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The Commoner
VOL. 14, NO. 3
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The Evils of the Stock Exchange
By SENATOR ROBERT L. OWEN.
Answoring your request for comments on sen
ate 381)5, "A bill to prevent tho use of the malls
and of the telegraph and telephone In further
ance of fraudulent and harmful transactions on
stock exchanges."
Assuming that every member on tho stock ex
change Is an upright man and that the rules of
tho stock oxchango have none but tho most virtu
ous intontions, nevertheless, under those rules
men not members of tho stock exchange can use
tho stock oxchango for fraudulent and harmful
purposes. This can bo done as in tho case of
Itumoloy securities. Representations of value
woro made as a basis of listing these securities,
which woro substantially false, and by which tho
public was grossly misled in the buying of these
securities at a high figure which immediately
aftorwards wont to a very low figure, resulting
in dofraiidlng tho people of very largo amounts
of money.
Or as in tho caso of tho California Petroleum
company stocks, where outside parties controll
ing tho stock through wide-spread publicity and
by giving largo orders through a series of brok
ers to sell tho stock In certain quantities at cer
tain figures above sixty, and to other brokers to
buy stock in like fashion below sixty, misled the
public by selling immonso quantities of this stock
in this fashion around sixty. (Tho evidence
shows that they sold (108,000 shares in twenty
one days.) In this way the public was led to
bellovo that there was a tremendous demand for
this stock around sixty, that it had groat possi
bilities of value, whereas as soon as this opera
tion ceased and the public had absorbed a large
volume of this stock, tho price wont down to
sixteen and the people who had bought the stock
on margin and borrowed money with which to
buy tho stock, wore compelled by the ruinous
drop in tho market to sell tho stocks back at a
tremendous loss. These harmful transactions, if
not fraudulent transactions, can only be made
effective through tho use of tho postal service
and the interstate telegraph and tolophone lines.
Tho peoplo have thus been defrauded through
tho use of tho people's own postofflce services,
and through tho powers of charters granted by
tho peoplo for interstate commerce.
No sane mind can deny that the people have
a right to object to their postal service being
used to defraud tho peoplo.
For that reason tho committee of the house
of representatives after tho Pujo investigation,
recommended a bill to prevent tho use of the
malls and of tho telegraph and telephone in fur
therance of fraudulent and harmful transactions
on stock exchanges.
Tho wisdom of this act is beyond doubt
Tho constitutionality of the act is absolutely
cevtaln. J
The necessity for it cannot be denied.
Wo have listened with great respect to tho
representations of the officers and counsellors of
tho Now York stock exchange, of the Boston
stock oxchango, and of tho Consolidated stock
exchange, and no good reason has been assigned
why the people should not bo protected against
theso harmful transactions. "bi.nst
It has boon suggested that the state authori
ties should protect tho people of the United
Statos as far as they need protection. We reply
that tho state authorities having had their at
tention called to these matters have not sum
ciontly acted, that tho stock exchange mlmhSl
appear to have moro influence in preventing
needed legislation than tho people of the United
States have in obtaining desirable legislation
from tho local legislature; that tho local legs
lature in any event Is not charged with the duty
of protecting tho people of the United States
and that tho local legislature has no a its &
posal tho control of the most powerful motwi
of preventing theso harmful tJJZctton? ?hat
Is, tho denial of the mails. Moreover that stnte
legislation would only control by its action
single stock exchange, and that the New York
stock exchange, if controlled by the leelqintn
of New York could transfer ts business "Jo
Jersey City with perfect facility, or to SSSSeal
geTeS!1' 8me f thGlr Womber8 have sugl
The New York stock exchange is the most
gigantic gambling establishment in the i worid.
and has been one of the important agencies
through which tho wealth of the country has
been transferred from tho hands of the many to
tho hands of the few, exaggerating the danger
ous evil to too great financial and commercial
power in tho hands of the few and endangering
tho liberties of the nation.
If the gambling on tho stock exchanges were
merely an honestly conducted lottery, it would
be free from tho most serious evil which afflicts
this gambling in stocks and bonds through the
stock exchange.
It is perfectly obvious that where a group of
men are sufficiently powerful to expand credits
through tho banks and trust companies, that
they can create a bull market, and make the
price of stocks steadily go up, and mislead other
men into tho belief that it is a good thing to
buy these stocks in order to sell at a higher
price.
It is equally obvious that when the stock and
bond market has been thus advanced to a high
price and the sagacious and powerful few have
unloaded their stocks and bonds on an advanc
ing market, that the same group can sing a
different song and lead the chorus in the oppo
site direction and do it so adroitly that it is im
possible to fix a criminal responsibility upon
them.
They can constrict credits by saying that "the
market is too high," "that the market has an
unhealthy tone"; that "there has been too great
an inflation of credit"; that "some liquidation is
necessary"; "that speculation has gone to an ex
cess"; that "prudent men will not recognize
these high values in stocks"; and under such ad
vice a steady contraction of loans can take place,
a bear market absolutely assured with a shrink
age of stocks and bonds and squeezing out all
of tho people who have been induced to buy
stocks in tho previous bull market. In other
words, the stock market can be squeezed by de
liberate, thoughtful contraction of credits, which
will of necessity result, as a certain banker once
said to me, "In making the fellows let loose that
can't hold on."
This is a very simple process. Ii is element
ary. It is a kindergarten matter of high finance,
but results disastrously to thousands of people
who have been led into the speculation in stocks
and bonds on the stock exchange.
The representatives of the stock exchanges in
sist that speculation is of great value to the
establishment of a constant market for stocks
and bonds, that the New York stock exchange
furnishes a great national need; a market where
you can always sell stocks and bonds for cash
that short selling is of importance to prevent too
great fluctuations on the market downward, and.
that long buying is of great value in preventing .
too great fluctuation upwards.
Granting for argument sake that it is a debat
able quest on, whether speculation on the stock
exchange is a good thing or a bad thing no
man should contend that the use of tho stock
exchange for "fraudulent or harmful purposes"
as I have pointed out above, is a good thing
The stock exchange is undoubtedly valuable
as a market place where stocks and bonds may
always be sold for cash, but the stock exchange
would serve a more useful purpose if lSl
actions were safeguarded by sufficient ove?n
mental supervision to prevent "wash saTes
(which means selling the stock with one hand
and buying at the same price with another hand
ZJt TO086 f deceiviS the public into the
i?n?v?at re 'IaS an. honest (leinand for the
stock), or manipulation of stocks" such as
ZZTL t,le case " c
delightful, modern, Monte Carlo. In Mont'
Grl hwever they take their percentages wl?h
artificial control of the weelaStthe'
The stock exchanges ol tho country hav
powerful agencies' with which to prevent anv
legislation controlling them, and will rlsor Z
the most ingenuous arguments why they should
be let alone. It is of the highest important
therefore, that the patriotic press of the nation
should create public sentiment in favor of a
rational, thoughtful, governmental supervision
for the protection of the public. This power can
be exercised to the very great benefit of the
legitimate processes of the stock exchange, as
an. honest, reliable market place for stocks and
bonds. No thoughtful man will desire to inter
fere with its legitimate processes, but on the
contrary would much prefer improving the op
portunity of the stock exchange to render serv
ice in its legitimate field, as a national and inter
national market place that can be relied on with
confidence.
IU7RAL CREDITS AND FAftM-LAND BANKS
The subject of rural credit is one of vital im
port auco to the continued and increasing welfare
of our country. There are twelve million- farm
ers in the United States. They add each year
to the national wealth nearly eight and a half
billion dollars. Their indebtedness is approxi
mately six billion dollars, on which tho annual
interest charge is over five hundred million
dollars. Tho farmer pays an average interest
rate of eight and one-half per cent, a consider
ably higher rate than is paid by industrial cor
porations, railroads and municipalities. At the
same time the security which the farmer is able
to offer in tho land on which he raises his crops
is quite as stable as that offered by those cor
porations. The farmer needs money to improve his prop
erty, to increase its productive power and to
carry him over the time when his crop is matur
ing. He has abundant credit resources, but the
methods open to him in this country for turning
his credit into cash are crude, inequitable and
costly. The farmer, as a result, has to pay too
much for his money. From this condition the
whole country suffers.
Last year a commission, appointed by the
Southern Commercial Congress and receiving the
endorsement of the United States senate, made
a study of the systems of rural credit in opera
tion in European countries. The commission
has not yet made its formal report, but a bill
has already been introduced in congress by its
chairman, Senator Fletcher of Florida, for the
establishment of a national farm-land bank
system.
The bill provides for the establishment of na
tional farm-land banks of two kinds joint stock
banks and cooperative banks. The chief dis
tinguishing characteristic of the cooperative
bank is that all its patrons share in its profits in
proportion to the amount of business they do
with the bank The profits of the bank are ap
port ionedVflrst to the stockholders, the rate of
dividend to them being equal to the prevailing
rate of interest m'the community (but in no case
exceeding the legal rate of interest in the state) ;
and second to the patrons of the bank.
The main purpose of the farm-land bank will
be to provide the farmer with money for the de
ItV f hIs farm Properties. It will loan
5Ef,or any. one of three Purposes: To corn
on!6 of a 'arm ; to improve and
th fni mJ iand t0 pay off a mortgage on
mnro rt ?? I?"8 aPe t0 be mad6 for not
nnv an thIrty"five years at a rate of interest
SSSSyfh f T Cent lligber than tbe te at
Snrw?LnankiC,an get tIle money in the money
S-oiStt. S6d by a flrst morie on the farm
EvmL! compulsory provision for the
2P2IK hG PPa1 of the loan in annual
mJJt? instalments. Loans are to be
bLnkT&utSd WitMn the StatG in WhiCh the
tin!!1 f?,ey whIch tbe bank lends isUo be ob
ra?i?JnthreeiWayB: From itB caPital and ac
PoSts of nS8' fi;m deposItB deluding de
farm Innri h?Sal 8aVlngS fUnds' of wbIch the
from tS bJSk may bLmaie a depository, and
ThZwifJS f national land-bank bonds.
S hft? t0 be 8ecured by the mortgages
te them GrS aS Security for tne lans
theTfarmJrmond ,Vi11 make th crit of
touch wfh "lable by bringing him into
roml It? he ?oney market as he never could
sfrraahfiS h?U? S !t una8ted. It will
of th? nL ?n6dit by combining it with that
for tho iimi LndWnera,of biB neighborhood
hSnrSS5?ePlSnB ?ecurty of a series of land
bank bonds will naturally comprize a ctoud of
m0surgeafo8h0immnT diff(4nt pCrties.wili
woSld be m?ftw l? Ja,te of 'est than he
would, pe likely to obtain anywhere else for
he bo&Ch,Ee W ono PCntVoren
tne Donas sell for, and bonds baaed on such em-
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