Wonderment is often expressed by men in other lines of business at the severity of the punishment sometimes inflicted by the governors in this autocratic control. To expel or even to suspend a member, and thus bring upon him great pecuniary loss as well as disgrace, all because of an offence which might go unpunished in other professions, naturally seems to an outsider to be unnecessarily severe. The answer to this is, of course, that the governors, recognizing their great duty, accept as a public trust the power and the ability to maintain it. No matter whose head is hit, the rules will always be vigorously enforced because they are designed to protect the public—a public, I am sorry to say, that has not always tried to understand what the Exchange stands for. That is why no statute of limitations can interfere to protect any one of its members from the penalties that attend a departure from the straight line of business morality. A rigid enforcement from within is the only efficient way, and no one who knows the governors and their arduous labors on behalf of the principle for which the Exchange stands can ever doubt it. The members themselves, no matter who is punished, are a unit, and an enthusiastic unit, in upholding the disciplinary action of the governors every time.
The best course for a young man to pursue who wishes to become a member is first to spend a year or more as clerk in a well-regulated broker’s office. The business is by no means intricate, and there are details with which he should familiarize himself. If in future years his partners are absent, he can then go over his firm’s books and acquaint himself, as he should, with all its affairs. A dishonest partner could ruin him, or, what is worse, disgrace him, for the governors recognize no distinctions as between partners, nor is ignorance accepted as an excuse. Office partners who are not members of the Exchange do not always understand the rules, nor the rigorous spirit in which they are enforced, and just as the Board member is held accountable for his partners, so he must pay the penalty for their misconduct.
This means that a member must choose his partners carefully, must familiarize himself with what they are doing, and must know how to read every entry on the firm’s books. Then, too, it is immensely satisfactory to one who has been on the floor all day and more or less out of touch with his office details to learn of his own knowledge each day, before he goes home, just where the firm stands. He looks over the customers’ accounts, the loans, and the nature and amount of the firm’s unemployed resources, including its balances at the banks. Such a man sleeps well, and reduces to a minimum the anxieties that, at critical times, make of this a nerve-racking occupation. It is all simple enough, and in the modern methods of office economy in bookkeeping he can do it without loss of time. Above all other considerations, such a man knows his business thoroughly from top to bottom, and he should not think of investing his capital on any other basis.
Perhaps a word will not be amiss regarding partnership agreements. A Stock Exchange commission business is one that should be conducted like any other business—that is to say, reserves should be laid aside and surplus balances created for the inevitable rainy day. That this is not done by all brokerage houses in the way it should be done is due to the curious habit that has grown with the years, whereby stockbrokers spend their money, uptown and down, with a lavish hand. Too many men of the younger generation thus give hostages to fortune in their private extravagances by “drawing down” their credit balances as fast as they accrue. “Easy come, easy go,” seems to be the guiding principle, and when hard times come, as come they must, debit balances are created that soon eat into capital account.
No hard and fast rule can be laid down to meet conditions like these, but the best method I have seen, and the one most wisely designed to avoid mishaps for beginners, consists in a partnership agreement by which each member of the firm may draw a monthly sum, worked out to meet his normal requirements, and no more. All that remains is then turned into capital account, where it draws interest, becomes a producer, and grows by what it feeds on. I have in mind a firm of young men who some years ago resorted to this method of compulsory saving, with such success that, despite the vicissitudes of the passing years, the members comprising it are now all wealthy, attributing their good fortune wholly to this wise and provident copartnership agreement.
New York Stock Exchange memberships are obtained in only one way. Having assured himself that he can meet the requirements of the Committee on Admissions, and having provided himself with two sponsors, the candidate enters into negotiations with the secretary of the Exchange for the purchase of a “seat,” as it is termed. As there are only 1100 members, and as the membership is always full, he must either purchase the seat of a deceased member, or make a bid sufficiently high to attract a seller. He may, of course, subject to approval by the committee, inherit a seat or acquire it by private transfer, but the customary process is to buy openly through the secretary, a salaried officer of the Exchange, whose authority in matters of infinite detail is such as to make him a mighty power in executive affairs. Thereupon he pays over the purchase price, together with an initiation fee of $2000, and presents himself and his sponsors before the Committee on Admissions.
This committee first calls his proposer, and then his seconder, and they are subjected to a careful inquiry as to how long they have known the candidate, and whether in a business or social way; his qualifications for membership, his health, his character and reputation, and his previous business experiences are all subjected to a microscopic scrutiny. His sponsors are also asked if in the ordinary course of business they would accept his check for $20,000.[94] If the answers to these questions prove satisfactory, the candidate himself is summoned and put through a similar examination. As his name has been publicly posted on the bulletin board for two weeks, anything detrimental concerning him will probably have been communicated to the authorities before he is examined, but if not, provided he proves satisfactory and the particular department of Stock Exchange work which he proposes to undertake meets with the approval of his inquisitors, and provided also his partners are not objectionable, he is elected to membership after he signs his name to that magnum opus, the constitution.
The price paid for memberships in recent years has varied widely with the condition of the times and the state of the stock market. In the halcyon days of December, 1905, and the opening months of 1906, there were several transfers at $95,000, the high-water mark. Following the panic of 1907 seats declined in December of that year to $51,000 and rose again in 1909 to $94,000. The only dues are $100 annually, together with $10 voluntarily paid by members to the heirs of each of their deceased colleagues, but this amount is, under the regulations of the Exchange, limited to $150 annually, the balance, if more than fifteen members die in any one year, being paid out of reserve funds. The sum of $10,000 which thus accrues to the heirs of deceased members is, of course, much cheaper than any other form of insurance. The Exchange is enabled to maintain it by the $10 contribution as described, and the general fund is kept intact because the 1100 members actually contribute $11,000, of which the extra $1000 is set aside as a reserve, which is prudently invested.
If we accept the fallacious argument that a thing is worth just what one can get for it, there can be no argument as to the value of Stock Exchange memberships, but that is not the way to approach the subject. It may be said with certainty that no matter how much has been paid in the past, or how much may conceivably be paid in the future, a purchaser who devotes to his business the same time and labor that he would devote to any other business in which a similar capital was invested will always be able to earn a good return. Those awful periods of stagnation will appear now and then, and accidents in the shape of losses will occur and return again to plague him, but, nevertheless, the hard worker will find no cause for complaint when he sums up, let us say, a five-year average. This is demonstrated by the fact that it is only on rare occasions a Stock Exchange member changes his vocation, which is another way of saying that memberships are held at high prices because holders are prosperous and will not sell.
In considering the value of Stock Exchange memberships it is important to include the “unearned increment” that goes with them. Despite all that may be said against it by members themselves, who in dull times denounce their calling with cynical extravagance, membership carries with it certain undefined advantages. It is a centre of the financial world in America; the business is one that quickens enterprise and encourages adventure; it undeniably gives a man a certain standing and character among his fellows; he is always abreast of the times, his hours are not long, he acquires habits of deduction, analysis, and observation that sharpen his wits and give zest to life; he is surrounded at all times by a great storehouse of wit, wisdom, and experience, and from the very nature of his business he is often brought into contact with important news of which he can take advantage and which may lead to highly profitable opportunities for investment or speculation. He would be less than human if he did not avail himself of such opportunities, and the business would lose much of its enjoyment; indeed “the tranquillity of dispassionate prudence” of which Goldsmith speaks may easily be carried too far on ’Change.