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diff --git a/29379.txt b/29379.txt new file mode 100644 index 0000000..e7e3c06 --- /dev/null +++ b/29379.txt @@ -0,0 +1,1078 @@ +The Project Gutenberg eBook, The New York Stock Exchange and Public +Opinion, by Otto Hermann Kahn + + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + + + + +Title: The New York Stock Exchange and Public Opinion + Remarks at Annual Dinner, Association of Stock Exchange Brokers, Held at the Astor Hotel, New York, January 24, 1917 + + +Author: Otto Hermann Kahn + + + +Release Date: July 11, 2009 [eBook #29379] + +Language: English + +Character set encoding: ISO-646-US (US-ASCII) + + +***START OF THE PROJECT GUTENBERG EBOOK THE NEW YORK STOCK EXCHANGE AND +PUBLIC OPINION*** + + +E-text prepared by the Project Gutenberg Online Distributed Proofreading +Team (http://www.pgdp.net) from digital material generously made available +by Internet Archive/American Libraries +(http://www.archive.org/details/americana) + + + +Note: Images of the original pages are available through + Internet Archive/American Libraries. See + http://www.archive.org/details/newyorkstockexch00kahnrich + + + + + +THE NEW YORK STOCK EXCHANGE AND PUBLIC OPINION + +by + +OTTO H. KAHN + +Remarks at Annual Dinner +Association of Stock Exchange Brokers +Held at the Astor Hotel, New York +January 24, 1917 + + + + + + + +Published by The New York Stock Exchange + + + + +The New York Stock Exchange + + +A couple of weeks ago I went to Washington to contradict under the +solemn obligation of my oath a gross and wanton calumny which, based +upon nothing but anonymous and irresponsible gossip, had been uttered +regarding my name. + +On my way between New York and Washington, thinking that, once on the +stand, I might possibly be asked a number of questions more or less +within the general scope of the Committee's enquiry, I indulged in a +little mental exercise by putting myself through an imaginary +examination. + +With your permission, I will read a few of these phantom questions and +answers: + + + + +Should the Exchange Be "Regulated"? + + +Question: + +_There is a fairly widespread impression that the functions of the +Stock Exchange should be circumscribed and controlled by some +governmental authority; that it needs reforming from without. What have +you to say on that subject?_ + + +Answer: + +I need not point out to your Committee the necessity of differentiating +between the Stock Exchange as such and those who use the Stock +Exchange. + +Most of the complaints against the Stock Exchange arise from the action +of those outside of its organization and over whose conduct it has no +control. No doubt there have at times been shortcomings and laxity of +methods in the administration of the Stock Exchange just as there have +been in every other institution administered by human hands and brains. + +[Sidenote: _Should the Exchange be regulated?_] + +Some things were, if not approved, at least tolerated in the past which +are not in accord with the ethical conception of to-day. + +The same thing can be said of almost every other institution, even of +Congress. Until a few years ago, the acceptance of campaign +contributions from corporations, the acceptance of railroad passes by +Congressmen and Senators were regular practices which did not shock the +conscience either of the recipients or of the public. Now they have +rightly been made and are looked upon as crimes. + +Ethical conceptions change; the limits of what is morally permissible +are drawn tighter. That is the normal process by which civilization +moves forward. + +The Stock Exchange has never sought to resist the coming of that higher +standard. On the contrary, in its own sphere it has ever endeavored to +maintain an exemplary standard, and it has ever shown itself ready and +willing to introduce better methods whenever experience showed them to +be wise or suggestion showed them to be called for. + +[Sidenote: _Should the Exchange be regulated?_] + +In its regulations for the admission of securities to quotation, in the +publicity of its dealings, in the solvency of its members, in its rules +regulating their conduct and the enforcement of such rules, the New +York Stock Exchange is at least on a par with any other Stock Exchange +in the world, and, in fact, more advanced than almost any other. + +The outside market on the curb could not exist if it were not for the +stringency of the requirements in the interest of the public which the +Stock Exchange imposes in respect of the admission of securities to +trading within its walls and jurisdiction. + +There is no other Stock Exchange in existence in which the public has +that control over the execution of orders, which is given to it by the +practice--unique to the New York Stock Exchange--of having every single +transaction immediately recorded when made and publicly announced on +the ticker and on the daily transaction sheet. + +I am familiar with the Stock Exchanges of London, Berlin and Paris, and +I have no hesitation in saying that, on the whole, the New York Stock +Exchange is the most efficient and best conducted organization of its +kind in the world. + +[Sidenote: _Should the Exchange be regulated?_] + +The recommendations made by the Commission appointed by Governor Hughes +at the time were immediately adopted in toto by the Stock Exchange. +Certain abuses which were shown to have crept into its system several +years ago were at once rectified. From time to time other failings will +become apparent--there may be some in existence at this very moment +which have escaped its attention--as failings become apparent in every +institution, and will have to be met and corrected. + +I am satisfied that in cases where public opinion or the proper +authorities call attention to shortcomings which may be found to exist +in the Stock Exchange practice, or where such may be discovered by the +governing body or the membership of the Exchange, prompt correction can +be safely relied upon. + +Sometimes and in some respects, it is true, outside observers may have +a clearer vision than those who are qualified by many years of +experience, practice and routine. + +If there be any measures which can be shown clearly to be conducive +towards the better fulfilment of those purposes which the Stock +Exchange is created and intended to serve, I am certain that the +membership would not permit themselves to be led or influenced by +hidebound Bourbonism, but would welcome such measures, from whatever +quarter they may originate. + + + + +Is the Exchange Merely a Private Institution? + + +Question: + +_Do I understand you to mean, then, that the Stock Exchange is simply +a private institution and as such removed from the control of +governmental authorities and of no concern to them?_ + + +Answer: + +I beg your pardon, but that is not the meaning I intended to convey. +While the Stock Exchange is in theory a private institution, it +fulfills in fact a public function of great national importance. + +That function is to afford a free and fair, broad and genuine market +for securities and particularly for the tokens of the industrial wealth +and enterprise of the country, i.e., stocks and bonds of corporations. + +Without such a market, without such a trading and distributing centre, +wide and active and enterprising, corporate activity could not exist. + +[Sidenote: _Is the Exchange merely a private institution?_] + +If the Stock Exchange were ever to grow unmindful of the public +character of its functions and of its national duty, if through +inefficiency or for any other reason it should ever become inadequate +or untrustworthy to render to the country the services with constitute +its raison d'etre, it would not only be the right, but the duty of the +authorities, State or Federal, to step in. + +But thus far, I fail to know of any valid reasons to make such action +called for. + + + + +Short Selling--Is it Justifiable? + + +Question: + +_You have commenced your first answer with the words, "I need not +point out to your Commission." That is a complimentary assumption, but +I don't mind telling you that we here are very little acquainted with +the working of the Stock Exchange or the affairs of you Wall Street men +in general. What about short selling?_ + + +Answer: + +I do not mean to take a "holier than thou" attitude, but personally, I +have never sold a share of stock short in my life. + +Short sellers are born, not made. But if there were not people born who +sell short, they would almost have to be invented. + +Short selling has a legitimate place in the scheme of things economic. +It acts as a check on undue optimism, it tends to counteract the danger +of an upward runaway market, it supplies a sustaining force in a +heavily declining market at times of unexpected shock or panic. It is a +valuable element in preventing extremes of advance and decline. + +[Sidenote: _Short selling Is it justifiable?_] + +The short seller contracts to deliver at a certain price a certain +quantity of stocks which he does not own at the time, but which he +expects the course of the market to permit him to buy at a profit. + +In its essence that is not very different from what every contractor +and merchant does when in the usual course of business he undertakes to +complete a job or to deliver goods without having first secured all of +the materials entering into the work or the merchandise. + +The practice of short selling has been sanctioned by economists from +the first Napoleon's Minister of Finance to Horace White in our day. +While laws have at various times been enacted to prohibit that +operation, it is a noteworthy fact that in every instance I know of +these laws have been repealed after a short experience of their +effects. + +[Sidenote: _Short selling Is it justifiable?_] + +I am informed on good authority--though I cannot personally vouch for +the correctness of the information--that there is no short selling on +one nowadays fairly important Stock Exchange,--that of Tokyo, Japan. +You will have seen in the papers that when President Wilson's peace +message (or was it the German Chancellor's peace speech?) became known +in Tokyo, the Stock Exchange there was thrown into a panic of such +violence that it had to close its doors. It attempted to reopen a +couple of days later, but after a short while of trading was again +compelled to suspend. + +Assuming my information to be correct, you have here an illuminating +instance of cause and effect. + +Short selling does become a wrong when and to the extent that the +methods and intent of the short seller are wrong. + +The short seller who goes about like a raging lion [or bear] seeking +whom he may devour; he who deliberately smashes values by dint of +manipulation or artificially intensified selling amounting in effect to +manipulation, or by spreading alarm through untrue reports or even +through merely unverified rumors, does wrong and ought to be punished. + +[Sidenote: _Short selling Is it justifiable?_] + +Perhaps the Stock Exchange authorities are not always alert enough and +thorough enough in running down and punishing deliberate wreckers of +values and spreaders of evil omen; perhaps there is altogether not +enough energy and determination in dealing with the grave and dangerous +evil of rumor mongering on the Stock Exchange and in brokers' offices. +But after all even Congress, with the machinery of almost unlimited +power at its hand, does not always seem to find it quite easy to hunt +the wicked rumor-mongers to their lairs and subject them to adequate +punishment. + +Yet the unwarranted assailing of a man's good name is a more grievous +and heinous offence than the assailing, by dint even of false reports, +of the market prices of his possessions. + +I need hardly add that the practices to which I have above referred are +equally wrong and punishable when they aim at and are applied to the +artificial boosting of prices as when the object is the artificial +depression of prices. + + + + +Does the Public Get "Fleeced"? + + +Question: + +_We hear or read from time to time about the public being fleeced. +There is a good deal of smoke. Isn't there some fire?_ + + +Answer: + +If people do get "fleeced," the fault lies mainly with outside +promoters or unscrupulous financiers, over whom the Stock Exchange has +no effective control. Some people imagine themselves "fleeced," when +the real trouble was their own get-rich-quick greed in buying highly +speculative or unsound securities, or having gone into the market +beyond their depth, or having exercised poor judgment as to the time of +buying and selling. Against these causes I know of no effective remedy, +just as there is no way to prevent a man from overeating or eating what +is bad for him. + +In saying this, I do not mean to imply that stockbrokers have not a +duty in the premises. + +[Sidenote: _Does the public get fleeced?_] + +On the contrary, they have a very distinct and comprehensive duty +towards their clients, especially those less familiar with stock market +and financial affairs, and towards the public at large. And they have +furthermore the duty to abstain from tempting or unduly encouraging +people to speculate on margin, especially people of limited means, and +from accepting or continuing accounts which are not amply protected by +margin. In respect of the latter requirement, the Stock Exchange has +rightly increased the stringency of its rules some years ago, and it +cannot too sternly set its face against an infringement of those rules +or too vigilantly guard against their evasion. + +Against unscrupulous promotion and financiering a remedy might be found +in a law which should forbid any public dealing in any industrial +security [for railroad and public service securities the existing +Commissions afford ample protection to the public] unless its +introduction is accompanied by a prospectus setting forth every +material detail about the company concerned and the security offered, +such prospectus to be signed by persons who are to be held responsible +at law for any wilful omission or misstatement therein. + +[Sidenote: _Does the public get fleeced?_] + +Such a law would be analogous in its purpose and function to the Pure +Food Law, Any, let us call it, "anti-fleecing" law which went beyond +that purpose and function would overshoot the mark. The Pure Food Law +does not pretend to prescribe how much a man should eat, when he should +eat or what is good or bad for him to eat, but it does prescribe that +the ingredients of what is sold to him as food must be honestly and +publicly stated. The same principle should prevail in respect of the +offering and sale of securities. + +If a drug contains water, the quantity or proportion must be shown on +the label, so that a man cannot sell you a bottle filled with water +when you think you are buying a tonic. In the same way the proportion +of water in a stock issue should be plainly and publicly shown. + +The purchaser should not be permitted to be under the impression that +he is buying a share in tangible assets when, as a matter of fact, he +is buying expectations, earning capacity or goodwill. These may be, and +often are, very valuable elements, but the purchaser ought to be +enabled to judge as to that with the facts plainly and clearly before +him. + +[Sidenote: _Does the public get fleeced?_] + +The main evil of watered stock lies not in the presence of water, but +in the concealment or coloring of that liquid. Notwithstanding the +unenviable reputation which the popular view attaches to watered stock, +there are distinctly two sides to that question, always provided that +the strictest and fullest publicity is given to all pertinent facts +concerning the creation and nature of the stock. + + + + +Do "Big Men" Put the Market Up or Down? + + +Question: + +_Is it not a fact that some of the "big men" get together from time +to time and determine to put the market up or down so as to catch +profits going and coming?_ + + +Answer: + +As to "big men" meeting to determine the course of the stock market, +that is one of those legends and superstitions inherited from olden +days many years ago when conditions were totally different from what +they are now, and when the scale of things and morals, too, were +different, which it is hard to kill. + +The fluctuations of the stock market represent the views, the judgment +and the conditions of thousands of people all over the country, and +indeed, in normal times, all over the world. + +The current which sends market prices up or down is far stronger than +any man or combination of men. It would sweep any man or men aside like +driftwood if they stood in its way or attempted to deflect it. + +[Sidenote: _Do "big men" put the market up or down?_] + +True, men at times discern the approach of that current from afar off +and back their judgment singly, or sometimes even a few of them +together, as to its time and effect. They may hasten a little the +advent of that current, they may a little intensify its effect, but +they have not the power to either unloosen it or stop it. + +If by the term "big men" you mean Bankers, let me add that a genuine +Banker has very little time and, generally speaking, equally little +inclination to speculate, and that his very training and occupation +unfit him to be a successful speculator. + +The Banker's training is to judge intrinsic values, his outlook must be +broad and comprehensive, his plans must take account of the longer +future. The Speculator's business is to discern and take advantage of +immediate situations, his outlook is for tomorrow, or anyhow for the +early future; he must indeed be able at times to disregard intrinsic +values. + +[Sidenote: _Do "big men" put the market up or down?_] + +The temperamental and mental qualifications of the Banker and +Speculator are fundamentally conflicting and it hardly ever happens +that these qualifications are successfully combined in one and the same +person. The Banker as a stock market factor is vastly and strangely +over-estimated, even by the Stock Exchange fraternity itself. + +May I add, in parenthesis, that a sharp line of demarcation exists +between the speculator and the gambler? The former has a useful and +probably a necessary function, the latter is a parasite and a nuisance. +He is only tolerated because it seems impossible to abolish him without +at the same time doing damage to elements the preservation of which is +of greater importance than the obliteration of the gambler. + + + + +To the Members of the Exchange + + +Now by this time the Committee would surely feel that it has had a +surfeit of my wisdom, as I am sure you must feel, but if you will be +indulgent a very little while longer, I should like to say a few words +more to you whose guest I have the honor to be this evening. + +My recent observation of and contact with Congressmen and others in +Washington have once more fortified my belief that the men by and large +whom the country sends to Washington to represent it, desire and are +endeavoring, honestly and painstakingly, to do their duty according to +their light and conscience, and that, making reasonable allowance for +the element of party considerations, they represent very fairly the +views and sentiments of the average American. + +[Sidenote: _The pioneer period of economic development is ended_] + +Most of them are men of moderate circumstances. Very few of them have +had occasion to familiarize themselves with the laws, the history and +the functionings of finance and trade; to come into relation to the big +business affairs of the country, or to compare views with its active +business men. + +It may be assumed that, very naturally, not a few of them have failed +to come to a full recognition of the facts that the mighty pioneer +period of America's economic development came definitely to an end a +dozen years ago, that with it came to an end practices and methods and +ethical conceptions, which in the midst of the magnificent achievements +of that turbulent period were, if not permitted, yet to an extent +silently tolerated, and that business has willingly fallen into line +and kept in line with the reforms which were called for in business as +in other walks of our national life. + +The opinions of the world, and particularly of the political world, +travel along well worn roads. Men are reluctant to go to the effort of +reconsidering opinions once definitely formed and fixed. + +[Sidenote: _The vacuum cleaner of reform and regulation_] + +Many in and out of Congress are still under the controlling impress of +the stormy years when certain deplorable occurrences affecting +corporations and business men were brought to light, when it was +demonstrated that certain abuses which had accumulated during well nigh +two generations needed to be done away with for good and all, and when +the people went through the ancient edifice of business with the vacuum +cleaner of reform and regulation, using it very thoroughly, perhaps, in +spots, a little too thoroughly. + +Not a few politicians are still sounding the old battle cry, although +the battle of the people for the regulation and supervision of +corporations was fought to a finish years ago _and won by the people_, +and although the people themselves of late, on the few occasions when +a direct proposition has been put up to them, such as recently in +Missouri, have indicated that they consider the punitive and +probationary period at an end and want business to be given a fair +chance and a square deal. + +When the right of suffrage was thrown open to the masses of the people +in England, a great Englishman said, "Now we must educate our masters." + +In this country it is not so much a question of educating our masters, +the people and the people's representatives [who, moreover, would +resent and refuse to tolerate for a moment any such patronizing +assumption], as of getting them to know us and getting ourselves to +know them. + +[Sidenote: _The need for closer contact and better understanding_] + +All parties concerned will benefit from coming into closer contact with +each other and becoming acquainted with each other's viewpoints. + +Can we honestly say that we are doing our full share to bring about +such contact and to get ourselves and what we believe in properly +understood, believe in not only because it happens to be our job in +life and our self-interest, but because in the general scheme of things +it serves a legitimate and useful and necessary function for our +country? + +How many of us have taken the trouble to seek the personal acquaintance +of the Congressmen or Assemblymen or State Senators representing our +respective districts? + +How many of us make an effort to come into personal relationship with +people, both here and in the West, outside of our accustomed circles? +Yet an ounce of personal relationship and personal talk is worth many +pounds of speech making and publicity propaganda. + +[Sidenote: _"To be one of fifteen men around a table"_] + +When you look a man in the face and talk to him and question him and +realize in the end that he is sincere in his viewpoint, whether you +share it or not, and that he is made of the same human stuff as you, +and has neither horns nor claws nor hoofs, much animosity, many +preconceived notions are apt to vanish and you are not so cocksure any +longer that the other fellow is a destructive devil of radicalism or a +bloated devil of capitalism, as the case may be. + +I recall in this connection an incident which concerns my great friend, +the late E. H. Harriman. He talked to me about his wish to be elected +to a certain railroad board. I said, "I don't really see what use that +would be to you. You would be one of fifteen men, of whom presumably +fourteen would be against you." He answered: "I know that, but all the +opportunity I ever want is to be one of fifteen men around a table." + +And the result has shown that that was all the opportunity he needed. + +We cannot all have the conquering genius and force of a Harriman, but +every one of us, in a greater or lesser degree, every one in some +degree has the power of co-operating in the vastly important task of +personal propaganda for a better understanding, a juster appreciation +of each other, between East and West and South, between what is termed +Wall Street and the men who make our laws, between business and the +people. + +[Sidenote: _This is the age of publicity_] + +This is the age of publicity, whether we like it or not. Democracy is +inquisitive and won't take things for granted. It will not be satisfied +with dignified silence, still less with resentful silence. + +Business and business men must come out of their old time seclusion, +they must vindicate their usefulness, they must prove their title, they +must claim and defend their rights and stand up for their convictions. +Nor will business or the dignity of business men be harmed in the +process. + +No healthy organism is hurt by exposure to the open air. No dignity is +worth having or merited or capable of being long preserved which cannot +hold its own in the market place. + +Democracy wants "to be shown." It is no longer sufficient for the +successful man to claim that he has won his place by hard work, energy, +foresight and integrity. + +[Sidenote: _The use of the power that goes with success_] + +Democracy insists rightly that a part of every man's ability belongs to +the community. Democracy watches more and more carefully from year to +year what use is being made of the rewards which are bestowed upon +material success, and particularly whether the power which goes with +success is used wisely and well, with due sense of responsibility and +self-restraint, with due regard for the interests of the community. + +And if the consensus of enlightened public opinion should come to +conclude that on the whole it is not so used, the people will find +means to limit those rewards and to curtail that power. + +And what is true of the public attitude towards individuals holds good +equally of its attitude towards organizations such as the Stock +Exchange. + +There can be little doubt that a great deal of misconception prevails +as to its methods, spirit and practices, as to its functions, purposes +and its place in the country's economic structure. + +It is of great and urgent importance that the Stock Exchange should +leave nothing undone to get itself better and more correctly +understood. It should not only not avoid the fullest publicity and +scrutiny, but it should welcome and seek them. + +[Sidenote: _The Stock Exchange a National Institution_] + +It has nothing to hide and it should be glad to show that it has +nothing to hide. It should miss no opportunity to explain patiently and +in good temper what it is and stands for, to correct misunderstandings +and erroneous conception. + +If it is attacked from any quarter deserving of attention, it should go +to the trouble of defending itself. If it is made the object of +calumny, it should contradict and confound the slanderer. + +Its members should ever remember that while in theory the Stock +Exchange is merely a market for the buying and selling of securities, +actually and collectively they constitute a national institution of +great importance and great power for good or ill. + +They are officers of the court of commerce in the same sense in which +lawyers are officers of the court of law. They should not be satisfied +with things as they find them, they should not take the way of least +resistance, they should ever seek to broaden their own outlook and +extend the field and scope of the Stock Exchange's activities. + +[Sidenote: _American opportunity for foreign trade_] + +One of the reasons for London's financial world position is that its +Stock Exchange affords a market for all kinds of securities of all +kinds of countries. The English Stock Broker's outlook and general or +detailed information range over the entire inhabited globe. It is +largely through him that the investing or speculative public is kept +advised as to opportunities for placing funds in foreign countries. He +is an active and valuable force in gathering and spreading information +and in enlisting British capital on its world-wide mission. + +The viewpoint of the average American investor is as yet rather a +narrow one. Investment in foreign countries is not much to his liking. +The regions too far removed from Broadway do not greatly appeal to him +as fields for financial fructification. + +Yet, if America is to avail herself fully of the opportunities for her +trade which the world offers, she must be prepared to open her markets +to foreign securities, both bonds and stocks. + +If America aspires to an economic world position similar to England's, +she must have amongst other things financial [such as, first of all, a +discount market] a market for foreign securities. + +[Sidenote: _We are at a turning point in American History_] + +In educating first themselves and then the public to an appreciation of +the importance and attractiveness of such a market, with due regard to +safety, and to the prior claim of American enterprise in its own +country, the members of the Stock Exchange have an immense field for +their imagination, their desire for knowledge and their energy. + +We all of us must try to adjust our viewpoint to the situation which +the war has created for America, and to the consequences which will +spring from that situation after the war will have ceased. + +As Mr. Vanderlip so well said in a recent speech: "Never did a nation +have flung at it so many gifts of opportunity, such inspiration for +achievement. We are like the heir of an enormously wealthy father. None +too well trained, none too experienced, with the pleasure-loving +qualities of youth, we have suddenly, by a world tragedy, been made +heir to the greatest estate of opportunity that imagination ever +pictured." + +America is in a period which for good or ill is a turning point in her +history. Her duty and her responsibility are equally as great as her +opportunity. Shall we rise to its full potentiality, both in a material +and in a moral sense? + +The words of an English poet come to my mind: + + "We've sailed wherever ships can sail, + We've founded many a mighty state, + God grant our greatness may not stale + Through craven fear of being great." + +It is not "craven fear" that will prevent us from attaining the summit +of the greatness which it is open to America to reach, for fear has +never kept back Americans--any more than Englishmen--and never will. + +Indifference, slackness and sloth, lack of breadth and depth in thought +and planning; the softening of our fibre through easy prosperity and +luxury; unwise or hampering laws, inadequacy of vision and of +purposeful, determined effort, individual and national, are what we +have to guard against. + +God grant America may not fail to grasp and hold that greatness which +lies at her hand! + + + +***END OF THE PROJECT GUTENBERG EBOOK THE NEW YORK STOCK EXCHANGE AND +PUBLIC OPINION*** + + +******* This file should be named 29379.txt or 29379.zip ******* + + +This and all associated files of various formats will be found in: +http://www.gutenberg.org/dirs/2/9/3/7/29379 + + + +Updated editions will replace the previous one--the old editions +will be renamed. + +Creating the works from public domain print editions means that no +one owns a United States copyright in these works, so the Foundation +(and you!) can copy and distribute it in the United States without +permission and without paying copyright royalties. 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