CHAPTER IV.

THE INCREASE OF SPECULATION IN STOCKS AND SHARES.

[Sidenote: STOCK EXCHANGE GAMBLING INCREASES IN EUROPE WHILE PUBLIC GAMING-HOUSES ARE ON THE DECLINE.]

The excitement which most men feel in gambling in one shape or another leads to its being practised to a very large extent, in spite of legal prohibition and the vigilance of detectives. Public betting houses have been suppressed, and it seems that betting on horse-racing has diminished; while on the continent, as governments have found themselves able to fill the national exchequer in a legitimate manner, Homburg, Baden-Baden, Ems, and the like, are no longer the chosen resort of rouge-et-noir players; but the vice has only broken out in other places, the results of which will be probably far more disastrous at Berlin, Frankfort and Vienna, in their respective Stock markets, as time goes on, than ever followed the play in the gilded saloons at the places mentioned.[27]

[Sidenote: SPECULATION AN OUT-GROWTH OF PROSPEROUS TIMES]

If it be conceded that playing for money, to which end speculation likewise in any other commodity than stocks and shares is simply the means, produces a pleasurable sensation in a man, and that very few men do not experience it some time or other, who have the opportunity of calling it forth, the greater number of men whose position enables them to gamble, will probably do it. At every rise and fall in a country’s prosperity there is a flow and ebb in the tide of speculation, not only in stocks and shares, but in all markets. We refer now to that class of speculation which is an excrescence of prosperous times. A merchant’s business is at all times more or less of a speculative nature, it cannot be otherwise; but this is very different from the speculation of outsiders in commodities which they know nothing about. Many persons would, no doubt, think it strange that there should be a feverish speculation sometimes carried on in such an article as pepper. Yet syndicates are occasionally formed for quietly buying up this article, and ascertaining the exact amount in stock, and the probable quantity that will reach the market by ship within a given time. When the syndicate has complete command of the supply, they commence to “rig” the market, or put the price up, then put the public in and let it down again. In the stock markets the _bona fide_ operations, as compared with the speculative, are probably as 1 to 20 at most, and in the colonial produce and other markets the proportion is only something more. It may be imagined, therefore, to what an extent the speculative operations in an article like pepper may be carried when it is considered that the weekly deliveries for consumption amount to 250 tons.

[Sidenote: COMMERCIAL PROSPERITY UNHEALTHILY FOSTERED BY ILLEGITIMATE SPECULATION.]

One inevitable evil attending all forms of commercial prosperity is that they are built up in so large a degree upon a basis of unremunerative speculation. Such a foundation only serves as a sufficient support to the superstructure, while the pressure upon it does not pass a certain limit. If, for example, it be accepted as proved that one Stock Exchange transaction in twenty is _bona fide_, it is obvious that when the speculation in those markets shrinks up for the time, which it is sure to do when it has had its run, a number of stock brokers whose business has been established by reason of the increase of speculative operations must fail, unless they have made enough money during the period of unusual activity to be able to live through the period of stagnation that intervenes before the next revival. And after every commercial revulsion a large number of them do fail, and it is not easy to estimate the mischief that is occasioned by the shock that is communicated to trade and production by the sudden and complete stoppage of these extra streams of expenditure.

[Sidenote: THE INFLUENCE OF TRADE PROFITS UPON THE STOCK MARKETS.]

There are great foci whence proceed currents of profit. The currents of profit may be traced to the great seats of the national industries. The money made, for example, by the great cotton and iron manufacturers of this country, distributes itself in a hundred streams from Lancashire and Yorkshire, to keep within the bounds of two counties.[28] The larger currents flow into the pockets of two classes, those who are very rich, and those who are moderately so; while the smaller streams trickle into the cottages of the labourer and artisan. The wealthy direct their new gains as they flow in, into the markets for public securities, and the gains of the labourers follow to some extent in the same direction at a slower pace, through the lower middle class, whose profits increase by the augmented consumption of all the primary articles, in which weekly wages are laid out. In both cases the currents of profit starting from the great foci of production, spread, embracing all classes of the community, like the winter’s snows gathered in their wealth in the mountain heights, which are loosened by the summer sun to flow over and irrigate the grateful plains below, and are again gathered up to a large extent for distribution through the Stock Exchanges of Europe.

[Sidenote: AN INCREASE IN THE AMOUNT OF TRADE PROFITS REALISED, CAUSES AN INCREASE IN THE NUMBER OF SECURITIES.]

When this volume of profit begins to be felt in the Stock markets, the harvest time for the professional speculator commences, and with the increase in the amount of the profits of the nation the number of securities increases also. The public securities quoted in the bourses of Europe at the present time amount to thousands of millions sterling more than existed a quarter of a century ago. Side by side with this increase in Stocks and Shares has the speculation in them increased also. Such has been the growth, indeed, of speculation that several joint stock companies have been formed, which are nothing more nor less than syndicates of speculators who have invited the public to join them in buying up a number of securities and making a profit by selling them at enhanced values. A few skilful Stock Exchange practitioners at the head of these concerns have, in many instances, made an excellent business out of the operations, by systematically raising the necessary capital and taking the securities off the market, which practically illustrates in broad daylight the legitimate method by which speculation may be pursued as a business, as we have already stated in Chapter III.

[Sidenote: SPECULATION BY ESTABLISHED COMPANIES.]

The fact of speculation having come to be practised by established companies, where before it was a kind of business that it was considered necessary to pursue as secretly as possible, proves how strong is the tendency of the age in which we live to make royal roads to wealth.[29]

Speculation, as we know it in our time, is a very different affair from what it was fifty, and even thirty, years ago. Value in all markets in our day is unsettled with the lightning flash that laughs at the bed of the Atlantic as no better than a span of space, while the forces that close in on all sides, representing demand and supply, with a responsive thunder-clap, adjust the new level as each market grasps in a moment the cause of the disturbance.

[Sidenote: THE DEMORALISATION CAUSED BY TEMPORARY SUCCESS.]

One of the great evils which follow upon the increase of speculation is the demoralisation it brings in its train. Money easily made is very often as easily lost, after which it is difficult to rekindle that healthy desire to work which is fostered by the acquirement of moderately increasing gains through close application to business. Money that cost but little trouble to procure is generally carelessly spent, which, as a rule, does more harm than good to him that gained it.

[Sidenote: THE NEW ERA IN SPECULATION.]

The commencement of a new era in speculation dates from November 13th, 1851, when a telegraph cable was successfully laid across the straits of Dover, and the opening and closing prices of the funds in Paris were known at the London Stock Exchange within business hours. From that day one European bourse after another has joined hands, and the political shock which affects one market, henceforth acts through the electric wires, more or less upon all, according to the extent to which the same securities are dealt in at different cities.

[Sidenote: COLLAPSE THROUGH OVER-SPECULATION IN AUSTRIA.]

Side by side with the acquirement of means by the masses of those European states which up to a comparatively recent date have been poor, has speculation as a business grown, and it has been making rapid strides from the breaking out of the civil war in America, when the augmented price of cotton laid the foundations for the manufacture of this staple in parts of Austria and Prussia, where it has taken root, and according to all accounts flourishes in successful competition as regards certain descriptions of cotton fabrics with the mills of Lancashire. New seats of production have been created, and new currents of profit have found for themselves centres for investment. The sharp little panic which broke out on the Vienna bourse in April, 1873, was due to the too heavy superstructure of the new, and much too rapid, speculation, reared recklessly upon very slender foundations. There, in a city comparatively innocent of such collapses, might be seen the demoralisation which follows upon hastily and too easily acquired riches. The effect of the financial crash, which was mended up in a few weeks so that a spread of the crisis was for the time arrested, was such, however, upon the nerves of all classes of the community, that the journals had leaders written in such desponding phrases, that readers at a distance from the scene were inclined to believe that the capital of Austria was about forever to be blotted out from the roll of financial centres. Some little sympathetic effect was produced at Berlin, where considerable inflation also existed as a consequence of the activity in commercial affairs, which followed the large war indemnity payments made by France. There is, in fact, on all sides evidence that the speculation not only in stocks and shares, but in all commodities throughout Europe, has been carried on for several years past, on a scale which was temporarily checked by the Franco-German war, far exceeding anything ever known or heard of before.

Trustworthy figures give the best and surest estimate of the increase in the business of the chief Stock markets of Europe, and where we find the stock brokers and jobbers have increased in number we may safely conclude that the business that is transacted in the Stock markets has increased also.[30]

[Sidenote: INCREASE IN THE NUMBER OF MEMBERS OF THE LONDON STOCK EXCHANGE.]

In the London Stock Exchange we find the number of stock brokers and jobbers has increased as follows. We start from the year following the great collapse of 1866, when the ranks were perhaps somewhat thinned:

The number of Members of the London Stock Exchange in 1867 was 1,261 Ditto 1868 1,297 Ditto 1869 1,356 Ditto 1870 1,433 Ditto 1871 1,442 Ditto 1872 1,620 Ditto 1873 1,706

The number of members has increased as follows: From 1867 to 1868, an increase of 36; from 1868 to 1869, of 59; from 1869 to 1870, of 77; from 1870 to 1871, of 9; the diminished increase during this period being no doubt traceable to the Franco-German war; from 1871 to 1872 an increase of 178; and from 1872 to 1873, of 86. It is evident in the increase from 1871 to 1872 that the intention of many persons to become members during 1870 and 1871 was only postponed until the storm raging on the Continent had passed over. In fact it very soon became apparent from the transfer of business, especially of a financial nature, to London, that as soon as the war was concluded the increase in the London Stock Exchange operations would be larger than would otherwise have been the case, as in fact it turned out, to speak only of the loan operations of France and Prussia. It may with tolerable certainty be argued that new stock brokers and new jobbers in the early part of their career depend very much upon speculative commission business, and the above figures, therefore, afford ample evidence of the increase of speculation in these markets.

What are the further obvious deductions from the large increase of speculation in public securities thus suggested, to confine ourselves to one kind of market? If the business of the Stock markets were reduced within safe and legitimate limits, that is, was confined to operations of a _bona fide_ investment nature, it is certain that no more than one-tenth, it might be one-twentieth, of the brokers would be required to execute properly all the orders that come into the markets. It follows, therefore, assuming this estimate to be approximately accurate, in the first place that the number of really sound stock brokers, who have a steady legitimate business, upon which pure speculation is an excrescence not particularly encouraged or liked, is small compared with the entire body; secondly, that by far the greater number depend very much for their means of support upon purely speculative “time bargains;” and thirdly, that a crying evil of the whole system is that speculators encourage the establishment of new brokers, who when established are very often compelled, perhaps against their inclination, to encourage in their turn gambling, or there would soon be an end of them. It is thus evident that a large proportion of the brokers in all markets where speculation is carried on to a large extent, must be always living on the crust of a volcano, in imminent peril of destruction from the moment the tide of prosperity, which carried them into their apparently secure and prosperous position, begins to turn.