Apart from the single question of rapid telegraphic communication, there is another matter deserving of as much consideration, which is the increase in the number of large monetary and commercial centres. Of late years the growth of wealthy centres has been rapid, and the reservoirs of unemployed money have thus been increased so that a deficiency at one could be supplied from another at a price. Diseases of the body break out here and there in the world at different periods, and other centres of population get warning, and by quarantine and strict sanitary measures, its spread, as in the case of cholera, is checked. Speculation is a disease of the mind, and like diseases of the body which arise from indulgence, carelessness, and neglect, it in the same way comes to a crisis at places where greed of money, folly, and commercial debauchery hurry people into extravagances and luxury that are sure to result in a general eruption. The growing wealth of continental states is an important feature in the altering character of Europe, from a financial point of view, as we near the last quarter of the nineteenth century. As monetary centres, both Berlin and Vienna have been taking a much more prominent part since the Franco-German war than there was any prospect of their doing before the transfer of so much wealth to Germany by the war indemnity payments. At the same time, London has risen higher, and to a level of still greater importance even than she had occupied before as a trade centre. In proportion as other such centres are growing in influence with their reserves of floating capital and credit is London shored-up, so to speak, against the violence of a commercial crisis by the growth of subsidiary monetary centres, which form the second line of defence. Such a second line of defence against a sudden collapse of credit, such as we have experienced several times during this century, is of the utmost importance to a centre like London, where the existence of an elaborate system of book-credits causes such an economy of the currency.
Private Cipher Telegrams as Exterior Influences upon Priors.
Among exterior modern influences is the rapidity with which the large professional speculators obtain cipher telegrams, informing them of important events that transpire abroad which are calculated to influence prices in all markets. The effect of the rapidity with which such events are thus made known is that, whatever influence they may be calculated to exercise upon certain values, it will almost always have been discounted before the ordinary haphazard speculator gets to know anything about it. Close observers will be able to confirm this by having remarked that all political information is, as a rule, known sooner at the Stock Exchange than anywhere else.[32] So it is with all news that is likely to affect prices that are quoted in the public prints. Many a man has gone quietly up to the city some morning after studying his newspaper telegrams and bought or sold some stock on speculation, under the impression he was stealing into the enemy’s camp while the foe was asleep. On looking closer into the matter—of course when it is too late—he discovers that the information he has been so cunningly operating upon is already, for many hours, perhaps half a day, a matter of history.
The Altered Character of Interior Influences upon Prices.
The Creation of Securities to Meet the Demand.
Getting Behind the Scenes.
The Difficulty of “Cutting” a Loss.
What is the altered character of the interior influences? One, and perhaps the most, important, is, that syndicates of powerful speculators act in conjunction with the dealers in the markets. There are distinct markets for certain stocks and certain classes of stocks, and the jobbers confine themselves more or less to dealing in a few descriptions. In a wealthy community there will probably always be a large number who cannot control a restless desire to be operating in the markets, who must now and again try their hands at speculation, as circumstances seem to present favourable opportunities. There are periods in the prosperity of every community when individuals are known to have made profits in their business, and in the natural course of things seek investments for their gains. Securities at such times are created on a great scale to suit the taste and appetite of the public. In the first stages of the creation of new securities considerable profits are made by bona fide investors, which in course of time attracts the attention of speculators without means, who think that they have but to venture and they also will gain. After a time inflation sets in; and we may here ask the speculator if it ever occurs to his mind that understandings exist between the syndicates of professional speculators and the dealers, whereby the former get to know to what extent the public have bought by seeing the jobbers’ books? It is easy to see the power a syndicate with large means may exercise by such a system as this, even in a large market, supposing they could get to see the books only of the larger jobbers. We will suppose, for instance, the public can be induced to buy a certain stock largely on some fictitious information. If, at the close of each of three or four days buying for the rise, it was ascertained by an examination of the jobbers’ books that accounts were open in a stock to the extent of half a-million of money by over a hundred different purchasers, it becomes evident that there is a tree of ripe fruit grown as it were by magic, and the syndicate has nothing to do but to pluck it. Out of a hundred buyers at least a third would probably rush out and take their loss at the first indication of their being on the wrong scent. One of the great faults which characterises all speculators, with very few exceptions, is that they cannot summon courage to “cut a loss” at once. The object of buying was to gain, and the mind is associated with a profit in connection with a rise on the transaction, and it is very difficult to change about, and gain, in a negative sense, by not losing more. It is upon this weakness of speculators individually, in not being able to “cut a loss,” that bands of marble-hearted riggers lure the public into holes, and squeeze their purses before they let them out. With such tenacity do speculators hold on to a stock, hoping for a recovery when they have made a loss, that they will leave it as a man drops into the sea from a burning ship, only when he is singed by the flames. Many speculators on discovering they are on the wrong tack gather themselves up pour mieux sauter, and turn round and sell for the fall, believing they shall be quick enough to catch it and swim with the downward stream before it is spent. In the greater number of cases, such speculators watch the fall far enough to be sure they are right in their view of the way the price is going, and then they “get in.” What is the usual result? Hesitation in the second operation has caused them to miss the mark, and the account is closed with a loss on both transactions; the speculator having bought at or near the top, and sold at or near the bottom.