One of the most important functions of the Stock Exchange is, as we have seen, the almost automatic ease with which it directs reservoirs of capital into channels of usefulness in the world’s industry and commerce. The layman may feel that this use of the Stock Exchange does not affect him as an individual, but it does, and vitally. Every merchant and every manufacturer, great and small, all over the world, is directly benefited by it. One may see, for example, securities of railway equipment companies quoted for weeks at a low level. This shows that the business of these companies is not profitable, and it serves to discourage owners of capital from undertaking new enterprises in that direction, because the securities of such companies cannot be sold. Moreover, it shows investors, as plainly as words can tell, that this is an unsafe and unprofitable form of investment.
Reverse the situation, and lines of industry are revealed where high and advancing prices of securities indicate a rising tide of business, with an outlook for large profits in the future. Capital then takes hold cheerfully; there is a market for the new securities and a proper basis for fresh commercial development, because investors and speculators have learned from the published daily quotations of these Stock Exchange securities that there is good warrant for the flow of capital into such channels, and that a reasonably safe return will follow an investment in them. In commenting upon these functions of the Stock Exchange, Mr. Conant says: “Through the publicity of knowledge and prices, the bringing of a multitude of fallible judgments upon this common ground, to an average, there is afforded to capital throughout the world an almost unfailing index of the course in which new production should be directed.” Through the mechanism of the Stock Exchange, therefore, the public determines the direction in which new capital shall be applied to new undertakings. In this way our great railways were built, our Western country opened to progress, and our vast industrial undertakings made possible.
“The stock market acts as a reservoir and distributor of capital, with something of the same efficiency with which a series of well-regulated locks and dams operates to equalize the irregular current of a river. The hand of man is being stretched out in the valley of the Nile to build great storage basins and locks, and the waters which flow down the great river may be husbanded until they are needed, when they are released in small but sufficient quantities to fertilize the country and tide over the periods of drought. Something of the same service is performed for accumulation of capital by the delicate series of reservoirs, sluice gates, and locks provided by the mechanism of the stock market. The rate of interest measures the rise and fall of the supply of capital, as the locks determine the ebb and flow of the life-giving water. The existence of negotiable securities is in the nature of a great reservoir, obviating the disastrous effects of demands which might drain away the supply of actual coin, and preventing the panic and disaster, which, without such a safeguard, would frequently occur in the market for capital.”[13]
Some day, no doubt, the United States will become a great creditor nation, as England is, and then the field of these operations will be extended to other countries. When that time comes we shall take a hand, through the machinery of the Stock Exchange, in the development of new and immense fields of human endeavor just as London does to-day. To what extent could capital exports of such tremendous economic significance continue if so useful and so indispensable an institution as the Stock Exchange were abolished or interrupted? It was Burke who said that “great empires and little minds go ill together,” and so it is with great markets and little critics. There can be no worthier purpose in the commercial world than the upbuilding of a great centre of credit designed to finance material enterprise, enrich the world, and extend the benefits of civilization to new lands and new people, based upon the credit supplied by the banker, the money provided by the speculator and investor, and the safeguards afforded by the Stock Exchange. And yet, curiously, the greater the effort in these directions, the greater the criticism. Just in proportion to the perfection with which all these agencies equalize prices, economize time and effort, and protect the public, so they seem to attract attention, comment, and attack.[14]
In Wall Street, according to this viewpoint, everything is tainted, sinister, reprehensible, covetous and unscrupulous, just as it follows the onward march of invention, science, and progress. This sort of criticism will not, of course, continue. The man in the street—the average layman to whom I have ventured to address this chapter will learn sooner or later—in point of fact he is learning now—that the questionable practices in Wall Street which started all this hubbub, and which were a natural and a human accompaniment of the slowly developed technique of this or any other business, have now been effectually stopped. It has been a very long time, for example, since Jay Gould ran his printing-press for Erie certificates, and that incident cannot possibly happen again. The Keene type of manipulator has gone, never to return. “Corners,” too, have seen their last day on ’Change, and so also have other artificial impediments in the way of natural supply and demand. It has been years since the Cordage scandal, and the Hocking Coal incident marked the end of that form of manipulation. Yet there are persons who talk of these things as though they were daily occurrences, overlooking the fact that the New York Stock Exchange, by its own efforts put a stop to the evils complained of, and will never tolerate their return.
McMaster in his “History of the People of the United States” tells us that in the early days in New England public sentiment was so aroused against the legal profession that lawyers “were denounced as banditti, as blood-suckers, pick-pockets, windbags and smooth-tongued rogues.” At that period in our history feeling ran so high against banks and bankers that Aaron Burr was only able to procure a charter for the Manhattan (Banking) Company by resorting to the subterfuge of naming it, in the Act, “a Company to furnish the City with water.” No doubt all this rancor and hostility seemed a very serious matter to the lawyers and bankers of those days, just as the criticism of to-day strikes home to members and friends of the Stock Exchange.
The lawyers made many mistakes a century and a half ago when the code and its practice were imperfectly understood in this country; so it was with the early history of banking; and so in our time Wall Street and the Stock Exchange have made the mistakes which any gradually developing form of enterprise must make. But these mistakes are dead or dying, and, in their place, no doubt, there will come a better understanding all around. When that day dawns the thoughtful American will realize that the particular rôle which the Stock Exchange plays in promoting all forms of commercial endeavor is a boon such as no country in the history of earlier days ever enjoyed. He will contemplate his country’s progress with pride; he will rejoice in its capacity to outstrip other countries; he will acclaim its advancement toward the proud position now held by England, the banker and the clearing-house of the world. And he will learn—this thoughtful citizen—that material achievements like these cannot be attained without a market for capital and a market for securities.[15]
CHAPTER II
THE USES AND ABUSES OF SPECULATION
Somewhere in each one of us lurks Stevenson’s spirit of “divine unrest,” the parent of speculation. To-day, as in wise old Greece in the morning of the world, philosophers sit under every tree, speculating upon the phenomena of the universe, and upon the practical application of them to the needs of humanity. Thus Archimedes came to know of things that we now call Copernican, seventeen centuries before Copernicus was born; thus Columbus and his argosy sailed into the great unknown, speculating upon an irrational and even shocking exploit; thus Pasteur saved to France through the meditations of his speculative mind a sum greater than the cost of the Prussian war and the colossal indemnity that followed it.