It is claimed in behalf of these privileges that they are, in their essence, really contracts of insurance, and as such are entirely legitimate. The general public, however, has always regarded them as a complex system of betting, and believes that they constitute one of the most pernicious features of the exchange. The fallacy of the argument in their favor, above outlined, becomes apparent when it is remembered that the law regards all contracts of insurance as being one form of gambling, and sanctions and enforces them only on grounds of public policy. The burden of proof is upon the defenders of “puts” and “calls” to show that, even if it be conceded that they are contracts of insurance, they can be justified as being necessary to the furtherance of commerce or the welfare of society. That they do not tend to promote commerce is shown by the fact that neither party to the transaction for a moment contemplates the actual delivery of the article bought or sold. It is essentially a wager between two individuals as to the future course of the market, one betting that prices will advance, and the other that they will decline. The absurdity of claiming that they promote the general welfare of society, (were such a claim advanced), may be easily demonstrated by calling attention to the economic consideration that the winner has done nothing to produce the money which he pockets, and by pointing to the pecuniary loss and moral debasement which they entail. They sustain somewhat of the same relation to the dealings of the large operators as does the keno room to the faro bank.
The legislature of Illinois, a few years ago, placed the seal of its condemnation upon the practice by making it a misdemeanor to deal in privileges. It is said (although the author is unable to vouch for the truth of the statement), that this virtuous action on the part of the lawmakers was due to the influence brought to bear upon them by a well-known member of the Chicago Board of Trade, who had been dealing extensively in “puts” and “calls,” and had lost heavily. However that may be, the Chicago Board, after permitting the practice for years, adopted a rule prohibiting their sale, and even went to the length of suspending a few members for its violation, among them being one of the most prominent operators upon the floor. This spasm of virtue, however, was not of long duration, and at the present time such privileges may be procured from members of that august body with the greatest ease.
The action of this great Western Exchange in the premises may possibly have been prompted by motives other than a desire to comply with the statutes. Long after the enactment of the law, privileges were sold as freely as before its passage. In time, however, it was found to be a two-edged sword. Operators found it possible to purchase “puts” for the purpose of buying against them, and to buy “calls” with a view to shield themselves from loss when they became “bears.” Thus an army of sellers appeared when the “call” price was reached, and a horde of buyers when the market touched the price at which “puts” had been sold, the consequence being that the range of the market was curtailed. Members objected to tactics which robbed the market of that elasticity so dear to the speculator’s heart. Carping critics say that the virtue of the directors was the outgrowth of disappointed[disappointed] self-seeking. In other words—speculation—the very life-blood of the exchange was being curtailed. Hinc illae lachrymae.
But the action of the directors, as was soon found, rendered it possible for certain members, who were willing to incur the risk, to do a thriving business in privileges provided the transactions were secret. Of course firms desiring to obey the rules were at a disadvantage, and legitimate brokerage suffered. There was one obvious, logical conclusion: “Allow every one to engage in the business or no one.” This commended itself to common sense, and a carefully worded resolution was adopted, the practical effect of which, as every one understood it, was virtually to remove the ban from the sale of privileges. Since that time, “puts” and “calls” may be purchased with the same ease as one may pay his taxes.
But let us return to the methods employed in the manipulation of prices. Reference has been already made to the very common practice of attempting to “bull” or “bear” quotations by buying or selling large quantities, or “blocks” of some particular article. There is probably no description of market in the world so extremely sensitive as the commercial exchange. A sale or purchase of any given commodity by certain, well-known operators, is often sufficient to excite its pulse to fever heat. A similar result may ensue from a report that the Secretary of the Treasury contemplates a call of a certain denomination of bonds; that Bismarck had been heard to say that the French blood was too thin and needed a little more iron; that a norther in Texas had killed a herd of cattle; that a few grasshoppers had been seen in the neighborhood of Fargo; or that the mercury was believed to be about to fall in Northern Minnesota. The great speculators, the master minds of these gigantic institutions, are quick to perceive this sensitiveness, and equally prompt to avail themselves of it. Fictitious news is as potent an agency in advancing or depressing prices as is the genuine article, and it is a sad truth that there are not wanting large operators who do not scruple to employ it. It is said—and there is good reason to believe the statement to be true—that there are men at all great commercial centers whose only occupation is the dissemination of unfounded reports, with a view of raising or lowering the prices of certain commodities in regard to which the rise or fall of a fraction of a cent may mean the gain or loss of millions. These manufacturers of fictitious news are said to “wear purple and fine linen and fare sumptuously every day.” The results of their operations are to be found in the wrecking of important financial and corporate interests and the corresponding enrichment of the unprincipled manipulators who employ them.
Some years ago, there came a mysterious rumor to the New York Stock Exchange, that the directors of a certain railroad in the Northwest had decided upon taking a step which could not fail to prove disastrous in the extreme to the interests of the corporation. No one was able to tell just where the rumor originated, yet it found sufficient credence to depress the price of the road’s stock, and to induce free selling. The next day came the refutation of the story; the stock recovered its tone, and the clique in whose interest the lie had been sent over the wires reaped a profit of $60,000. In the slang of Wall Street this was called “a plum.” It is difficult to see the difference in moral turpitude between such tactics as these and “steering” for a “brace” faro bank.
An acquaintance of the author, who served with distinction during the late civil war, on his return home, was employed by a company owning alleged oil lands in Pennsylvania, to superintend the sinking of wells within its territory. The salary was liberal and the duties not arduous. Wells were duly sunk, but no oil discovered, after a time, the gentleman in question received instructions from the headquarters of the company in an Eastern city to telegraph, on a certain day, that a well recently sunk, was yielding a certain large number of barrels per day. This dispatch was to be followed, a day later, by one of similar tenor, making a like assertion in reference to another well. The party who gave these instructions well knew that a certain class of speculators on the exchanges are in the habit of discounting private information through the bribery of telegraph employees, and he placed no little reliance upon this fact for the furtherance of his scheme. The event proved that he had calculated wisely. The telegrams were duly sent and were read by other parties before they reached the man to whom they were addressed. The result was that the company’s stock bounded upward with the celerity of a rubber-ball, and the projectors of the enterprize unloaded at an enormous profit. Of course, the purchasers found out that they had been deceived, but as none of the officers of the corporation had disseminated the report of the finding of oil, it was impossible to attach any responsibility to them.
And yet there are not wanting those who affirm, and stoutly maintain, that without the commercial exchange, business would be brought to a stand-still, and commerce paralyzed; that Boards of Trade and Produce and Stock Exchanges are prime factors in advancing the welfare of the country. And this is said despite the fact that the percentage of legitimate business done is utterly insignificant in comparison with that which is purely speculative in its character. The sales of one agricultural product alone upon the floor of a single mart of this sort for one month alone have been known to equal the production of the entire country for a whole year! Is this legitimate commerce, or is it gambling on the wildest and most extensive scale? Members of various Boards in the United States who assume to do a strictly legitimate business, send out circulars through the rural districts, the sole object of which is to induce the recipients to speculate upon the floor of ’Change. These communications depict, in glowing terms, the ease and certainty with which ignorant countrymen may acquire fortunes in a day, through the purchase of a “put” or a “call,” or a “straddle.” They purport to explain, fully and clearly, the methods of speculating in stocks and grain, and represent the system as simple and easily comprehensible, while the authors know that the system is in itself complex and the issue a venture—at the very best—uncertain. It is not pretended that the transaction contemplates an actual transfer of the commodity from seller to buyer. Is this frank? Is it manly? Is it honest?
Scarcely a decade has passed since the whole country rung with the echoes of the “Fund W” scandal. Unquestionably the men who engineered that gigantic scheme of fraud were not representative members of any commercial exchange, yet it is equally certain that but for the facilities afforded for the perpetration of the fraud through the Exchanges’ methods of doing business, that stupendous swindle would have been impossible. Yet the infatuated speculators who do business through legitimate houses, believe that they can trust their own judgment as to the future of the market! It may be that such folly has its parallel, but it is not to be found in that of the man who stakes his money on the issuance of a particular card from a faro box.
Few of those who have never witnessed the daily routine of business on the floor of an Exchange can conceive the wild uproar, the hubbub, the confusion, the tumultuous excitement, which there reigns supreme. Let us take a glance at one of the best known. During the busy hours of the session the floor of the magnificently proportioned room is crowded. Scattered about at distances more or less regular, are large marble-topped tables, about which gather groups of men engaged in quiet, though sometimes earnest, conversation. These tables contain drawers, in which members, who pay well for the privilege, keep samples of the commodities in which they deal. Hurrying to and fro about the room may be seen brokers and their clerks, carrying in their hands small paper bags, containing samples of grain which has been consigned by growers or other shippers, for sale. Similar bags are strewed all over the tables. Everything indicates activity, and it is evident that important business is being transacted. The sound of the voices of the traders rising from the floor to the visitors’ gallery, joined to the clicking of the myriad of telegraphic instruments, reminds one of the ceaseless hum of bees around a hive, heard in midsummer, when the nodding clover and bending buckwheat invite the tireless workers to taste their sweets.