exchange, on the Curb; criticisms
of this outside trading were many and severe, both
as to the kind of speculations dealt in, and the kind
of dealers. The Exchange was looked to to remedy
this, insofar as possible; it therefore afforded a place
in the Exchange for dealing in a few of the larger
and better known outside securities. This was known
as the Unlisted Department.
PREJUDICE AGAINST MARKETS 11
In this Department, stocks were
Extension dealt in of companies which pub-
of this lished a certain amount of informa-
Department tion about their doings, but not so
full information as was required
regarding listed stocks. These companies claimed
that to publish full information would be giving
their competitors an unfair advantage; this plea
seemed well founded, and the Exchange published
transactions in Listed Stocks on one sheet and of
the Unlisted Stocks on another sheet. The news-
papers, however, did not so separate the trans-
actions, but grouped them all together, merely
placing a * in front of the Unlisted Stocks. This
manner of publishing was later made the cause of
bitter assaults upon the Exchange by the newspapers.
Gradually the Exchange got fuller and fuller informa-
tion from most of these companies, until the in-
formation published about Unlisted Stocks was
practically as great as that published about Listed
Stocks.
In 1905 a book called "Frenzied
Frenzied Finance" made its appearance; it
Finance was issued by a Boston broker,
who had been a member of a Stock
Exchange firm, but whose advertising methods
caused his withdrawal from his firm. This broker
attacked the exchanges; he freely admitted that
for pay he had used very objectionable methods
in stock speculation, but made the naive excuse
that it was the "system" that was dishonest, and
not men like himself who used it in the methods
described by him; he claimed a change of heart,
and attacked, through his book, his former employers
12 NEW YORK STOCK EXCHANGE
and the ' 'system." Along with this, he published
STOCK EXCHANGE
H. S. MARTIN
GIFT OF
. S.
THE
NEW YORK STOCK EXCHANGE
A Discussion of the Business Done; Its Relation to Other Business,
to Investment, Speculation and Gambling ; the Safeguards
Provided by the Exchange, and the Means
Taken to Improve the Character
of Speculation.
By H. S. MARTIN
Author of
" The New York Stock Exchange and the Money Trust '
' The Exchange as Seen from its Gallery "
New York
1919
COPYRIGHT 1919
BY H, S. MARTIN
ALL RIGHTS RESERVED
Typography, Presswork and Binding
by Francis Emory Fitch, Incorporated,
of Forty-Seven Broad St., New York
397288
FOREWORD
The New York Stock Exchange can
The be said to have been begun 125 years
Beginning ago 100 years of which it has
of the passed under a formulated Consti-
Exchange tution. Its beginning was three
years after the adoption of the
Constitution of the United States and the first
meeting of Congress, three years after George Wash-
ington first took the oath of office as President;
before coal had come into common use, while houses
were still lighted by candles; 33 years before the
first steam railroad; 53 years before the first tele-
graph message; 64 years before the first ocean cable;
74 years before the first telephone when the whole
population of the country was less than that of New
York City now; when the country's area was not
one-fifth of what it is at present; when not even
the wildest dreamer could have imagined trains
running at sixty miles an hour, wireless telegraphy,
articulated speech transmitted thousands of miles,
aerial navigation, or the gigantic business enter-
prises of the minute.
The Exchange is the great security
Business market of this country; the business
on the done upon its floor is wide-spread
Exchange in its interest and effect. The
Hughes Committee reported in 1909
that "only a small part of the transactions is of an
ii NEW YORK STOCK EXCHANGE
investment character." The 1912 Congressional
Committee reported "that in large measure trans-
actions on it are purely speculative."
Is it a gambling place, as some
Gambling or assert, or a necessary link in the
Business financial chain, as others claim?
Place Is speculation any different from
business? Is speculation the same as
gambling, or is there a wide difference? If specula-
tion is not gambling, should it be restricted because
of inherent tendencies toward evil? If not restricted
should it be encouraged, and its fundamental
principles taught? Does speculation in stocks differ
from investment? Is cash speculation less of an
evil than margin speculation? Is selling for a
decline, or shortselling an evil? Ought speculation
and the Exchange be controlled by Government?
These and other questions arise and should be ex-
amined into.
Examination shows that all busi-
Results of ness is speculation, and that the busi-
Examination ness of speculation is a trade, just
Into These as any other business is a trade;
Questions that to be successful in a business
or trade, the laws of that business
or trade must be known and followed. Examina-
tion also shows that the laws of business govern
in speculation; that what causes success or failure
in business causes it equally in speculation; that
while unhappy and regrettable results have followed
foolish speculation by unfitted persons, earnest
men have sought, have partly provided, and are
seeking further provision against their occurrence.
FOREWORD iii
Examination also shows that most
Progress men are conscious or unconscious
Impossible speculators either they personally
Without use their money in speculation, or
Speculation others use it for them; that the
great business nations are the great
speculating nations that progress is impossible
without it; that a nation without Stock Exchanges
is a nation without commerce or advancement.
Examination also shows that investment and specu-
lation differ in no essential details; that speculation
is never gambling, and gambling is never specula-
tion their nature is unlike, their results dissimilar;
that the very wide distribution of material wealth,
the constantly increasing per capita of wealth, have
flown out of speculation. Examination also shows
that progress would have been impossible without
the formation of corporations and the invention of
the stock certificate; that these have made it pos-
sible for the poorest and least intelligent to become
partners in business with the richest and most
intelligent; that the Exchange has been the great
instrument in producing this -result; that it has
helped honesty in trade; has steadied prices; has
put the man with small capital on the same footing
in trading as the man with large capital; and it has
tried to earn the good will and high regard of its
neighbors. Examination also shows that while
now and again an unworthy mem-
Integrity ber is discovered, the standard of
integrity and business morals on the
Exchange is as high as in any business in the world.
Examination also shows that the interest of the
Exchange has always been to lessen unwise specu-
iv NEW YORK STOCK EXCHANGE
lation, to secure honest corporation manage-
ment, to safeguard stockholders; that it has been
the pioneer in efforts towards those ends, and has
secured more in this direction than the acts of the
Federal and State Governments; and that its rules
are intended to prevent, and its Committees are
working for the prevention of wrongdoing and of
unwise speculation.
CONTENTS
Chapter Page
Foreword i
1. Prejudice Against Markets 1
2. Business and Speculation 19
3. Is Speculation Desirable? 37
4. Evils of Speculation 49
5. Speculation and Betting 61
6. Investment, Speculation and Gambling 69
7. Wealth; Money; Securities 85
8. The Small Investor 99
9. Market Opportunities Ill
10. Margin Trading 129
11. Partnerships and Corporations 143
12. Broker and Customer 153
13. Money, Stocks and Bonds 169
14. Money Used in Speculation 181
15. ShortSelling 195
16. Tools and Terms of Wall Street 211
17. Cautions and Precautions 221
18. What is the Stock Exchange? 229
19. The Association 233
20. The Place of Business 243
21. The Business Done 249
22. The Exchange as a Moral Force 257
23. Appendix.. 269
ILLUSTRATIONS
Page
Broad Street in 1797 Frontispiece
A Trading Post on the Floor 18
Original Agreement of 1792 36
Telegraphers on Exchange Floor 47
A Piece of Tape and Explanation thereof 48
Map of Floor of Exchange 68
Floor of the Exchange 84
A Form of Stock Certificate 98
Part of the Bond Crowd 128
A Form for Registered Bond 152
A Form for Coupon 180
Floor of Exchange decorated for Liberty Loan Rally 194
Ticker and Key-Board 220
The Stock Exchange 228
Map of Wall Street 242
Key to Map.., 248
PREJUDICE AGAINST MARKETS
"In this age of the world, are we to shut our eyes to every
teaching of the English speaking race? Are we to con-
fess ourselves more ignorant than were our forefathers
two hundred years ago? What is the history of English
commerce? What has enabled it to grow and prosper,
carry on its wings the light of civilization and religion
and truth, all over this world? What has done it, sir,
but the energies of the great commercial bodies of the
world, speaking through their chambers of commerce
and their boards of trade?" Senator (now Chief Justice)
White, United States Senate, 1892.
Speculation was born when men
Origin of first exchanged one desirable object
Speculation for another eatables for wearables,
necessities for ornaments. As in-
tercourse widened, and means of communication
increased, the exchange of these commodities
became the vocation of certain men natural traders;
gradually this class of men bought ahead and
stored for future sales, or sold ahead and bought
for future delivery; to do this they must possess
exchangeables of equal or about equal value to the
commodities thus bought or sold.
These possessions, if of similar bulk
Origin of to those to be traded in, would
Money require much space for storage.
As ornaments were more compact
in form and represented greater skill to produce,
they became standards of value; the metals of which
they were made and the glittering shells or stones
with which they were set also became standards;
thus iron, copper, silver, gold and precious jewels
became the money of trade.
2 NEW. ; yp.RK. ST.OCK EXCHANGE
The acquirement of these forms of
Organization wealth in amounts large enough
of Business to^carry on the business thus
developing necessitated protection
against marauders and the ability to readily handle
this wealth. We, therefore, find a growth in two
directions first, organization for protection, and
second, better means for effecting business opera-
tions. These have both led to the same result,
although by widely separated steps, and over a long
period of time; the first, by combinations of persons,
resulting in the establishment of corporations; the
second, by the invention of readily transferable,
transportable and protectable evidences of interest,
such as negotiable paper, checks and drafts, and
bills of exchange, with the stock certificate as the
ultimate form of easily transferable, readily trans-
portable, and most easily safeguarded evidence
of wealth.
These Jtraders were, at first, local;
Traveling'] but gradually peripatetic traders
Traders became common originally the man
with the pack, over small territory,
then their fellowship (for protection, as shown)
resulted in the caravan, composed usually of dealers
in different kinds of goods. Soon their journeyings
became periodic, and from them arose the seasonal
fairs, which originating in the fargone ages, are
still continued in many countries. No matter
how great the despotism controlling the country,
these fairs were not interfered with.
PREJUDICE AGAINST MARKETS 3
These events were great educators
Fairs not only through bringing into a
community unknown, and oftentimes
wonderfully useful and attractive wares, but also
because of the interchange of knowledge which
followed. On the arrival of the traders, the villagers
flocked around them thus a greater number of
people were brought together than by any other
then known means. The value of a market was
seen. Soon local farmers and merchants held
stated meetings for the sale of their produce and
products and the modern market had its beginning.
These markets were of two kinds,
Kinds of food markets, and goods markets
Markets although they gradually became
mixed. The food markets were
held at short intervals, say weekly or oftener;
the goods markets were held not more frequently
than four times a year. The food markets
became divided, by the kinds of foods offered for
sale highly perishable goods requiring frequent
markets; while those less perishable, such as
grains, eggs, butter, and the like, requiring less
frequent markets.
On the adjournment of a food-
Origin of the market day, unsold produce would
Middleman be bought by local dealers, for sale
between market periods to local
consumers, the dealer thus becoming a middle man
between farmer and townsman. By this means,
spoilage or wastage of produce was often reduced,
and the consumer enabled to buy in smaller quan-
tities and on more convenient occasions than on
4 NEW YORK STOCK EXCHANGE
market days, but, of course, at a higher price, due
to expenses incurred by the dealer, such as rent,
return on investment, his own and other labor, and
the like. This heightened price has been the cause
of much conflict between consumer and dealer.
Many efforts have been made to obviate or reduce
these price increases, such as co-operative stores
and other combinations, each seeking to eliminate
the storekeeper or middleman.*
The value to the world of these
Foundation markets is beyond computation;
of Education to them resorted people of all
classes, and this unhindered inter-
course bore great fruit. Not only did the merchants
display staple goods and those of the newest manu-
facture, and, by comparison, fix values and stabilize
prices; but they disseminated news of the world.
And it is not too much to say that the beginnings
of liberty! arose from the traveling packmen and the
growth of the local market.
It must not be supposed, however,
Jealousy of that these steps occurred as smoothly
Local as the telling; where the traveling
Tradesmen packman brought in goods of a
design later or more attractive than
those carried by the local tradesman a trade jealousy
was aroused, the local dealer or producer feeling
that, if outside competition could be prevented, he
could get a higher price and surer sale for his goods.
*The establishment of the Parcels Post has a bearing on this matter,
one hoped-for result of which was that direct contact between farmer and
consumer would occur. This is too recent a development to permit of a
general conclusion; but it is the opinion of some that in many cases, the
farmer is enabled to charge city prices, with no material benefit in price
reduction to the consumer. Through the operation of Produce Exchanges,
the farmer knows the wholesale city price, and is enabled to fix an approxi-
mate retail price to his mail-order customer.
tSee opinion of Chief Justice White (then Senator) on page 257.
PREJUDICE AGAINST MARKETS 5
"Each for himself," was the rule;
Beginnings a license fee was exacted of sales-
of Markets men from other localities; and so
deeply grounded did this feeling
against outside competition take hold, that these
fees continued in this country until within the past
thirty years, when the Supreme Court of the United
States decided it illegal to interfere with commerce
by such taxes.
The license fee referred to above,
Wholesale had its origin in the local market
Markets tax. The setting up of local markets
was followed with rules for their
management; the village authorities charged a tax
to those who brought in goods for sale; later,
standards for goods were established, and where
goods were below standard, spoiled or unfit for
consumption they might be destroyed and the
sellers fined. At markets in the larger cities, it
became impossible, because of the crowds, to bring
the producer into contact with the consumer; so
wholesale markets were established, in which only
producer and dealer met and bargained and where
the consumer was unseen.
The packman was originally a
Produce goods merchant; he soon discovered,
Packmen however, that food products offered
a field for profit; that prices of
foods varied in communities not far removed from
each other; and that by buying in bulk, he could
sell at a profit in smaller quantity elsewhere or
that by buying a crop before it was ripened* he might
*The beginning of "Dealing in Futures."
6 NEW YORK STOCK EXCHANGE
find opportunity to sell it at maturity at a higher
price; and to this class of business he sometimes
turned his entire attention.
To carry on this increased business,
Food he needed more capital, and better
Control hauling facilities than as a goods
merchant; and partnerships arose as
a result. The trader was a marked man, and because
of his greater wealth, was taxed for that wealth by
being charged local license fees. In addition, the
taking from a neighborhood of food products,*
caused the price of the remaining food to rise in cost,
thus irritating neighborhood buyers. The question
of food and its control, to the detriment of the con-
sumer, is perhaps the most important of all questions
to the majority of mankind; and soon laws were
enacted against food monopolization, and the
increase of food prices through such means.
However, markets persisted; their
Beginnings value could not be gainsaid. The
of Exchange middlemen who bought up locally
in quantities would meet in some
central point, usually in the largest city of the
country, and exchange their bargains, one selling to
some one else nearer the point where the goods of the
first were located, and buying from the other the goods
nearest the first one's business headquarters,
thus gaining a profit in addition to saving haulage.
At these,, points of exchange it was found necessary
to establish rules rules as to standards of quality,
*Such removals were made a criminal offense; men were pilloried and
jailed for trading for profit in such goods. (See page 40.)
PREJUDICE AGAINST MARKETS 7
as to means of payment, as to delivery, as to who
might be privileged, by reason of business standing,
to buy and sell. Guilds, composed of merchants
in the same business were instituted. Then the first
grain exchanges were established. Against these
bitterness arose;* producer and consumer each felt
that a third party was exacting tribute from both.
Broadly speaking, there is complaint
Complaint only against the middleman in
against the food products against the man who
Middleman comes in between the farmer and
the consumer. While, in every
other business middlemen exist, one hears no com-
plaint about them. The farmer thinks the store-
keeper cuts him down in buying; the consumer
thinks the storekeeper puts the price up in selling;
and complaint is made by both. The service by
the storekeeper to the farmer, in buying in bulk
and paying at once, is overlooked; the service to
the consumer, in selling in small quantity, in making
delivery, in giving credit, is overlooked. The middle-
man in food products only is complained against.
And this complaint extends to the food exchanges.
The middleman in dry goods, hardware, and other
merchandise is not complained against.
The value of exchanges to the world
Produce has been testified to by men of all
Exchanges classes, in all civilized lands; that
point has been taken up under
another heading. Here it may be said, that except
*"It is & singular fact that markets have been the subject of popular
prejudice and moral objection, almost in proportion to the perfection with
which they economize time, transportation and effort, and equalize prices."
W. S. Jevons, Theory of Political Economy, 1891.
8 NEW YORK STOCK EXCHANGE
as to farm products, there are no exchanges for dealing
in articles of household consumption; exchanges for
dealing in food products therefore come under con-
demnation by those who look at surface conditions
solely.
The stock exchanges have become
Stock heir to the feeling against food
Exchanges exchanges, partly because of similar
organization and membership, partly
because of losses by those engaging in speculation
on an unsound basis, partly because of stock prac-
tices not under the control of the Exchange, and
partly because membership in both kinds of ex-
changes represent great capital. The Stock
Exchange to many people is the embodiment of
corporate wealth.
The struggle for liberty, which has
Struggle for been in progress since man first
Liberty knew he was a man, developed in
him certain fixed prejudices. When
"might meant right," he feared the power of the
overlord, who first, by his own physical strength,
and later by that of his organization, imposed his
will on others. When feudalism was scotched, the
power of money was feared; when corporations
became common, and because of necessity became
of great size, their power was feared. And the place
where shares in corporations are dealt in, came under
the same dislike. The fact that corporations have
conferred upon mankind some of the greatest
benefits* mankind has ever received is forgotten
when this feeling takes possession of the mind.
*See quotation at head of chapter on "Partnerships and Corporations,"
page 143.
PREJUDICE AGAINST MARKETS 9
Dealers on the Stock Exchange and
Stock Trader on other Exchanges must be viewed
Not A from different standpoints. The
Middleman trader on a commodity exchange
may be looked upon as a form of
middleman, in that he stands (even though bene-
ficially) between the producer and the consumer;
but the trader on the Stock Exchange can in no
sense be so looked upon he is not a middleman in
any sense. He never comes between producer and
consumer. This is not a plea against the middleman
or the commodity exchange; but it is a plea that
whatever feeling exists against them should not be
attached to the Stock Exchange.*
In an interview reported in the
Investiga- Wall Street Journal, October 12,
tions 1912, Robert P. Doremus, the great
odd lot dealer said: "Our politicians
are legislating for a Wall Street of twenty years ago.
The stock market is not controlled by large specula-
tors creating deceptive prices by manipulative
orders. That kind of business is passing away, and
it may be also said that another kind, that of purely
gambling accounts, carried on the lightest of mar-
gins has practically gone, and is not likely to return."
The feeling against exchanges has shown it-
self in laws of various kinds, passed sometimes with-
out examination of the facts, and sometimes after
such examination. The chief of these were: (1)
the statute in England in 1734 against short selling,
*Each investigation of grain, cotton, wool and produce exchanges has
resulted in a verdict that such exchanges benefit both producer and con-
sumer.
10 NEW YORK STOCK EXCHANGE
which was proved undesirable and unenforceable;
(2) the statute in New York, in 1857, also against
short selling, and also undesirable and unenforceable;
(3) the United States law against gold speculation,
which was repealed in fourteen days after its passage;
(4) the investigation in 1878 of the London Stock
Exchange resulting in the upholding of their system;
(5) the agitation in 1888, through the sudden growth
of Populism in this country, resulting in the Hatch
commission, an investigation by both houses of Con-
gress, and the complete upholding of grain speculation;
(6) the laws against speculation adopted in Germany
in 1896, and repealed gradually because of their
proved unsound foundation; (7) the investigation in
1908 of the New York Stock Exchange, by the
commission appointed by Governor Hughes, of New
York; (8) the investigation of the Exchange in 1912
and 1913 by Congress, and (9) of 1913 by the
Legislature of New York. With the three latter we are
most concerned, and they will be looked into briefly.
The Hatch Industrial Commission,
Unlisted appointed to investigate trading
Department in grain and other commodities,
incidentally looked into stock trad-
ing; there was about this time trading going on
outside the Stock Exchange, on the Curb; criticisms
of this outside trading were many and severe, both
as to the kind of speculations dealt in, and the kind
of dealers. The Exchange was looked to to remedy
this, insofar as possible; it therefore afforded a place
in the Exchange for dealing in a few of the larger
and better known outside securities. This was known
as the Unlisted Department.
PREJUDICE AGAINST MARKETS 11
In this Department, stocks were
Extension dealt in of companies which pub-
of this lished a certain amount of informa-
Department tion about their doings, but not so
full information as was required
regarding listed stocks. These companies claimed
that to publish full information would be giving
their competitors an unfair advantage; this plea
seemed well founded, and the Exchange published
transactions in Listed Stocks on one sheet and of
the Unlisted Stocks on another sheet. The news-
papers, however, did not so separate the trans-
actions, but grouped them all together, merely
placing a * in front of the Unlisted Stocks. This
manner of publishing was later made the cause of
bitter assaults upon the Exchange by the newspapers.
Gradually the Exchange got fuller and fuller informa-
tion from most of these companies, until the in-
formation published about Unlisted Stocks was
practically as great as that published about Listed
Stocks.
In 1905 a book called "Frenzied
Frenzied Finance" made its appearance; it
Finance was issued by a Boston broker,
who had been a member of a Stock
Exchange firm, but whose advertising methods
caused his withdrawal from his firm. This broker
attacked the exchanges; he freely admitted that
for pay he had used very objectionable methods
in stock speculation, but made the naive excuse
that it was the "system" that was dishonest, and
not men like himself who used it in the methods
described by him; he claimed a change of heart,
and attacked, through his book, his former employers
12 NEW YORK STOCK EXCHANGE
and the ' 'system." Along with this, he published
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