The predominance in the business of dealing in se curities held by such stock exchanges as those of New York, London and Paris in their respective countries make these markets the most important news centers of the world in respect to everything which has a price making quality. By the aid of myriads of news agency activities of international scope, the exchanges are able to approximate to what is accepted as actual value. Prices made on the great exchanges in this country are published in newspapers with a circulation of at least ten million copies; these same prices are printed within a few minutes of their making by thou sands of "tickers" in scores of cities; they are sent over hundreds of private wires leased by brokers to all parts of the United States and Canada; they are cabled to all the leading cities of Europe. Thus we are led to the second function performed by the stock exchange.
8. Real and quoted price brought into harmony.— The exchange tends to bring real and quoted prices into the nearest possible agreement. The fact that open public markets exist where prices are immedi ately recorded thruout the civilized world, brings to these exchanges as buyers and sellers countless thou sands of speculators and investors who are constant students of conditions and present and prospective influences. Naturally they seek to "discount," antici pate, or take advantage of these conditions. From hour to hour the average of the best expert opinion as to what values to place upon properties is thus regis tered. The stock market is the best collective body of opinion in this country. More than anything it represents the collective mind on practical business subjects. If you want to know what the real value of a stock is, "list" it on the stock exchange, leave it there a few years, and you will find out.
9. Trend of business indicated.—The stock ex change indicates the directions in which capital may be most profitably employed. It prevents the mis direction of investments into unnecessary ventures. It brings into sharp relief the errors of capitalists and the misapplications of money. Nowhere does the changing value of property become so quickly known to all who read. The exchange thus acts as a bar ometric indicator of future conditions. It antici pates or discounts the ebb and flow of prosperity. Those who trade or operate upon the exchange have in mind the future rather than the present, and their every action in buying and selling tends to discount coming events. Prices reflect, not so much present
as future dividends, not so much actual as potential earning power.
Speculation from the very nature of the case deals with the future. Among the first speculators were middlemen or jobbers who undertook to pay the grow ers of wheat the current price and take the risk of selling at a higher price later on. As one authority says: The stocks and bonds of our corporations aggregate so large a proportion of the world's wealth, and represent such a variety of industries, that a marked rise or decline in the general level of prices is the surest indiCation, in fact an al most unfailing index, of coming prosperity or depression. And the all-important fact is, that such changes of prices on the exchange always precede, that is to say, discount the event, and do not follow, or occur concurrently. Without an exception every business depression in this country had been discounted in our security markets from six months to two years before the depression became a reality.
If the happenings of the exchanges affected only the speculators themselves, they would deserve little consideration. Whether these markets act as barom eters because of the superiority of the speculative vision in anticipating future conditions, or because of the hypnotic, psychological influence of the stock mar ket upon industry in general, it is hard to say. Prob ably the former is nearer to truth, because the col lective opinion of minds trained to correlate eco nomic phenomena is exceptionally acute and well in formed.
10. Other functions of the stock exchange.—Other functions are performed by the stock markets, such as the assistance that it renders in promoting very large corporations and the part that it plays in trans ferring credit to one country from another without the movement of gold. If there were not a great mass of sound securities which are quoted in interna tional markets, an adverse trade balance against a country could be settled only by the shipment of goods or gold. This fact, has been brought out in a most striking manner since the war, but a detailed con sideration of the subject belongs to the text on "Do mestic and Foreign Exchange." 11. Evils of the stock exchanges.—There are those who maintain that the exchanges should not be al lowed to exercise such power and influence as they do. But there seems to be no way to prevent it.