The Theory of Stock Exchange Speculation

by Arthur Crump

Closer uniformity of Values in all Markets through the Development of the Telegraph System.

A Speculator cannot hope to succeed in any Degree unless his Arrangements are as Complete as those of a Man engaged in Bona Fide Business.

All the markets of the world are regulated to a greater nicety as regards value since the more complete development of railroads and of the telegraph system. Each great article of commerce has its head quarters in its respective country, and value from that point is regulated at all the minor stations where it is dealt in, to use a metaphor, in the same way that the right time is flashed through the electric wire to the principal clocks in England at one o’clock from the Observatory at Greenwich. It is the custom consequently for all the leading merchants and dealers to be supplied by telegram with the prices current of those articles dealt in in all other markets, in which they are mainly interested. To compete with those who make a steady profit by buying and selling in obedience to bona fide orders, a speculator must at least have his arrangements on a par with the non-speculator, if even then he can expect to hold his own without a still more elaborate and costly system of obtaining information, as his necessary profits can in most cases only be secured by his being in a position to anticipate a coming change.

The Diminution of Gluts in all Markets.

Modern Conditions render it more difficult than formerly for Small Mercantile Houses to Succeed.

Whatever be the operations of speculators who employ little or no capital of their own, or the nature of the transactions of those who risk what they have belonging to them by consigning goods of various descriptions to distant markets in the future, there can never be the same gluts that have characterized the trading of former times. It would, indeed, seem that the commerce of the world must by degrees be carried on more and more by a smaller number of powerful merchants, relatively to the increase of populations and the growth of commerce, and less and less by a greater number of small weak houses. The nature of the system which is growing up under the new order of things will preclude from serious competition any but those who can afford from the commencement to start upon somewhat the same principles of action as those who already carry on and regulate the trade of the world. What chance, for instance, can a man have who starts in the Manchester goods trade, with a view to shipments to the great foreign and colonial markets, unless he can be in a position, by means of his telegraphic information from all the necessary quarters, not only to avoid sending from Manchester, goods to any particular quarter where the market is unfavourable, but also to divert a shipment already on the passage from its intended destination to some other point where, in the meantime, prices have risen?

As the system by which the interchange of commodities is effected becomes more and more perfected, and as the division of labour settles itself down into a well-defined science by the good and skilful workmen concentrating their efforts, and by the bad and unfit labourers being forced to abandon what they are unsuited for, so will the demand for all the great luxuries and necessities of life be supplied more completely on the joint stock principle. We see this in all directions growing up under our eyes. Wherever a large demand exists for any service, such, for instance, as transport, or for any article of use or consumption, there will the means of supplying both be organized. We have seen it in armies, in fleets, and in the government of countries for centuries; and we have been watching it for forty years in, perhaps, the most astonishing instance there is, viz., in railways. Formerly everybody drove in his own coach about the country, now nobody does. We have seen it for years past in banking, which, from the nature of the business, would be the most easily reformed upon the joint stock principle. It has also been working and making inroads upon commercial houses with a force which in the end will be irresistible, and which from year to year makes it more difficult for small firms with small capitals, to hold their own against the larger organisations, just as it is out of the question for any private person now to start a bank.

Every Commercial Revulsion destroys Houses of a Speculative Character, and throws the Good Business into the Hands of the Large, Sound Establishments.

The incalculable mischief that is caused in commercial affairs at certain periods, arises for the most part from the operations of comparatively small houses, which have insufficient capital to enable them to lay down the necessary machinery for duly informing themselves upon all the needful points about which they should be accurately posted with untiring continuity. In a great commercial city a thoroughly experienced banker or money-lender can say very nearly by heart the names of the merchant houses who are known to be beyond all question good for any amount for which they may write their signature. Starting from this nucleus, circles may be drawn defining the various degrees of credit which may be allowed to commercial houses, until a supposed outermost and largest ring of all is reached, which includes the shaky, struggling, poor establishments. Those whose knowledge and experience in such matters is very great could so classify all traders. Now, it must be evident that when the chaos which follows a violent commercial revulsion begins to be transformed into order, the business which the withdrawal of confidence is sure to throw as much as possible upon the centre or nucleus of firms which are comparatively unaffected by any revulsion, will commence gradually to work outwards again, overflowing ring after ring of the supposed lines which we suggest as defining the degrees of stability. This ebb and flow of the tide of credit, so to speak, is the result of competition, and of the fluctuations in commercial affairs, and must always recur with greater or less force and rapidity. It is an automatic working of the laws of commercial affairs which characterizes all markets. As the nature of a large proportion of mercantile business must partake more and more of the speculative character to keep pace with the keener competition of greater capitals employed by a larger number of first-class firms, so must the machinery requisite for each individual firm under the altered circumstances through which prices are affected in all markets become more elaborate. If this view be correct it would seem to follow that the important business of the world must be more and more settling itself into the hands of large capitalists; and that although new houses in all departments of trade will always be starting in proportion to the aggregate growth of the commerce of the world, the large and strong firms will increase in a greater ratio, and the number of the small ones will tend to diminish.