SPECULATION 1. Why exchanges exist—Any two persons may strike a bargain. One buys and the other sells. There is a meeting of the minds, a contract is effected, a sale or transaction made. Two savages meet in the jungle and instead of killing one another they ex change cocoanuts and sharp stones. In such an in cident we have an early stage of barter and a step toward civilization as well. Later on men use money in their dealings. More than two men come to the same place to trade. As commerce grows, the place becomes a centre of trade, a market. Ultimately fairs are held there, annually or perhaps oftener.
Finally, the market passes under the control of a regular organization or association of brokers. They pass rules and regulations and form an "exchange," one of the most important institutions in modern busi ness and the most highly organized and delicately ad justed market in the world.
There are two kinds of exchanges, stock and com modity or produce. The first is an organization which conducts speculation and investment in stocks and bonds. It is made up of professional traders, who buy and sell on their own account, and of brokers, who buy and sell for others. The commodity or produce exchange is an organization of the same kind, tho instead of dealing in securities, which are the pa per representatives of corporations, it provides a place for dealing in grain, cotton or other agricultural prod uce. It is with these two great groups of institutions that this book deals.
2. Why exchanges are limited to securities and agricultural products.—Now at first thought it might seem a curious fact that organized markets, or ex changes, should exist only for securities and agricul tural products. Why are there exchanges for stocks, wheat and cotton but none for safety razors, type writers or cigarettes? The reasons are simple and obvious. As regards agricultural products, it would be a great economic loss if the manufacturer, for the purpose of collecting his material, were obliged to travel over a territory large enough to supply the re quired amount of raw wheat, corn and cotton. Such
products are shipped from country to country in vast quantities. Exporters and importers cannot go from place to place to buy and sell a few bushels at a time. Further, the commodities can be handled in bulk with out injury. They can be stored away for long periods of time without deterioration. They are easily graded into certain standard qualities. The raw material is gathered from many scattered sources for mass pro duction. Dealers meet at a common, central point and compete for the concentrated raw material.
But the producer of manufactured articles, of type w•iters, automobiles and the like has a different prob lem. No one purchaser wants many articles, and each buys only after personal inspection and a series of bargainings. The products are unlike, and the buyer of a Packard would be dissatisfied with a Ford. The problem is just the reverse of that in the agri cultural field. With the manufactured article it is more economical to break up the market into many small distributing points. In the case of cigarettes the finished product is distributed among tens of thou sands of retail stores. .
The conditions, as regards securities, are not unlike those in the agricultural markets. It is not necessary to see each stock or bond certificate. Each share of common stock of the United States Steel Corporation is like hundreds of thousands of others. Like bushels of wheat or bales of cotton, such securities can be dealt in by the mass. Given only the name, price and quan tity, men can " trade." "The market" is a term which has come to mean something more than a place. It is used to describe the collective mind that finds expression in the fluctu ating prices at which property is bought and sold. One of the leading financial dictionaries defines the word "market" as follows : "in general the meaning is the predominating feeling as to values." We speak of the market as a person.