The man who has saved money by his own enterprise and thrift is a fool if he gives his savings to mining “bonanzas” through the itching palms of promoters, or to bucket-shops through the lure of slender margins. The very fact that promoters always play upon the theory that distance will lend enchantment to the view, and solicit their funds solely by means of prospectuses, should be a sufficient warning to the most credulous. A word to his banker, or a letter to any responsible institution in Wall Street, will supply him with the necessary information and save him from the possibility of loss.
As to the bucket-shops, if he is in doubt, he has but to follow the same procedure. The New York Stock Exchange authorities will gladly tell him whether the so-called “banker and broker” is really a member of the Stock Exchange, and the local bank nearest at hand will expose any fraud if it is called upon for information. As to the two-point margin bait, it is a good rule that the smaller the margin asked for, the less strength there is behind the house that asks it, and just in proportion as the margin requirement diminishes so a suspicion of the solvency of the firm should become fixed in the mind of the customer. This warning applies to stockbrokers no less than to bucket-shoppers. If the stockbroker takes from you a ten-point margin, and from somebody else a two-point margin, you may be sure your money is being used to finance the other customer’s trade, and you should lose no time in withdrawing your funds from such a house.[49]
I often think that those who so freely criticize the Stock Exchange would have applauded it could they have witnessed the fight between the Exchange and the bucket-shops. In England, because telegraphs are a Government monopoly, the transmission of prices by or to bucket-shops is effectually barred, and the same is true of the telephone. But in this country the transmission of prices by wire is not a breach of law, and the difficulties that have attended the attempt to suppress the transmission of racing news by wire to poolrooms shows that even if it were prohibited there would be great difficulty in its enforcement.
Notwithstanding these obstacles, however, the Stock Exchange labored zealously to close bucket-shops long before the officers of the law became active, and, while the work thus done was not published broadcast, it was none the less effective. Many a bucket-shop proprietor doing business a few years ago under a high-sounding company title probably never knew what hit him when the raid took place. It was the strong arm of the Stock Exchange working unostentatiously that did it, and in that good work it saved from further losses a large number of innocent people who used the establishment with no knowledge of its real character.
As long ago as 1875, in its contracts with the telegraph company, the Stock Exchange began restrictive measures to prevent its quotations from reaching the bucket-shops. In 1878 still more forcible measures were employed, and in 1882 positive steps were taken by which the Exchange authorities personally inspected the telegraph company’s quotation contracts with its patrons. To-day this is carried to such an extreme in the determination to protect the public from the impositions of those who might in devious ways convey these quotations to improper hands that even members of the Exchange may not install wires from their offices to outsiders until the proper committee of Stock Exchange authorities has viséd the application.
Meanwhile, a secret-service has been at work, silently ferreting the hidden, underground channels in which the bucket-shop is forced to conduct its operations. Thanks to this good work and to that now done along similar lines by the Federal authorities, this form of rascality is rapidly disappearing. Is it too much to hope that at least a part of the unmerited criticism of the Stock Exchange by the victims of bucket-shops may also disappear?
In heading this chapter “Cautions and Precautions,” my purpose was not merely to warn the credulous outsider against the news items of the day as related to the Stock Exchange, nor was it solely to point out to him the pitfalls and dangers that exist under the Wall Street mask. I had in mind also a word of caution to Stock Exchange members themselves. That these gentlemen are more sinned against than sinning is, or it should be, apparent to anybody who has taken the trouble to learn the A B C’s of the business. Such a man knows that Stock Exchanges occupy an important place in the mechanism of modern business; he knows, too, that just in proportion as their functions enlarge and the scope of organized markets increases, so persons will be found who foolishly or dishonestly abuse the facilities there afforded.
“Reflection,” says a recent writer, “seems to have little part in the intellectual equipment of the assailants of organized markets. The fact that the stock market is sometimes abused by people who know nothing of its purposes or are incapable of understanding the mighty influences which dominate it, is no reason for considering it as a harmful excrescence on the body politic.”
This fact established, one who has been a member of the Stock Exchange for many years may, in a spirit of complete loyalty to the institution, comment freely on some of the mistakes within the Exchange itself, errors of judgment or sins of omission that have given to the popular criticism of the day its one supporting prop. Admitting mistakes freely is the surest way of correcting them; frequent reminders of them serve to keep one on guard against their recurrence. The history of deposit banking, for example, has been, like the history of the Stock Exchange, a story of gradual development to meet growing conditions, and this is true also of the history of note issues, joint stock companies, clearing houses, cable transfers and of all the instruments that enter into that economic structure which gives mobility to capital and flexibility to credit.
In the very nature of things the development of each part of this gradually devised machinery has been attended by mistakes, by errors of judgment, and by occasional wrongdoing, yet we do not condemn the national banking system because there were once wildcat banks; we do not utter hasty judgments on stock-companies because in other days they were badly organized and incompetently managed; we do not withhold our support from railways because they once erred by pushing too ambitiously into projects that ruined innocent stockholders; we do not abandon our form of government because there was once civil war. No, but we try to keep all these things in view in order to profit by them, and to see to it that they do not happen again. We say of individuals that no man’s vices are sufficient reasons for not admiring his virtues. Why not apply the same code to business?