By the aid of the £1 share, all manner of enterprises have during the last fifteen years, or since 1890, been converted into joint-stock companies on the basis of an excessive capitalisation that would have been impossible to the same extent under the old fashion of the £10, £20, £50, or £100 share; and the losses consequent upon the unprincipled rapacity of the promoter, gratified by means of this ensnaring instrument of speculation, have been greater and more widespread than those inflicted upon an easily deluded public by all other forms of joint-stock swindling put together. When the new fashion was just coming into favour, one of the shrewdest members of the Stock Exchange, a broker of high character, predicted to me that it would be so. Talking of railway manias, shipping manias, and the losses they have caused, he remarked that they were “trifles to what the public is going to suffer through the £1 share.” Not many years after this opinion was expressed to me, the nation plunged into the South African gold and diamond mine dementia, with results not yet by any means fully visible, but whose harvest of loss and affliction has already transcended in magnitude and in the numbers of the victims all the plagues of this sort that have preceded it.
It looks so easy for the “small man,” as the City slang would put it, to have his “little fling” with a £1 share. Even when such share rises to five, ten, or twenty times its nominal value, it still seems easy, tempts the multitude more perhaps than when it may be at a discount, and there are such facilities for indulgence in the passion to make money without effort, with “no risk at all,” as the bucket-shop puffer is ever iterating. The market gives every facility, is ready to lend its means to the player, to smooth the field for him at the start. He need not pay for the shares he buys. The dealer and broker will “carry” them for him fortnight after fortnight, as each market “settlement” comes round, lending the money at handsome rates of interest, and charging an infinitesimal commission, or, perhaps, no commission at all, for performing this necessary operation. A man possessed of £50 may in this way be induced to speculate in £500 or £1000 worth of these small shares, staking his all. If the buyer wins, as in seasons of fever he often for a time does, the heavy interest he is charged does not affect him. Each fortnight, as the Stock Exchange account comes round, he pockets his “difference,” the sum left over as product of the advance in price after all charges have been met, and thinks himself on the high road to affluence. Initial success inflames the appetite, fresh purchases are made, probably before the earlier speculations are closed, and while the profits already reaped by the earlier gambles are being spent as fast as received. By and by reaction comes, losses accrue, expressed in “differences” to be paid instead of received, and the end is usually misery for years, for a lifetime, or sudden and irretrievable ruin. Slowly, and amid infinite suffering, this harvest of the South African, the Kaffir market insanity is now being reaped, as that of more than one Australasian and American rage of speculative abandon has been again and again during the present generation.
Is the disease thus indicated incurable—a disease whose course is invariable, whose end is profit, wealth perhaps, to one in a quarter of a million among the players, and to all the others various gradations of loss, from a few pounds disbursed in exchange for wisdom-fraught experience to complete ruin and social degradation? Yes, I believe it to be incurable, especially in a society constructed with such all-pervading artificiality as ours. One’s first impulse is to cast unmitigated censure upon the gambler; but that also would be unjust. The motives of mankind are mixed always, and at the beginning the impulse which starts the speculator in shares on his downward course is oftener than not at least half laudable, is at the worst the product of a man’s surroundings, of the vanities of life by which he may be lured. Constituted, moreover, as the social economy of modern England is, the great bulk of our fellow-citizens have no assured foothold in the land of their birth. They toil without hope, and see only privation or absolute want at the end of the day’s work—be it long, be it short. Essentially we are a nation of nomads, uprooted from the soil, and with no assured hold on the means of existence, speaking of the mass, beyond what the weekly wage or yearly salary furnishes. What more natural, one may say inevitable, than that this divorcement should generate in a vigorous race a hunger after security, a craving for some refuge, some shield against the uncertainties of existence, a way of escape, perhaps, from the irksomeness of individual surroundings, the tyranny of a hard taskmaster, the caprices of employers, whose power over all beneath them is too often almost that of life and death. By their surroundings, by the circumscribed horizon of their life, the minds of many men are prepared for the tempter who comes to them with the promise of deliverance by means of a successful gamble on the Stock Exchange. Others, again, are moved merely by vanity, by false standards of social wellbeing, by jealous emulation of those who may seem richer than they are, for is not the possession of money our one standard of “wealth” and wellbeing? To all such, once the plunge is taken, degeneration comes. A habit is established, and may become a craze, a passion, a lust that in time will devour all that is best in the heart and intellect.
Such seems to me a fair summary of the psychology of gambling, and I do not see how its ravages are to be stayed, the disease eliminated from society, without radical changes in its structure implying loss of privilege and an abatement of class selfishness by the few who now stand apart, the nation’s drones and hive-harriers, or without the cultivation of higher ideals than those implied in mere purse-proud social emulation. And of one thing I am sure; the London Stock Exchange can do little or nothing to check the ravages of this social canker, nothing effectual can be done in any Stock Exchange of them all. To expect bodies of men, associated together for purposes of gain, in the conduct of their daily business to lay down self-denying rules for their conduct, is not merely unwise but futile. The more the organised groups of stock-jobbers and brokers doing business at particular centres called Stock Exchanges hemmed themselves in by restrictions established with a view to limit the facilities for play, for buying and selling, the more such business would be thrown into the hands of irresponsible outsiders, most, if not all, of whom are mere vultures and cormorants, devourers of the substance of all who fall into their hands. In a very real sense the saying is just that the less restricted, within well-regulated limits, the constituted market may be the greater is the safety of the public from fraud and loss. Often when the London Stock Exchange, by far the most powerful and best organised institution of the kind in the world, has attempted to bar the way to the mere speculator in certain directions it has been defeated. It refused many years ago to sanction dealings before allotment, that is to say, purchases and sales of a security before it was really in the hands of the market or the public. The dealings went on all the same, until the liberty had to be restored. Unto this hour many members of the “House,” as the Stock Exchange is affectionately called by its members, set their faces against gambling in “options”—against, that is, the system of play by which a speculator puts down so much money, parts with it for good, in exchange for the right to “call” for the delivery, or to give delivery, of a certain specified amount of a particular security—to “put,” the slang is—on a certain future day at a price fixed when the transaction is entered into. But this kind of pure betting business grows every year all the same, and is now of a magnitude an Act of Parliament could hardly do much to lessen. Against the force of human passions no Stock Exchange can hope to war with success, and I do not believe that any such body should be asked to impose self-denying ordinances upon itself, the only effect of which would be to drive the business away from it into channels more fertile still in ruin.
But if there is no root and branch remedy, there must be some palliatives. It ought to be possible to restrain and diminish the ravages of the share manufacturer and professional market thief, at the same time that the range of temptation was narrowed for the multitude. It should be possible to do this, and with goodwill something might be done even by the Stock Exchange. Take as example the habit now prevalent of introducing new securities of all kinds on the market without the preliminary of a prospectus. This habit has received a great stimulus from the latest attempts at company law reform, in virtue of which the liability of directors for statements in prospectus has been sensibly increased. To escape that risk, new companies are now launched without preliminary statements of any sort. Certain members of the Stock Exchange, acting in concert with the schemers outside by whom they are employed, begin to buy and sell shares in an undertaking whose very name may be until that moment unknown everywhere, and about which neither market nor public has any information whatever. By arrangements with the financial press, whose charges for such services are most remunerative, quotations representing these unreal sales and purchases are daily and weekly paraded before the public, often accompanied by vague general statements regarding the wonderful wealth this particular share represents. Attracted in this way, the ignorant presently begin to itch to take a hand in the game, and gradually, if times are favourable and what the contemptuous broker calls the “fool public” is “on the feed,” quite a lively market arises, whose end is the stripping of the outsiders by those who laid the snare. The end of the fraud comes afterwards, when the plotters have got safely away with their plunder. All that the public may have left is worthless shares. Dozens, one may say scores, of African and other swindles of this sort have been perpetrated during recent times of excitement, and now and then the Stock Exchange itself has been cheated. Surely it ought to require no great amount of self-denial on the part of this body to stop peremptorily all impostures conceived and carried out after this fashion. It need only refuse to grant a settlement of bargains in any share thus foisted upon the public until the whole of the facts relating to it are laid before its committee, and quotations in the official list ought never to be granted to any company until the whole facts regarding it have been properly laid before the public. In other words, I think nothing but good could arise even to the market were the Stock Exchange to enact a rule forbidding the introduction of any security on its floor by the members until full information had been published by those responsible for its inception, whether by prospectus or by properly authenticated and signed declarations.
Another reform within the power of the Stock Exchange that might do much good would be the prevention of dealings in shares that represent goodwill, and therefore, as a rule, merely the plunder of promoters. Often, as it is, vendors’ shares are not “good delivery” until after a certain time has elapsed. If this irregular and capricious usage, dependent really upon the action of those who found the company, were to be made an invariable rule, and if such shares were kept out of the play altogether until a reserve had been gathered against them to give them substantial value, one fertile cause of loss would be reduced to small proportions. The plunderings of the Cecil Rhodeses, Whitaker Wrights, Hooleys, and the like would in this way be circumscribed, although by no means stopped. Unhappily, as I hold, the mischief cannot be entirely stopped until the spirit of the nation changes.
Once the habit of “bulling” and “bearing”—of buying more than one can pay for or of selling what one does not possess—lays hold of a man, the disease is too often incurable. When the victim suffers loss—gets caught by the market, as he would put it—he doubtless suffers more or less acute mental agony according to his character, the traditions of honourable conduct he may possess, or the extent of his risk. Then his mood becomes that of the old rhyme: “When the devil was sick, the devil a monk would be.” Vows are registered never more to be caught in this snare; the mind is prey to remorse, and virtue is honoured. But let the danger pass, the threatened loss become a profit, and all is forgotten when next temptation comes. The player resumes the game, and, on a “tip” from some interested source, sells a “bear,” in the hope of robbing the unknown counter player through a fall in the price that will enable him to buy back at a profit and pocket the difference drawn out of such counter player’s resources. Or he buys a “bull” to effect the same purpose when a rise on the market shows a profit. Morally, I may say, there is not an atom of difference in the character of these two operations, unless it be found in the fact that the “bear,” the speculative seller, is on the average a man of wider intelligence than the “bull.” To the public and the market he is also by much the more valuable gambling animal of the two, because in proportion as a speculative account is oversold is the capacity of a market strengthened to resist shocks from bad news. The publication of such bad news becomes the signal for those who have sold what they do not possess to rush into the market and repurchase. This operation often causes prices to advance on bad news, and always steadies the market against disturbing influences, to the great benefit of the real holder, who is thus enabled to sell at a smaller loss than would otherwise be possible. Bad news on an over-bought account—on a market, that is, where the great majority of the players are holding securities for the rise on borrowed money—always brings disaster. From this point of view, the “bear” is much more useful to the genuine investor than his opponent; but morally there is nothing to choose, so far as the individual operator is concerned, between the two methods of speculating.
“Bulling” and “bearing,” it may be said, constitute the daily business of a large proportion of dealers, wholesale merchants in the Stock Exchange, and for them it is legitimate enough to sell according to their judgment what they have not got and buy what they could not out of their own means pay for. It is in their power to cut their losses always when such begin to accrue, and many amongst them close the day with their books “even.” That is to say, they have neither a “bull nor a bear open,” to use the market phrase. They are mere traders, whose judgment of the market tendencies guides them in taking the one course or the other for the day only. It is altogether different, however, for the outsider, the man amongst the public, whether he resides in the City, or at Land’s End, or in Connemara. Such cannot operate with rapidity, and usually act upon tips and prepossessions, which in ninety-nine cases out of a hundred prove fatal to their peace of mind and injurious to their pocket.
Is it, then, impossible to induce the multitude amongst the people to abandon this method of hunting after wealth without labour, for that is our only hope? A change in the spirit of the people, a higher sense of self-respect, a deeper regard for the community of interests which would lead a man to treat his neighbour as a man to be helped, not injured, would do more to put an end to this modern habit than any number of rules and regulations. It has been suggested that gambling could be almost entirely put an end to were sellers of shares to be compelled to hand in the name of the possessor, or the numbers of bonds where bonds are sold. Undoubtedly this would stop every kind of free-handed gambling, except by way of options; but could any such regulation be established that would apply to the irresponsible dealings of the outside gambler through bucket-shops? I think not. Moreover, any such regulation would in the long run be injurious to genuine holders of securities. Take the example of Bank shares. It is almost forgotten nowadays that, as a consequence of the banking panic of 1866, an Act, known as Leeman’s Act, from the name of the man by whom it was introduced and carried through Parliament, effectually stopped speculative dealing in Bank shares. These are now consequently exclusively an investment security. They cannot be sold without giving the numbers of the shares and the name of the holder out of whose possession the shares are to come. There is consequently never any “bear” account, that is to say, any account open in unspecified shares sold for the fall, in Bank shares, and unquestionably this immunity from attack has been most valuable in checking Bank scares when credit has become strained. But what would happen supposing a crisis arose through the failure of one or two important Banks? Would it be possible for frightened shareholders to escape their liability and sell out before the crisis became acute? No, it would not. The shares would simply be unsaleable on any terms; there would be no market for them at all, and each individual holder would be compelled to face his loss without chance of escape. From a moral point of view this may be all right—I am not objecting—but undoubtedly the acuteness of the disaster would be concentrated to a cruel and most ruinous extent upon the then existing groups of Bank shareholders.
Recently, when a panic threatened in Russian securities upon the Paris Bourse, the official brokers there notified to the outside market that they would not record sales of the bonds unless the numbers thereof were handed in with the order. This at once stopped speculative selling, but I doubt whether the consequence was not to weaken the market and to render the credit of Russia suspect amongst the multitude who, speculatively or otherwise, held this particular national debt. At any rate, the rule was very soon abandoned, and dealings resumed on the old footing. In Germany a number of restrictions and vexatious taxes have been placed upon Bourse transactions, especially those of a speculative kind, without increasing the health of the market or really diminishing the amount of gambling done. The business is transferred to other markets, very largely to London—that is all.