The Secret City
By JEREMIAH ASHE FROM the Lop of a boom it is possible to survey the shape of things to come. Let us therefore take the present opportunity to consider the long-term future of the Stock Exchange with boom psychology still in our minds, with the assumption that mid-twentieth-century Britain is in a state of rapid industrial development and that the Stock Exchange has a part to play in it. Later, if a recession comes, the horizons will close in. In a few months bold decisions of policy will no longer be practical politics.
That such decisions are needed cannot be doubted by any- one able to look beyond the narrow walls of Throgmorton Street. For those able to look as far as the United States of America the need for action appears urgent. In comparison with institutions there, our Stock Exchange is Victorian and sunk in a middle-class rut. Yet it is set in the midst of a twentieth-century indastrial revolution that is advancing at a pace hardly comprehensible to minds accustomed to the easy tempo of the Thirties. The institution which should be at the centre of this bounding boom remains set in its ways. The defect is clearly a social one. In America they send hordes of salesmen to visit every working-class home; here stock- brokers must have a personal introduction before it is possible to deal.
Small wonder, then, that capital is not forthcoming on the scale required. Only a small and declining fraction of the saving community is being cultivated, and an attempt must be made to tap the savings of the working class. Of recent years the Stock Exchange Council has become more publicity- conscious. It has published a pamphlet and it has opened the public gallery, but these steps are pitifully inadequate. Nobody would call them a sales drive, although this is what is needed on a national scale. Moreover, there is reason to suppose that such a drive would be startlingly successful. The British are a nation of gamblers by nature. Historically this defect in the national character has been put to good use. We started this stock exchange game, and if we had not gambled on it there would have been no railways in America, no gold mines in South Africa, and the world would have been a very different place. Yet now the national propensity towards speculation is being canalised into ever more sterile channels. As a nation the football pools (also our invention) are the favoured outlet for our gambling instinct, and not the Stock Exchange. The assessment of investment prospects is a complicated business, but no more difficult than the intricate calculations of form and probability that are weekly devoted to the pools, with far less prospect of reward. I am very glad to see that Mr. John Wood has written a new book* which explains simply and clearly the problems that an investor must solve. This book has only 130 pages and it does not include a single paragraph that will not be readily intelligible to every single addict of the pools. Yet the essence of the matter is all there, and anyone who believes that Stock Exchange investment is a subtle matter that must necessarily be confined to the few should buy a copy and think afresh.
One might add that the business of investment is made a great deal more difficult than it might be by the obsolete myllis of accountants which attach enormous importance to value' less information and overlook what is essential. It is compll. sated also by the needlessly obscure style in which directors communicate with their shareholders.
It is the institutional Stock Exchange and the accountants who support it who are at fault, and not the national character. There is a cult of secrecy, and the first person to break it down will not only reap great wealth for himself, but will also be doing a publiC service. The first step, clearly, is to find some way of permitting advertising. It is evidently and prima fade absurd to expect to run a business on the scale of modern industry without advertising. Yet this is a hurdle which City opinion finds itself quite unable to surmount.
The objections are argued in two ways. First it is said that the inclusion of a wider public would make share values too mercurial. The answer to this is that they are too mercurial now, but it is not the small man who makes them so. On the contrary, shares held by small investors are usually described 'I' A SIMPLE GUIDE TO SHAREHOLDING AND COMPANY ACCOUNTS. 3Y John Wood. (Putnam, 9s. 6d.) as 'well held'; it is the professional who switches in and out.
The second objection is more difficult. Put crudely, the City does not trust itself. It fears lest advertising should open oppor- tunities for the less scrupulous of its members, lest the trust of the public should be abused and the whole institution be brought into disrepute. This is a difficult point, but it is worth recalling that it has been overcome successfully in the United States. There they have a powerful Securities Exchange Com- mission which does not hesitate to condemn publicly financial manoeuvres that do not conform to the highest professional standards. We have similar committees in this country which are supposed to watch over the rights of specific classes of shareholders, but they have earned themselves the reputation of being rubber stamps.
It has to be admitted that there is no body in the City of London at the present time capable of discharging the functions of the US Securities Exchange Commission. The respected leaders of financial opinion speak in public as rarely as possible, and when they do, their pronouncements are deliberately veiled and obscure. There is a ,tradition in the City that a hint dropped quietly in the right place will be more effective than a shout from the house-tops. This is an agree- able tradition, but greatly exaggerated, as recent events have shown. In November, 1954, the Bank of England began hinting quietly in the Money Market that there was too much credit about, but nobody outside this market paid any attention. The hints grew slowly louder through the present year and culminated in the publicity of an autumn Budget.
The fact is that our financial institutions have a tendency to grow anaemic at the top. The blood that circulates so vigorously in the market-place cannot climb to the more exalted board rooms and courts of directors. Might this be because they are exposed too little to the public gaze, and perhaps a wider public interest would call into being the more vigorous leadership that it would certainly require?
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