THE STOCK EXCHANGE.
THE statement recently made that the nominal business of the Stock Exchange declined last year about fifty mil- lions, did not, we suspect, excite among the public an unmixed emotion. So far as that decline indicated a suspension of the national savings—that is, a low rate of profit on work—it was regarded as a misfortune ; but so far as it affected the " Stock Exchange "—that is, the men who buy and sell there, the brokers, who act as intermediaries, and the clients, who are constantly buy- ing and selling on speculation—public feeling was, as the Americans say, "a good deal mixed." A large proportion of the outside world regard the Stock Exchange as a huge gaming-house, hold its members to be practising a trade which may be lawful, but is often hardly reputable, and would as soon hear that their relatives were playing at Monaco as that they were trying ventures on the Stock Exchange. Speculation in Stocks is with them but another name for gambling, and they regard money won or lost in that way as, on the whole, " unhallowed," sure to pass away as quickly as it is made, and to confer no benefit on any one. Indeed, a large number hold that money can- not be made there, that the system of the House is arranged for the profit of those within it, and that in a long course of experiments the fines of different sorts, brokerages, contangoes, and other mysterious forfeits, swallow up all pro- fits. An effort has been recently made to prove almost to a demonstration, that as a well-organised gaming-table must always win as against the public, though not as against the individual, so the House must, by its cunningly-devised scheme of for- feits or payments to its members for every transaction, always
win as against outsiders. There is a great deal of justice and a great deal of injustice in this general view, and it may interest some of our readers to distinguish for a moment between the two.
In the first place, there can be no doubt• whatever that the Stock Exchange, as a corporation which buys and sells, is an institution distinctly beneficial to the community. The debts of Great Britain and Foreign States, of the colonies and of the great cities, and the minute partnerships in industrial undertakings which we call " shares," are as legitimate objects of trade as iron, corn, or coals. Some people want capital and some people want in- terest on capital, and to exchange the one for the other, which is the real business of every Bourse, is a perfectly legitimate trans- action, very beneficial in the gross to the seller and the buyer alike. Without some such scheme of trading, all but great capitalists would be shut out from profitable investments, while most valuable undertakings would remain impossible, from the in- ability of any but the few who could control them to risk money upon them at all. This was for years the case in the Kingdom of the Two Sicilies, where, owing to the distinct policy of the Government, no exchange for home industrial securities could or did exist, and everybody with money was forced either to hoard it, to the immense injury of the country, or invest it in State loans, which stood in consequence at an absurd figure. The method of dealing, too, is sound. Without the concentration of the dealers under one roof, bargains could not be transacted quickly, seller and buyer having to hunt each other out by a most difficult and time-consuming process, while prices would be ruled by a series of small haggles, instead of one big haggle, to the loss of all but the highly experienced and active. The price of Consols might vary, for instance, in every county, to the great injury of the State, which would in practice be compelled to pay higher for loans, and with no benefit to the private purchaser. This is actually the case on the Continent, where the trade in coupons and other obli- gations is actively carried on in the smaller cities through agen- cies, to whose fingers some portion of profit must ultimately adhere. The Stock-Exchange system, in fact, reduces the number of intermediaries to a minimum, practically, in fact, to the dealer, who stands ready to buy or sell anything "at a price," and the broker who, though not absolutely essential, gives the seller or buyer this advantage. He enables him to buy or sell without loss of time iu haggling ; be guarantees him against individual fraud,— for instance, against the sale of the article he has bought to some one else ; and he secures him an indefinitely larger market than he could secure for himself. No doubt the broker's pceition very often makes him an adviser, and sometimes a bad one ; but he is no more necessarily untrustworthy than an attorney who, as regards many forms of investment—mortgages, for instance—is in precisely the same position, while he is subject to much stricter rules, and rules of a more effective kind, than can be applied to a more scattered body of men. Of course, brokers may cheat, like any other body of men, and of course, too, the poorer men among them are subject to a peculiar temptation,—that of receiving a per-centage, which is, in fact, a bribe, if they recommend risky investments ; but they are no more tempted than scattered brokers would be, and a great deal more restrained. The permanent interest of the great capitalists who govern the Exchange is that the game, what- ever it be, be played within the rules, any serious breach of which would hurt them much more than anybody else. Downright frauds may be perpetrated, and in the mining market are perpe- trated every day ; but they are not more numerous than in any other business—as, for instance, ship insurance or common dealing in articles like.corn—and are infinitely more visible to the public eye and liable to public reprehension. You cannot see the financial history, say, of a contractor's railway, unless it gets into the Bankruptcy Court, half as clearly as you can see the history of a prosperous but -non-existent mine, or of one of those wonderful Central-American transactions in which every- body appears to be either dupe or rogue, or in the happiest but most inexplicable manner to unite both characteristics. The "Stock Exchange," in fact, is nothing but a .convenient and highly con- centrated system.of transacting a particular business, to which convenience and concentration are invaluable. Nor is the merit of the system in the least diminished by "speculation " or time- bargains, so far as they are what, for want of a better word, we call " legitimate." There is not a business in the world in which time-bargains do not form a part. The farmer who keeps his wheat because he thinks prices will rise, or the coal-owner who keeps his coal, or the ironfounder who stacks his rails, is making a time-bargain with the public at large, and if he succeeds, reaps in the most legitimate way the fruit of his superior knowledge, capital, or patience. No trade could go on without some
such system of " regrating," and the fact that the dealer in Stocks frequently does not ask for actual delivery, but to increase business and avoid bother often accepts "differences,"—i.e., his profit without actual receipt or delivery of the shares,—makes no difference whatever in the transac- tion except this, that the practice enlarges the market, and makes it easier to sell or buy without waiting than it otherwise would be. It stands to reason, if there were no " speculators," the seller must wait for an investor, and might have to wait some time. As it is, the speculator buys, takes the waiting off the hands of the public, and though paid, is paid for what is a clear convenience.
His existence ensures certain sale or certain purchase at a price always, and thus makes a particular description of property almost as available as a bank-note. Otherwise it would be much leas available. lf, for instance, the time it would take to sell Consols were indefinite, the margin claimed by a Bank for advances on Consols must be indefinitely increased. In the highly complex and artificial system of modern business, people do not want their money to-morrow, or next week, but to-day at noon, to meet bills without which business could not be transacted, or could be transacted only by a sort of barter.
The real evils of the Stock Exchange are, first, that the system tempts men to speculate who cannot pay their obligations ; and secondly, that it tempts the ignorant to embark in transactions which are, for them, mere bets, and subject to all the objections usually and justly raised to betting. In the first case, the evil, though very great, is only greater than the evil in any ordinary trade because the amounts at stake may be apparently so high, and have therefore a certain dramatic and demoralising effect. It is probable, odd as the assertion may seem, that the proportion of failures on the Stock Exchange is rather leas, money for money, than the proportion iu the coal, corn, or iron trades, though it has a much greater effect on the public mind, just as a suicide from losses at Monaco has much more effect than a suicide from losses in keeping a draper's shop ; the trade is a trade, like any other, though, like the trade in hops, indigo, and many other articles, it offers extra temptations to those concerned to risk money on calcu- lations which may never be realised. In the second case, how- ever, the evil seems to us to be absolutely unmitigated. So perfect is the method of the Stock Exchange, so smoothly does it work, and so easy is it to make a gain or loss, that it offers precisely the temptations of a lottery, and lies exposed to precisely the same condemnation. No man has ever been able to state a moral objection to a lottery in itself, any more than he can state a moral objection to a gaming-table fairly conducted, but the objection to lotteries and gaming-tables is nevertheless final. If all men were perfectly self-controlled, there would be no more objection to wasting money on buying distant and irregular chances of more money than to wasting money on anything else; or in other words, there would be no objection at all except as to limit, the proportion of cash a man may waste in amusement being strictly a moral question, as well as one of expediency. But all experience shows that the majority of men are not self-controlled, that their tendency towards this particular form of dissipation is uncontrollable, and therefore in the general interests of society any unusual facility for gambling must be either suppressed or controlled by external law, which in practice is found to be effective only when suppression is resorted to. Precisely the same objection exists to the Stock Exchange, and therefore, and only therefore, the odium which attaches to the lottery-keeper or the roulette bank rests on it of necessity, and is as just as the popular theory that mere speculation in shares, instead of corn or coal, is evil, is
of itself unjust. It is not evil when the speculator knows his business, and is therefore not gaming ; but it is evil when he does not know it, and is only casting the dice. It is not as a huge share-shop, but as a huge temptation to ignorant men to bet, that a Bourse becomes a nuisance and an irremediable one,—a nuisance, because a widely-diffused hope of profit without labour, knowledge, or proprietary right is always injurious to the community ; irremediable, because no Legislature can decide whether the bettor on a rise or fall in stocks is betting or is using his legitimate knowledge of his trade, whether, in fact, he is a gamester or a calculating tradesman. As a rule, the country clergyman or tradesman who buys or sells Turks is a gamester, just as much as if he were playing at roulette ; but so he would be if, without knowing the business, be were buying cotton or corn. The only difference is, that as he would probably know his own ignorance about cotton or corn, he would let that speculation alone ; while be is pretty sure, when dealing in stocks or shares, to think he knows all, when he knows less than nothing,—knows, in fact, only so much as to blind him to the truth.
Previous page
