The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (romantic books to read TXT) 📖
- Author: Henry George Stebbins Noble
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The year 1914 has no precedent in Stock Exchange history. At the
present time (1915), when the great events that have come to pass are
still close to us, even their details are vivid in our minds and we
need no one to rehearse them. Time, however, is quick to dim even
acute memories, and Wall Street, of all places, is the land of
forgetfulness. The new happenings of all the World crowd upon each
other so fast in the financial district that even the greatest and
most far-reaching of them are soon driven out of sight. This being the
case, it has seemed to the writer of these pages that some record
should be kept among the brokerage fraternity of what was so great an
epoch in their history, and that this record could best be written
down by one who happened to be very favorably placed to know the story
in its entirety.
Of course the archives of the Exchange will always contain the minutes
of Committees and other documentary material embodying the story of
the past, but this dry chronicle is never likely to see the light
except when unearthed by law courts or legislative committees. It
seems worth while, therefore, to disentangle the essential thread of
the tale of 1914 from the mass of unreadable detail in the minute
books, and put it in a shape where those who are interested may look
it over.
This is not an easy task. To differentiate the interesting and the
essential from the mass of routine material is, perhaps, not very
difficult, but to present this segregated matter in a form that will
not be monotonous is much more of a problem. The proceedings of a
Committee that has been in continuous session must, when written down,
partake of the nature of a diary, and to that extent be tiresome
reading. We shall, therefore, have to ask the indulgence of any one
who happens to look into these pages, and beg him to pass over the
form for the sake of the substance. That the substance itself is of
deep interest goes without saying. It was given to the Stock Exchange
to play a great part in a momentous world crisis, and it must be of
profound interest to know how that part was played.
Stock Exchanges are a relatively recent product of modern
civilization, and like new comers in every field they are suspected
and misunderstood. The most complex of all problems are economic
problems, and the functions of Stock Exchanges form a most intricate
part of political economy. It has, consequently, been a noticeable
phenomenon in all contemporary industrial society that the activities
of the stock markets have been a constant subject of agitation and
legislative meddling. Most of this meddling has been based upon
ignorance and misunderstanding, but in a broad view this ignorance and
misunderstanding are excusable owing to the novelty and above all the
great complexity of the factors at work. One of the needs of the time,
therefore, is that the public, and their representatives in the
Legislatures, should be enlightened as fast as possible with regard to
the immensely important uses of these institutions, and to the
operation of their very delicate machinery.
The World crisis of 1914 forced upon us an object lesson on the
question of speculative exchanges in general which ought to be of
lasting profit. For years agitators had been hard at work all over the
country urging the suppression of the Cotton Exchanges, and claiming
that they contained gamblers who depressed the price of the cotton
growers' product. In the summer of 1914 the dreams of these agitators
were realized. The Cotton Exchanges were all closed and the cotton
grower was given an opportunity of testing the benefits of a situation
where there was no reliable agency to appraise the value of cotton.
The result may be summed up in the statement that the reopening of the
Cotton Exchanges met with no opposition. A similar object lesson was
furnished in the case of the Stock Exchanges. They were all closed,
and for a few weeks some profound thinkers in the radical press stated
that the country was showing its ability to dispense with them. When
the time for their reopening came, however, there was no agitation to
prevent it. On the contrary it was hailed as a sign of the resumption
of normal financial conditions in the United States.
This evidence that the experience of 1914 has cast a much needed light
on the public value of speculative exchanges, gives a further excuse
for describing in some detail how the experience was passed through by
that greatest of all these institutions, the New York Stock
Exchange.
CHAPTER I THE CLOSING OF THE EXCHANGE
The Stock Exchange is in the second century of its existence and in
that long period of time (long relatively to the number of years
during which Stock Exchanges have been known to the world) it has been
forced to close its doors only twice. The first occasion was the great
panic of 1873, the after effect of civil war when trading was
suspended for ten days; the second came with the outbreak of the world
War in the close of July, 1914. These two remarkable events differ
profoundly in the gravity of the circumstances which brought them
about. In 1873, although the financial disturbance was one of the
greatest the United States has ever experienced, the trouble was
mainly local and did not seriously involve the entire world. The
Exchange was not closed in anticipation of a catastrophe but was
obliged to shut down after the crash had taken place, in order to
enable Wall Street to gather up its shattered fragments. The measure
of this crisis was the ten days during which trading was suspended.
Far different from these were the circumstances surrounding July 31st,
On that eventful date a financial earthquake of a violenceabsolutely without precedent shook every great center of the
civilized world, closing their markets one by one until New York, the
last of all, finally suspended in order to forestall what would have
surely been a ruinous collapse. The four and a half months during
which this suspension continued stand to the ten days closing of 1873
in a proportion which fitly illustrates the relative gravity of the
two historic upheavals.
In the light of these facts we are justified in asserting that the
events of 1914 are the most momentous that have so far constituted the
life and history of the New York Stock Exchange, and consequently that
some record of, and commentary upon, these facts may be of value to
the present members of that body and of interest and profit to its
future members.
It is in the nature of panics to be unforeseen, but the statement may
be truly made that some of them can be more unforeseen than others.
The panic of 1907 was preceded by anxious forebodings in the minds of
many well informed people, whereas the Venezuela panic in 1895, being
due to the sudden act of an individual, came out of a clear sky. To
the latter class distinctively belongs the great convulsion of 1914.
While the standing armies of Europe were a constant reminder of
possible war, and the frequent diplomatic tension between the Great
Powers cast repeated war shadows over the financial markets, the
American public, at least, was entirely unprepared for a world
conflagration. Up to the final moment of the launching of ultimata
between the European governments no one thought it possible that all
our boasted bonds of civilization were to burst over night and plunge
us back into mediæval barbarism. Wall Street was therefore taken
unaware, and so terrific was the rapidity with which the world passed,
in the period of about a week, from the confidence of long enduring
peace to the frightful realization of strife, that no time was given
for men to collect their thoughts and decide how to meet the
on-rushing disaster.
Added to the paralyzing effect of this unheard of speed of action,
there came the disconcerting thought that the conditions produced were
absolutely without precedent. Experience, the chart on which we rely
to guide ourselves through troubled waters, did not exist. No world
war had ever been fought under the complex conditions of modern
industry and finance, and no one could, for the moment, form any
reliable idea of what would happen or of what immediate action should
be taken. These circumstances should be kept clearly in mind by all
who wish to form a clear conception of this great emergency, and to
estimate fairly the conduct of the financial community in its efforts
to save the day.
The conditions on the Stock Exchange, when the storm burst, were in
some respects very helpful. Speculation for several years had been at
a low ebb, so that values were not inflated nor commitments extended.
Had such a war broken out in 1906, with the level of prices then
existing, one recoils at the thought of what might have happened.
Furthermore, the unsettled business outlook due to new and untried
legislation had fostered a heavy short interest in the market, thereby
furnishing the best safeguard against a sudden and disastrous drop.
This short interest was a leading factor in producing the
extraordinary resistance of prices in New York which caused so much
favorable comment during the few days before the closing. It were well
if ill-informed people who deprecate short selling would note this
fact.
During the week preceding July 31st, therefore, in the face of a
practical suspension of dealings in the other world markets, the New
York market stood its ground wonderfully. The decline in prices,
though it became violent on July 30th, showed no evidence of collapse.
There was a continuous market everywhere up to the last moment, and
call money was obtainable at reasonable prices. Here was a perplexing
problem when the closing of foreign Bourses raised the question of how
long we should strive to keep our own Exchange open.
To close the recognized public market for securities, the market which
is organized and safeguarded and depended upon as a standard of
values, is an undertaking of great responsibility in any community. To
take this step in New York, which is one of the four preeminent
financial centers of the world, involved a responsibility of a
magnitude difficult adequately to estimate. Upon the continuity of
this market rest the vast money loans secured by the pledge of listed
securities; numberless individuals depend upon it in times of crisis
to enable them to raise money rapidly by realizing on security
investments and thus safeguarding other property that may be
unsaleable; the possessor of ready money looks to it as the quickest
and safest field in which to obtain an interest return on his funds;
and the business world as a whole depends upon it as a barometer of
general conditions.
Add to this the fact that speculative commitments by individuals from
all over the world, which have been based upon the expectation of an
uninterrupted market, are left in hopeless and critical suspense if
this market is suddenly removed, and it becomes apparent that to close
the Exchange is manifestly to inflict far-reaching hardship upon vast
numbers of people. It is also sure to be productive of much injustice.
In bad times sound and solvent firms are anxious to enforce all their
contracts promptly so as to protect themselves against those that are
overextended; an obligatory suspension of business compels these
solvent firms, in many cases, to help carry the risks of the insecure
ones and deprives the provident man of the safety to which he is
entitled.
When such facts as these are duly weighed by the agencies having the
authority to close the stock market, it becomes clear that duty
dictates a policy of hands off as long as a continuous market persists
and purchasers continue to buy as the decline proceeds. This was well
illustrated in the acute panic of 1907 when an enormous open market
never ceased
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