"Thus we say," writes Theodore H. Price in the Outlook, "that the market is 'strong' or 'weak' or `pan icky,' unreasonable' or `suspicious,' enthusiastic' or `tired,' hungry' or 'asleep,' and attribute to it almost every emotion felt by the individual." In this sense the word "market" has come to be synonymous with "exchange." When we say "the stock market," we mean the stock market on the stock exchange, and nine times out of ten, we mean the stock market on the largest stock exchange. There are many dealings in stocks, bonds, wheat, cotton and other produce off the exchanges. One authority has estimated that of the entire commerce in stocks, grain and cotton that is generated by the nation, probably less than five per cent is conducted on the exchanges, "and yet all the business of the country is attuned to the tone of these exchanges and reflects the confidence or doubt of the collective public mind to which they give expression. . . . It seems reasonable to assume that the Ainerican public directly affected by the changes in value registered on our exchanges include about 11,000,000 people." 3. The three great exchanges.—The first part of this book deals with stock exchanges, the second part with commodity exchanges. In this country there are three great organized markets, the New York Stock Exchange, the Chicago Board of Trade and the New York Cotton Exchange. It is with these that we are chiefly concerned, altho comparisons must be made with similar institutions abroad. There are smaller stock exchanges in almost every city of metropolitan aspirations, grain exchanges in numerous middle west ern and Canadian cities and an important cotton ex change in New Orleans. But other markets are all more or less responsive to the influences that affect the three larger exchanges.
4. New York Stock Exchange.—By gar the larg est single market for stocks and bonds in the coun try is the New York Stock Exchange. Here, as on all exchanges there is a large element of speculation, and as speculation is more extensive in stocks than in bonds, sales of stock far exceed those of bonds. Over a period of years the average annual turnover in stocks on the New 'York Exchange exceeds sixteen billion dollars, while that in bonds is about one billion. Many classes of bonds are indeed more extensively bought and sold off than on the Exchange. Yet half a billion dollars of new bonds are "listed" yearly and in no single place off the Exchange does such a huge market for bonds exist.
5. Beginnings of the New York Stock Exchange. —In 1792, twenty-four men who called themselves "Brokers for the Purchase and Sale of Public Stocks" met under an old tree on Lower Wall Street and formed the organization which was destined to play by far the most important role in the financial history of the United States. The business of the organiza tion remained small until the year 1817 when the pub lic debt had increased to $109,000,000. Later the dis covery of gold in California gave impetus to specula tion and the increase in national wealth enlarged the volume of trading done on the Exchange. When the
period of the Civil War was reached it became an essential factor, the expansion of our national debt and the suspension of specie payments all helping to whet the speculative appetite. After the war railroad construction went on at an increasing pace and the industrial development of the country received more and more attention. The creation of corporations and combinations made the Exchange an extremely busy place and the centre for trading in the United States.
6. Functions of the stock exchanges.—Stock ex changes have come into existence because of the enor mous increase in stocks and bonds; because of the growing ratio they bear to the world's total wealth; because of the wide distribution of their ownership among millions of persons; and on account of their increasing use as security for bank loans. The chief functions which stock exchanges perform may now be considered.
7. Providing ready transfers of securities.—Of first importance is the ready means afforded the exchange of transferring stocks and bonds from hand to hand, an element which is vitally essential to the creation of corporations. The stock exchange renders this serv ice because it provides at all times a wide, permanent and easily available market for the sale of securities, and establishes the current prices for such securities, based on the best available information. The ex change provides a central market where quick sales may be made. Without organized stock exchanges it might take days to sell stocks, where now transactions are made in seconds and minutes. Professor S. S. Huebner describes this function in an excellent pas sage: Without an organized market for corporate securities, the average individual holder would stand in a most defenseless position. He could not learn their price from day to day, because transactions, if private, would not be recorded, might be designed to mislead, and certainly would not be rep resentative of the general judgment. He would be exposed to a hundred times the fraud of today. He would be at the mercy of every rumor. He would be unable to place a cor rect estimate of the importance of current events upon the price of his securities. He could be easily misled by un scrupulous counselers into selling his securities far below their fair value.
Today, however, every newspaper of any importance in the country gives daily the quotations of leading securities for the day before, and the holder cannot be deceived as to the price. These quotations represent the average combined judgment of many minds, which is given concrete expression in actual transactions on the floor of the Exchange. Thru the widespread publicity of stock exchange quotations the world over, the holders of securities are given gratis the com bined opinion of the most competent financiers as to the value of those securities at present and their prospective value in the future.