Annuities

Assessment Insurance

From the time when the first company was formed and its capital represented by shares, which were offered to the public, or the first responsible government issued its obligations in the form of bonds or promises to pay, the buying and selling of such securities may be said to have existed. Dealing in such forms of wealth is as natural, proper and legitimate as dealing in dry goods, or any other class of property. From buying and selling securities for the purpose of investment, it was only a step to the period of speculation in them. When the prospects of large gains made shares desirable, as in the case of the East India Company, the South Sea Company or Law's Mississippi Company, the price rose and speculation was active. When a time of commercial depression prevailed, or frequent and prolonged wars and internal strife, unsettled or overturned governments, destroyed commerce and made obligations unsafe, trading in securities naturally declined or ceased altogether. But as society advanced, and governments became more stable, with rights of property secure, companies began to multiply, and as securities increased, speculation became more common until, like every other employment, it became the principal or sole trade or occupation of a particular class of citizens.

In his History of England, Macaulay says: "It was about the year 1688, that the word 'stock-jobber' was first heard in London. In the short space of four years a crowd of companies, every one of which confidently held out to subscribers the hope of immense gain, sprang into existence. Extensive combinations were formed and monstrous fables were circulated for the purpose of raising or depressing the price of shares." The mania for speculation increased until in 1697 Parliament passed an Act to regulate the business of speculation in stocks. In 1773 the London Stock Exchange was organized and now occupies an old-fashioned building in Capel Court, opposite the Bank of England. It has a membership of nearly 5,000, with an entrance fee requirement of 250 guineas. Its scope is broader than any other exchange, since its location at the world's financial center gives it a pre-eminence. Stocks in companies scattered all over the world are traded in, American, South African, and Australian stocks being especially numerous and prominent. It is the international market for stocks, and bears the same relation to the world of securities that the Bank of England holds to the financial world. The Bourse, the great stock market of Paris, was founded in 1726. Its operations embrace chiefly European securities. Its agents are not allowed to trade on their own account.

The great trading center of America is Wall Street, in and near which are grouped the financial interests which in a large measure support the New York Stock Exchange. Securities from all parts of the United States are here listed and dealt in. There are stock exchanges in Boston, Chicago, St. Louis and other cities, but they possess chiefly a local character, being limited almost wholly to the securities in their re-spective localities. Each exchange has its rules and methods of doing business, but in a general way, they are similar and all are patterned more or less closely after the New York Stock Exchange. Many brokers in these cities are also members of the New York Stock Exchange, and through this connection are enabled to execute orders for securities not listed in their local exchanges. The membership of the New York Stock Exchange is limited to 1100 and the price of a membership or "seat" is very high, ranging from $30,000 to $80,000, depending upon the general condition of the speculative market.

Widely different opinions prevail regarding the stock exchange. It has been condemned as a gambling institution, which unsettles values and injures legitimate business, and on the other hand, it has been praised as a necessary and commendable institution. Both of these opinions are, in a measure, right, and both are partially wrong. As a market for securities the Stock Exchange is unobjectionable - is a great convenience to both buyers and sellers. Capitalists who do not wish to loan their money or invest in real estate may here buy securities which will produce a desired income, and others desiring to convert securities into ready money are brought into immediate communication with buyers through this instrumentality. The Stock Exchange provides a place for the investment of savings. Not every person can invest in land or mortgages. These are limited in quantity and besides are beyond the financial capacity of most of those with small savings. Corporations are now numerous, and securities, - both stocks and bonds - are so plentiful that they constitute the chief form of investments. Bonds and stocks of approved quality have the advantage over real estate of being easily hypothecated as collateral for loans, or converted into cash by sale. The Stock Exchange, therefore, in so far as it affords facilities for making legitimate investments, is an undoubted benefit to the business world, and an aid to the progress and development of the country. Were stocks and bonds not readily salable, investors would not buy them, and were this the case, great enterprises such as railroads, large manufacturing establishments, and the like could not be constructed. In a recent treatise entitled "The Work of Wall Street," Mr. Sereno S. Pratt very aptly says:

"A stock market is an income market. It is a place where incomes are bought and sold. No one, it is true, goes to the Stock Exchange as he might to an insurance company, and, paying over the requisite amount of money, buys an annuity. Yet, essentially, the stock-market operation is the same. The stocks and bonds traded in on the Stock Exchange would be worthless unless they represented value, either present or prospective. Bonds and preferred stock generally represent fixed income. Common stocks represent speculative income, - that is, income that may vary from year to year, according to the earning capacity of the corporation issuing them. If a company has no income and no prospect of earning one, its securities are worth no more than so much waste paper. It is true that the stocks of an insolvent company are often quoted in the market, but their value consists in the control of the charter, the franchise, or some other privilege from which it is believed an income may sometime be derived. Several months ago a list of 48 non-dividend-paying stocks was published whose average market price was 41, but every one enjoyed the prospect, immediate or remote, of future dividends. There could be no stock market if there were no incomes. In Paris an investor will say to his broker, "Buy me enough rentes to pay me an income of, say, 50,000 francs a year." He goes into the market to buy, not rentes, but income. In New York the investor does not express himself so directly. He says to his broker, "Buy me $500,000 of bonds." Now, what he is actually buying is not bonds, but the income the bonds will yield. Before placing the order he has calculated exactly what will be the income, taking into account the premium paid, the interest promised, and the duration of the bond. All investments are thus made on the income basis.