The Stock Exchange from Within

by William C. Van Antwerp

“In our opinion the repeal of such a law would simply lead to constant evasions, which would cause the law to be practically a dead letter, and it is far better to leave it as it is, and to allow the supply and demand to regulate the rate for money.

“It is reasonable to assume that the repeal of this law would result in a recurrence of the conditions which existed prior to its enactment. Prior to 1882, when this Act was passed, such loans were subject to the drastic provisions of the Usury Law, which imposes the forfeiture of the principal as a penalty for violation. The Usury Law, however, as to this class of loans, had for years been a dead letter, and whatever risks were incurred through its penalties were taken by lenders without hesitation. Demand loans were made at interest plus a commission, and in times of money stringency the interest rate represented by the so-called commission attained proportions which have been unknown since the passage of the Act of 1882. Extreme instances are to be found of a rate as high as 700 per cent. per annum.

“Such violent fluctuations in the rate have been unknown since the passage of the Act of 1882. Since that time all quotations of interest on call loans have been at so much per cent. per annum, not, as was formerly the case, at ⅛ or ¼ of 1 per cent. per day. Through the extreme stringency which existed in the autumn of 1907, the rate ran from 12 to 30 per cent., with the exception, perhaps, of one or two days when practically no money was procurable at any price, when the quotation ran up to 100 or 110 per cent. per annum. It would seem demonstrated by experience that the law of 1882 has been a most potent factor in reducing the interest rate in times of stringency and in rendering it at all times more stable and equable.”

[44] Cf. Mr. White’s article supra, p. 570.

[45] Report of the Comptroller of the Currency, October, 30, 1912.

[46] The Wall Street Journal, August 31, 1912.

[47] December 7, 1912. Consult also p. 235.

[48] “The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, pp. 537–8.

[49] In his article on “The Hughes Investigation” (Journal of Political Economy, October, 1909, p. 539), Mr. Horace White refers to the attempt of the Hughes Commission to devise a means whereby the company-promoter’s activities might be curbed. He says: “The British ‘Companies Act’ forbids the public advertisement or sale of any securities unless the issuing company has been registered in a bureau of the government with information regarding the business to be transacted, the names of the officers and other persons responsible for the statements of fact, etc. Much time was spent by the committee in discussing the advisability of adopting the English system, regardless of the fact that it would be operative in only one state of the union, and that it would serve as an obstacle to all securities, sound and unsound, alike. Thus, if the Pennsylvania Railroad Company desired to issue a new lot of bonds it could advertise and sell them everywhere except in New York, without the trouble and expense of registration. Would it be worth while to give to other markets such an advantage over that of New York? The opinion of the governors of the Stock Exchange was sought and was given orally, to the effect that it would be unwise to take the risk unless the benefits to be derived from registration were preponderating and reasonably certain. It was their belief, however, that a certificate from state officials that a company was registered at Albany would be interpreted by the class of investors, who are most liable to deception, as a certificate of the soundness of the securities, in which case the act of registration would do more harm than good. The latter consideration prevailed in the committee, but recommendations as to advertising were made, which, if adopted by the legislature, will add something to the responsibilities of greedy and unscrupulous newspapers, while not going upon the doubtful ground of a censorship of the press.”

[50] “The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, p. 529.