The effect was precisely the opposite of what had been anticipated. Every man who was engaged in foreign trade had to provide security for being able to make gold payments in the immediate future, if called upon to do so. Being prevented from dealing with speculators, he now had to accumulate a reserve of his own. This caused an increased demand for gold at a time when it was unusually difficult to maintain an adequate supply. Under two weeks’ operation of the act the price of a hundred gold dollars rose from about two hundred paper dollars to very nearly three hundred. So obvious was its evil effect that it was hurriedly repealed as a means of preventing further commercial disasters.
Again, in the early part of 1866, there was a rise in the price of gold, which was attributed by public opinion to the speculators. Their machinations were defeated, not by legislation, but by the issue to the market of a part of the gold lying in the Treasury of the United States. For the moment the price of gold fell and people rejoiced that the plans of the speculators had been defeated. But a short time later, when the war between Prussia and Austria caused a demand for gold in Europe, there were large exports of the metal, and its price arose by natural causes. The United States was obliged to buy back, at a decided loss, a part of the gold which the Treasury had so unwisely issued.
It turned out in the end that the operations of the speculators in anticipating the wants of the future would have prevented a loss to the country, and that the attempt of the Treasury to defeat those operations was attended with expense both to the government and to the mercantile community.[90]
Mr. Horace White deals with the gold speculation of the ’60’s as follows:
During seventeen years the business of the country was regulated by the quotations of the Gold Exchange. The export trade of the country necessitated the selling of gold in advance of its delivery. A buyer of wheat or cotton for export would make his purchase according to the current price of gold, but he would not get his returns from abroad in some weeks. If the price of gold should fall, meanwhile, he would be a loser. So, he would sell at once the gold he expected to receive later.... Black Friday and its evil consequences were due to the existence of a bad currency and a fluctuating standard of value. The Gold Room was at that time a necessity. Business could not be carried on without it, but it offered temptations and facilities for gambling which could not be resisted.[91]
In the various States of the Union, where law-making goes on all the time with surprising zeal, there is, of course, a bewildering array of crazy-quilt laws on the statute books dealing with speculation, but these are relatively unimportant. Some of the States, Wisconsin, Louisiana, California, Montana, North Dakota, and South Dakota, have laws similar to those of New York State, legalizing short sales of commodities and securities. Other States prohibit dealing in futures, short sales, corners, forestalling and speculation in general, and two States actually license bucket-shops.[92]
It by no means follows because of the failure of the German Bourse Law of 1896 and of all similar earlier attempts to regulate or restrict speculation, that the issue has become moribund and that nothing more will be heard of it. On the contrary, just as each one of these abortive attempts at legislation; and each of the Government Commissions we have described grew out of excess in speculation and consequent losses to the public, so, no doubt, future extravagance in the world of speculative undertakings will be attended by similar outcries and similar results. There were debates in Congress for three years over the Hatch Anti-Option Bill, and while this measure failed of enactment into law, something akin to it will no doubt come up again one day when the public is in the mood.
It is probably true that in such event the lessons taught by earlier legislative experiments, and particularly by the German fiasco, will have their effect in checking hasty legislation; in any event it would seem impossible that the teachings of all the economists—scientific contributions to literature that to-day comprise a large library—can be ignored in any future discussion of this subject. Meantime, accepting as our major premise the enduring presence of speculation as a fixed and immutable characteristic of human nature the world over—there remains the plain warning to Stock Exchanges and their governors that fences must be mended as gaps occur, and that the control of the business in the interest of the public must be the loyal motive of all these institutions. It will not suffice to whitewash indefensible conditions, nor to hide from public scrutiny any detail of a business which that public is asked to support. Conversely, it may be pertinent to say that in the effort to remedy some of the evils of speculation the private citizen has his responsibilities as well as the stockbroker.
Looking forward toward the great questions of the future having to do with State regulation of industry and commerce of which the Stock Exchange is a part, the student finds no solution so satisfactory as the doctrine of laissez faire, assuming always that those in control of the business under scrutiny shall do their full duty. Under the policy England has risen to unexampled commercial supremacy, while America, because serious mistakes have been made, finds its advocates of State regulation growing daily in number, with consequent danger to all its delicate commercial machinery.
In these circumstances how has the Exchange met its duties and its responsibilities? The answer is to be found in its records for the year 1913. Prior to that time there was undeniably a careless acceptance of old standards without inquiring too closely into them; letting things drift was the rule. But it is never too late to mend, and in 1913 the Exchange met the issues squarely.
Manipulation was stopped, in so far as it can be stopped, by the famous resolution of February 5, 1913, reading as follows:
“At a meeting of the Governing Committee held this day, the following resolution was adopted: