There is nothing like unsystematic speculation to destroy the cool temperament of a man. A loss incurred through hasty ill-matured operations renders him impatient to recover it, which probably leads to its being doubled. If he chance to recover the loss, instead of pausing to reflect upon the surprise created in himself by a result only feverishly hoped for, he goes on blindly tempting fortune, only to experience ups and downs which unsettle his judgment more and more, until he begins to “plunge,” when all is soon over.
Any one who has moved about at all amongst financial experts, and has closely observed them, must have noticed that they seem to be men far above the average as regards penetrative intelligence, appearing to possess that calm precision of judgment, which, as a rule, is only secured by the deliberations of many persons. Men who have amassed a great deal of money, by their own unaided intelligence, have been men of steady accurate foresight, men who have possessed a large capacity of judging what the public will do in the Stock markets under certain circumstances. A great speculator must make it his study to gather into a focus the various effects that are likely to arise under a given transformation of circumstances, analyze them, set one against the other, and calculate out the effect that will be caused when their forces are spent.
We will now suppose we are watching the speculator of the cool calculating temperament, and also the excitable man who is always acting on new ideas, which, he thinks, will occur to no one else until he has made money out of them. The cool man sits quietly down and reasons with himself, and arrives at the conclusion that what is indispensable to him as ground work is, first, some capital, a sum proportioned to the contemplated extent of his operations. Without this to commence with, speculating under any conditions is about as sensible, and about as likely to be followed by the desired result, as attempting to ferry people across a deep stream without the aid of a boat. Secondly, early information is equally necessary from all other markets where the securities are dealt in in which he contemplates speculating. To render such information as far as possible trustworthy, a branch house in the cities where there are important bourses is desirable. These two portions of the machinery are absolutely indispensable, if success in large operations is to be the rule and not the exception; and the man with the cool temperament will probably owe his success as much to the judgment which showed the necessity of these accessories, as to the well and timely directed operations which, based upon them, result in profit.
With the necessary capital and machinery duly prepared for instant action when a good opportunity occurs, the cool man plants himself in a prominent position from which he can discern at once the small cloud on the horizon which warns of the coming storm. The telegrams in the daily press, as they rise above such hypothetical horizon, are the harmless or otherwise little clouds which our speculator will scan, making a note of any which may seem to deserve attention for any special reason, on account of the effect they may be calculated to have upon the public mind. Well-conducted journals only admit into their columns telegrams from trusted correspondents, or from the public companies who supply them, and whose interest it is to adopt every precaution against imposition. An important telegram in a high class journal standing on its merits will always produce more or less effect, and it is of much consequence, but in the second rank, in the chain of machinery necessary to insure success for the speculator, that he be posted hourly throughout the day in the telegraphic news which reaches the seat of his operations. Side by side with this telegraphic intelligence which appears in the press, the speculator will receive private telegrams in cipher from his correspondents abroad, and according to his skill and intelligence in reading between the lines of the two, and judging of the probable course of events by their light, will he be able to operate profitably or not.
Pure speculation as a business, the sole object of which is to gain money, is, from the point of view of risk, removed far out of the ordinary path in which men labour for profit. Only a small percentage of men desire, even if they thought they possessed the required exceptional qualities, to gain their living in such a way. Most men reason that life is short, and that to spend it always in an atmosphere of excitement, under circumstances which keep up a constant destructive mental strain, is a mode of gaining money that involves too heavy sacrifices. The speculator who deliberately selects that calling must consequently be a man peculiarly constituted. He is generally a man of rather singular habits of thought, who thinks it quite legitimate to start a Juggernaut, and drive it over the crowd, if thereby he can do it profitably. Perfectly legitimate processes of working a market with him, would be considered little better than cheating by the ordinary run of men. He employs systematically all sorts of devices for getting the better of others who are ignorant and less sharp in foreseeing events than he. He does not scruple to lay traps, and drive the public into them, by plying them with fictitious telegrams, if he can get them published, and by forming syndicates to “rig” the markets. He partakes, indeed, a good deal of the nature of the bandit, who prepares the way for forcing concession to his demands by firing a volley into the carriage of the traveller to whom he is going to give the choice of his money or his life.
If he intends to buy a large amount of stock, which he knows is going to rise, he throws off the cloak of secrecy when he enters the market to sell, and depresses the price as a preliminary feint, so that the contemplated rigging of the price may be as little encumbered by bulls as possible. When it is known in a market that a great speculator is selling, weak bulls are speedily frightened out, and when he has such an object in view it is his “game” to intimidate with all the force of his prestige and the power of his capital. Such a man must have a concrete hardness of indifference through which nothing can penetrate to his heart. It is as necessary to the success of his operations that he possess no more regard for the feelings or pockets of other people than a hungry tiger would for him if he were airing himself unconcernedly in a Bengal jungle. He has a purpose in view, just as a surgeon has when the amputation of a leg has been decided upon. The speculator’s sole aim in the operation is the profit, towards which he cuts his way, regardless of the nature of the obstacles to be overcome, just as the knife is plunged into the flesh, severing the arteries, muscles, and sinews that surround the bone which it is the object to reach and saw through.
For a man to tread a path in which he must systematically not only disregard the interest of other people, but deliberately calculate upon the weaknesses of human nature which characterize the crowd, in order to work upon them for his own ends, it is obvious that he must be constituted in a quite exceptional manner, and not in a way that it is at all desirable that others should attempt to imitate. If uninitiated people who enter the arena in which some of the professional speculators flourish, were to spend some months in gathering information and in close observance of the modus operandi, so far as they can get to see and hear, many of them would soon be persuaded that they were utterly useless at such work, and would retire, thanking their stars they had been sensible enough to look on at the game before hazarding anything themselves. From the very fact that but few are successful as professional speculators, it can be safely argued that but few are competent to engage in the business at all, even when educated in all the tricks and deceptions necessary as collateral aids to the machinery which we have shown, and shall show more in detail, to be a sine qua non. Those qualities which have, more particularly in the past, characterized the successful diplomatist are also of the utmost importance to the speculator. Successful diplomatists in all times, with few exceptions, have been men who have never scrupled to resort to finessing, chicanery, and the ruse de guerre in every form under cover of a saintly innocence that would shame the devil. Deception in all its forms will be found in the armoury of the professional speculator, and the weapons, two-edged, are employed with a laboured precision of which a glimpse by the outsiders is occasionally to be obtained because it is impossible completely to conceal the fringes of the organisation by which his gains are netted.
We now turn to the non-professional speculator, and what a pitiable plight is that in which these gentlemen in ninety-nine cases out of one hundred ultimately find themselves. The members of the Stock Exchange liken their place of gathering in Capel Court to a barn, and themselves to fowls inside it, who repair thither every day to pick up the golden grain thrown in by the public. This description is not exaggerated, and the more marvellous does it become as one reflects upon the subject. Many and many is the man that has toiled and earned a fortune to produce him a competence for the rest of his days, who has been lured into that fatal vortex, in very many cases because industry had become a habit with him, and he found retirement irksome. “I amuse myself with a little jobbing in the stock markets, just to have some object for going up to town twice a week,” he says to a friend in the train, with whom he chances to be travelling. Such is the beginning of more sorrow in respectable households than the world has any idea of. Many a pensive countenance furrowed by the Stock Exchange, carries in its deep lines the index to a heavy volume of lugubrious family history, which, partly from shame, is sealed but to the few who must know its contents. Prosperity brings wealth in its train, and people put by at first their gains, until a taste for the excitement of dabbling in the markets grows into a thirst, and from that into a mania, which is generally the frontier to be repassed with empty money-bags, and a sad heart, by a wiser, if not a better man. It is not so easy to be good on nothing after one has had £5,000 a year, and hence a deal of the mischief that results from the foundering of Stock Exchange speculators.
The haphazard man, who is the antithesis of the professional speculator, will generally be found as differently constituted as are the results of his operations. The man who makes a study and business of speculating, investigating every detail that it seems necessary to probe until he has adapted it to the rest of his machinery, will be found to be a hard-grained man, sailing very close to the wind, while your persistently haphazard man is mostly a person of flabby character, and no less flabby mind, as easily frightened off a line that he has set himself to follow, in the innocence of a heart that expands with a delusive consciousness of possessing power, as a stray rabbit. Such a class of man is to be found by hundreds in the haunts of the Stock markets, and they are always fidgetting in and out, first as little bulls, and then as little bears, disappearing after a sharp panic like flies from a joint of meat that is rudely disturbed by the shop-boy, with the important difference that whereas the flies always get something, the speculators invariably drop their money.
The following letter which appeared in the Spectator of the 4th October, 1873, struck us as being a propos, as regards a portion of it, of this part of our subject. It affords another instance of the success which follows the trial of a haphazard speculator’s “scientific plan.” In playing against a public bank the gambler should know in these times that the science of mathematics has been already employed on the side of the managers, and is arrayed against him as a fixed law, working on the side of the croupier, whether he wills it or not:—
“A friend of mine who was not with us, but who had had many weeks’ experience at Monaco, had communicated a little plan for an all but moral certainty of winning, which was founded on the most scientific principles, but the only defect of which was that the banks gave one no conceivable means of carrying it into practice—a defect, indeed, which I believe he himself had verified by leaving Monaco a loser, in spite of his scientific plan. His idea was this:—It is obvious that even where,—say at roulette,—the chance of the next ‘odd’ or ‘even’ is precisely one in two, or one-half, the chance of a run of any given eight results in a specified order,—such as odd, odd, even, odd, odd, even, even, even,—will be only one in 2 × 2 × 2 × 2 × 2 × 2 × 2 × 2, or one in 256. If, then, my friend bethought himself, you could but steadily stake your money so as to stake it against the arrival of this highly improbable compound event, you would be sure to win. I quite agreed in this extremely sagacious principle, but the difficulty, unfortunately, was in the application of the theory. The bank gives you no chance at all of staking your money against any complex event. It admits only of your staking it in favour of or against the simple elements of this compound event. And, unfortunately, though it always remains highly improbable that any specified run of eight will take place, as you can only stake your money time by time on each single one of the eight component elements of the event, and as, in each of them separately, the chance is one in two, and not one in 256, it is simply impossible by the rules of the game so to play as to have the chances in your favour. I did, indeed, think of requesting the bank to let me stake on the result of two or three successive twirls of the roulette table, instead of on one at a time, but since my French was extremely bad, hardly adequate to protesting against the accidental raking up of my money when I had actually won, and since, had it been better, I had no hope that the authorities would comply with a request so very unsafe for themselves,—the drift of which, indeed, the croupiers might hardly have caught at the first suggestion, but would certainly have suspected,—I reluctantly abandoned my friend’s scientific receipt for winning, and was contented to lose.
“The gamblers of our party were but three in number, and all firm of purpose not to exceed the small risk we had prescribed for ourselves of 125 francs each. I was the eldest and rashest of the three, my money being soonest gone, though not for two or three hours, and it was never for a moment doubtful but that I should be a loser in the end. My companions were both cooler and cannier in their play. They did not, like me, precipitately put down their money before the croupiers had raked up the stakes lost by the previous catastrophe. They did not stretch over other players so awkwardly as I did,—indeed, the croupiers had to rebuke me mildly, by begging me to use a rake; and then, when I did use the rake, I managed to knock the most desperate gambler in the room about the head with it, and draw forth a fierce remonstrance, which made me recall with uncomfortable vividness that there was a pistol-practising ground (‘Tir-au pistolet’) in the garden of the hotel, which would readily furnish the instruments for a meeting, wherein I should hardly have come off with a mere moral lesson. Indeed, I felt clear, after watching my companions,—one of them a shrewd counsel, learned in the law, the other a cool, sagacious Cantab, who came out high in the Tripos the other day,—that neither of them had the true gambling instinct as strongly as I, though so far as their experience went, it seemed to confirm my own. And what was that experience? This chiefly,—that I was distinctly conscious of partially attributing to some defect or stupidity in my own mind every venture on an issue that proved a failure; that I groped about within me for something in me like an anticipation or warning (which, of course, was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me; that whenever I succeeded, I raked up my gains with a half-impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved a skilful move at chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which, of course was a pure illusion, for all that I did really know was that the chance was even, or much more than even, against me. But this illusion followed me throughout. I had a sense of deserving success when I succeeded, and of having failed through my own wilfulness, or wrong-headed caprice of choice, when I failed. When, as not unfrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake if any of the four numbers turned up, I was conscious of an honest glow of self-applause. I could see the same flickering impressions around me. One man, who was a great winner, evidently thought exceedingly well of his own sagacity of head, and others also, for they were very apt to follow his lead as to stakes, and looked upon him with a sort of temporary and provisional, though purely intellectual respect. But what quite convinced me of the strength of this curious fallacy of the mind, was that when I heard that the youngest of my companions had actually come off a slight winner, having at the last moment retrieved his previous losses by putting his sole remaining two-franc-piece out of a hundred and twenty-five francs he was willing to risk, on the number which represented his age, and gained in consequence thirty-two times his stake, my respect for his shrewdness distinctly rose, and I became sensible of obscure self-reproaches for not having made use of like arbitrary reasons for the selection of the various numbers on which I had staked my money during the period of my own play. It was true that there was no number high enough, sad to say, for that which would have represented my own age, so that I could not have staked on that,—but then, why not have selected numbers whereon to stake that had some real relation to my own life, the day of the month which gave me birth, or the number of the abode in which I work in town? Evidently, in spite of the clearest understanding of the chances of the game, the moral fallacy which attributes luck or ill-luck to something of capacity or gift, or incapacity and deficiency, in the individual player, must be profoundly ingrained in us. I am convinced that the shadow of merit and demerit is thrown by the mind over multitudes of actions which have no more possibility of either wisdom or folly in them than—granted, of course, the folly of gambling at all—the selection of the particular chance on which you win or lose. When you win at one time, and lose at another, the mind is almost unable to realize steadily that there was no reason accessible to yourself why you won and why you lost. And so you invent—what you know perfectly well to be a fiction—the conception of some sort of inward divining rod which guided you right when you used it properly, and failed only because you did not attend adequately to its indications.
“Such is the experience which I carried away with me from amidst the objectionable smells, the unsavoury company, the malignant gnats, the haggard revelry, and the general moral squalor of Saxon-les-Bains; and when my wife reproached me, with triumphant references to her own warnings, for the missing five pounds, I replied, what I really feel,—though I know I shall never convince her of it,—that my experience was not dearly bought. Is it the only case in which the fiction that we ourselves have earned—whether good or evil fortune—forces itself with absurd tenacity upon us? Luther himself could hardly have desired a better proof than this of the pranks which the imagination plays us when dealing with that sense of merit and demerit, so closely bound up with our human egotism. We give ourselves credit, and get credit, I suspect, for a vast deal more both of wisdom and folly in life than we deserve. Are nine-tenths of the prizes and the blanks of life at all more ascribable to any fine selective purpose or deficiency thereof in him who draws them, than my losses, or my friend the Cantab’s sudden retrieval of his loss? Yet I still look upon that able and thoughtful youth with a deep sense of respect for his cleverness in retrieving his losses, and on myself with a melancholy consciousness that, like ‘Traddles’ in ‘David Copperfield,’ my native awkwardness of mind must have been the cause of my very moderate reverses.—I am, Sir, &c.,
“An Instructed Gambler.”[26]
The greatest misfortune that can happen to the haphazard speculator is for him to make money the first two or three “accounts.” He will, in such a case, in the first place believe himself to possess some uncommon luck, or a shrewdness for selecting a security that was about to move in the direction he had reckoned upon. The operations of the most stupid speculator are frequently attended with such results, just as they might also be on his first essay at pitch-and-toss. Such incipient luck, by drawing forth the commendations of others, especially of the brokers—who do not generally err on the side of warning the individual against the dangers which beset such a path—builds up in him a false estimate of his powers. Early success associates his mind with the gains and not with the losses, and the latter are incurred subsequently with a light heart, as a sort of accident that will be sponged out by the results of the next throw.
A case came under our notice of the extreme danger of good luck attending a first operation, but it was in another market. A Spaniard had settled in London with his wife and family, and had entered into partnership with another gentleman. Much money had been made in iron, and prices had attained to an unprecedented figure (it was in 1872). He bought on pure speculation 30,000 tons, and cleared £6,000 profit. Elated with such success, his next operation was a purchase of 40,000 tons. The price fell £1 a ton. He lost all his own and his partner’s money, and fled from the country leaving his family destitute.
But when two or three losses have been incurred the confidence becomes somewhat shaken, especially after a large operation has been attempted, so as to recover the losses on several smaller ones at one coup, and has failed. Then some sort of a system will be tried, but the bad judgment which has landed the haphazard speculator so far without his having perceived the necessity of machinery and a system, will prevent his adhering to any set purpose. Such a man acts on this information and on that, led away by the plausibility of a wiser head possessed by a person who goes about like a big fish in the deep waters, disposing of the smaller fry for his own purposes.
To dig to the bottom of the question without attempting further to widen it, what are the chances against the haphazard speculator? If we ask ourselves whether we have known personally any individuals who have succeeded as haphazard speculators, we must reply emphatically in the negative. It occurs to us on making this observation that we have heard of one individual, who may be described as a haphazard speculator who did get clear off with £100,000, and we believe it to be correct. Everything he touched chanced to go the right way until one morning he raised his hat to his friends and the members who were in the markets at the time, and bid them farewell. He was a solitary instance of a man with sufficient strength of character to say to himself, “Thus far shalt thou go and no farther,” and he adhered to it. Many had made as much before, but they could never stop until it was all lost again. How is it so little is heard of those who venture and fail, for the practice would be greatly discouraged if the failures always came to light. All concerned are interested in keeping such matters quiet for obvious reasons. The broker who does the business for the speculator can measure his means pretty well at the outset, and takes care to keep his client informed so that he may persuade him to diminish his commitments if the times are not promising. The business is remunerative enough to make it worth while to run some risk, and as the client will have always something, at least, to meet his losses with, the broker is generally prepared for accidents. The speculator will, for his own sake, keep his misfortunes to himself, and so the new men come on, never knowing how many have gone irretrievably into the gulf before them until they have passed the fatal barrier of actual experience from which, in all but a very few cases, there are vestigia nulla retrorsum.
The chances are overwhelmingly against the class of speculator with whom we are now dealing, for the following reasons: He has no money, as a rule, worthy of the name of capital, and consequently if he is caught deep in by any of the thousand and one accidents that may burst like a thunder-clap on the top of the markets any hour of any day in the week, he is unable to “see it out,” as the saying goes. Not being able to take his stock off the market, the settling day occurs before a sufficient recovery takes place, and he is done for. Where there is an exposure to such a catastrophe, that may happen at any moment and sweep away the entire fund, it is obvious that the game is not worth the shadow of a candle-end, to say nothing of the substance. Yet this is the common condition of the haphazard speculator. He stands at the edge of a precipice knowing that a puff of wind will blow him over, and that it may come at any moment.
Supposing, for the sake of argument, we put such a possibility of accident out of the question, and imagine the haphazard speculator not to be exposed to the contingency of such a collapse, what do we find in the second rank of chances against him? In the first place his attention, as a rule, will be drawn to a stock by, we will say, its upward movement. He thinks to himself, “That stock has been getting up, why shouldn’t I have some of it?” and he buys, allured as are many others who wait to buy of those who have rigged the market up to a certain price, and then send the tip round to buy. The haphazard man thus assists probably the professional and systematic speculator to unload. He has got in at the top, and only sees his mistake by getting out at the bottom. Secondly, he very seldom pauses after having taken the decision to operate, owing to some special circumstance, to reflect upon the minor surroundings which are very necessary to keep in view. What are these? To buy on the eve of a settlement is a mistake, as a rule. In Stock Exchange speculation the exceptions are of the utmost importance, as for instance—When there has been a very sharp fall in the middle of an account, and it is known that the depression has been due to any considerable extent to bear operations, there will nearly always be a recovery on the eve of the account, caused by the bears taking their profits. The converse will also necessitate an operation of an exceptional nature, as when values have been driven up to a high point in an account by the bulls, to sell would be the line to take as the account approached, because the bulls might be reckoned on to take their profits in the same way. As a rule, however, prices tend to droop as the settlement approaches, owing to sales. The haphazard speculator is always very much discouraged when he has to pull up a loss, he should consequently avoid as much as possible incurring it. If he does not keep these important influences in mind, he will assuredly have to pay for the negligence.
Then there is the fatal blunder made by almost every inexperienced speculator, of never being satisfied with a moderate profit. If he buys, and the price rises ½, he cannot make up his mind to take it, but must wait for ¾; when it has reached that he must have 1 per cent.; and when that rise has been attained to, he wants another ⅛ or ¼ to cover the commission. Like the dog, in attempting to grasp the shadow of his bone, he loses all. This is of daily occurrence in numerous instances, and is one of the fatal weaknesses bound up in the frailty of human nature, from which only the strongest and coolest temperaments are able to emancipate themselves. Speculators never set sufficient value upon the importance of avoiding a loss: they think only of the profits. As it is with our money affairs when we say, Look after the pence, the pounds will take care of themselves; so it is with speculators, look after the losses, the profits will take care of themselves. “Never refuse a profit,” is a golden motto for the speculator, which unhappily few of them in their greediness have the courage to adopt.
In parting company, for the present, with the haphazard speculator, to whom we have yet more to say worthy of his attention, we would strongly recommend him if he finds it impossible to leave it alone altogether, to keep his own counsel. Do not listen to what other people have to recommend. People who are engaged in commerce in all its multifarious ramifications, care only for themselves, and for no other single soul; it is at all times consequently idle to put any other construction upon advice to buy a certain stock, tendered apparently, with the most benevolent motives, than that it is to serve directly, or indirectly, the purpose of him who recommends the purchase. In business every one is for himself, and, as the saying is, “the devil take the hindmost.” A man who takes to speculating, and has not enough stability of character to lay down certain principles for his guidance, to be rigidly adhered to as a rule, or is possessed of an excitable temperament, had better flee from the thought of engaging in so dangerous a vocation, for his ventures will assuredly result in the speedy dissipation of his inheritance, be it large or small.
Note.—I made, purposely, no comments on this very interesting and important chapter, and trust all the terms will be as readily understood by the New York speculator as by the London speculator.
H. W. R.
The excitement which most men feel in gambling in one shape or another leads to its being practised to a very large extent, in spite of legal prohibition and the vigilance of detectives. Public betting houses have been suppressed, and it seems that betting on horse-racing has diminished; while on the continent, as governments have found themselves able to fill the national exchequer in a legitimate manner, Homburg, Baden-Baden, Ems, and the like, are no longer the chosen resort of rouge-et-noir players; but the vice has only broken out in other places, the results of which will be probably far more disastrous at Berlin, Frankfort and Vienna, in their respective Stock markets, as time goes on, than ever followed the play in the gilded saloons at the places mentioned.[27]
If it be conceded that playing for money, to which end speculation likewise in any other commodity than stocks and shares is simply the means, produces a pleasurable sensation in a man, and that very few men do not experience it some time or other, who have the opportunity of calling it forth, the greater number of men whose position enables them to gamble, will probably do it. At every rise and fall in a country’s prosperity there is a flow and ebb in the tide of speculation, not only in stocks and shares, but in all markets. We refer now to that class of speculation which is an excrescence of prosperous times. A merchant’s business is at all times more or less of a speculative nature, it cannot be otherwise; but this is very different from the speculation of outsiders in commodities which they know nothing about. Many persons would, no doubt, think it strange that there should be a feverish speculation sometimes carried on in such an article as pepper. Yet syndicates are occasionally formed for quietly buying up this article, and ascertaining the exact amount in stock, and the probable quantity that will reach the market by ship within a given time. When the syndicate has complete command of the supply, they commence to “rig” the market, or put the price up, then put the public in and let it down again. In the stock markets the bona fide operations, as compared with the speculative, are probably as 1 to 20 at most, and in the colonial produce and other markets the proportion is only something more. It may be imagined, therefore, to what an extent the speculative operations in an article like pepper may be carried when it is considered that the weekly deliveries for consumption amount to 250 tons.
One inevitable evil attending all forms of commercial prosperity is that they are built up in so large a degree upon a basis of unremunerative speculation. Such a foundation only serves as a sufficient support to the superstructure, while the pressure upon it does not pass a certain limit. If, for example, it be accepted as proved that one Stock Exchange transaction in twenty is bona fide, it is obvious that when the speculation in those markets shrinks up for the time, which it is sure to do when it has had its run, a number of stock brokers whose business has been established by reason of the increase of speculative operations must fail, unless they have made enough money during the period of unusual activity to be able to live through the period of stagnation that intervenes before the next revival. And after every commercial revulsion a large number of them do fail, and it is not easy to estimate the mischief that is occasioned by the shock that is communicated to trade and production by the sudden and complete stoppage of these extra streams of expenditure.
There are great foci whence proceed currents of profit. The currents of profit may be traced to the great seats of the national industries. The money made, for example, by the great cotton and iron manufacturers of this country, distributes itself in a hundred streams from Lancashire and Yorkshire, to keep within the bounds of two counties.[28] The larger currents flow into the pockets of two classes, those who are very rich, and those who are moderately so; while the smaller streams trickle into the cottages of the labourer and artisan. The wealthy direct their new gains as they flow in, into the markets for public securities, and the gains of the labourers follow to some extent in the same direction at a slower pace, through the lower middle class, whose profits increase by the augmented consumption of all the primary articles, in which weekly wages are laid out. In both cases the currents of profit starting from the great foci of production, spread, embracing all classes of the community, like the winter’s snows gathered in their wealth in the mountain heights, which are loosened by the summer sun to flow over and irrigate the grateful plains below, and are again gathered up to a large extent for distribution through the Stock Exchanges of Europe.
When this volume of profit begins to be felt in the Stock markets, the harvest time for the professional speculator commences, and with the increase in the amount of the profits of the nation the number of securities increases also. The public securities quoted in the bourses of Europe at the present time amount to thousands of millions sterling more than existed a quarter of a century ago. Side by side with this increase in Stocks and Shares has the speculation in them increased also. Such has been the growth, indeed, of speculation that several joint stock companies have been formed, which are nothing more nor less than syndicates of speculators who have invited the public to join them in buying up a number of securities and making a profit by selling them at enhanced values. A few skilful Stock Exchange practitioners at the head of these concerns have, in many instances, made an excellent business out of the operations, by systematically raising the necessary capital and taking the securities off the market, which practically illustrates in broad daylight the legitimate method by which speculation may be pursued as a business, as we have already stated in Chapter III.
The fact of speculation having come to be practised by established companies, where before it was a kind of business that it was considered necessary to pursue as secretly as possible, proves how strong is the tendency of the age in which we live to make royal roads to wealth.[29]
Speculation, as we know it in our time, is a very different affair from what it was fifty, and even thirty, years ago. Value in all markets in our day is unsettled with the lightning flash that laughs at the bed of the Atlantic as no better than a span of space, while the forces that close in on all sides, representing demand and supply, with a responsive thunder-clap, adjust the new level as each market grasps in a moment the cause of the disturbance.
One of the great evils which follow upon the increase of speculation is the demoralisation it brings in its train. Money easily made is very often as easily lost, after which it is difficult to rekindle that healthy desire to work which is fostered by the acquirement of moderately increasing gains through close application to business. Money that cost but little trouble to procure is generally carelessly spent, which, as a rule, does more harm than good to him that gained it.
The commencement of a new era in speculation dates from November 13th, 1851, when a telegraph cable was successfully laid across the straits of Dover, and the opening and closing prices of the funds in Paris were known at the London Stock Exchange within business hours. From that day one European bourse after another has joined hands, and the political shock which affects one market, henceforth acts through the electric wires, more or less upon all, according to the extent to which the same securities are dealt in at different cities.
Side by side with the acquirement of means by the masses of those European states which up to a comparatively recent date have been poor, has speculation as a business grown, and it has been making rapid strides from the breaking out of the civil war in America, when the augmented price of cotton laid the foundations for the manufacture of this staple in parts of Austria and Prussia, where it has taken root, and according to all accounts flourishes in successful competition as regards certain descriptions of cotton fabrics with the mills of Lancashire. New seats of production have been created, and new currents of profit have found for themselves centres for investment. The sharp little panic which broke out on the Vienna bourse in April, 1873, was due to the too heavy superstructure of the new, and much too rapid, speculation, reared recklessly upon very slender foundations. There, in a city comparatively innocent of such collapses, might be seen the demoralisation which follows upon hastily and too easily acquired riches. The effect of the financial crash, which was mended up in a few weeks so that a spread of the crisis was for the time arrested, was such, however, upon the nerves of all classes of the community, that the journals had leaders written in such desponding phrases, that readers at a distance from the scene were inclined to believe that the capital of Austria was about forever to be blotted out from the roll of financial centres. Some little sympathetic effect was produced at Berlin, where considerable inflation also existed as a consequence of the activity in commercial affairs, which followed the large war indemnity payments made by France. There is, in fact, on all sides evidence that the speculation not only in stocks and shares, but in all commodities throughout Europe, has been carried on for several years past, on a scale which was temporarily checked by the Franco-German war, far exceeding anything ever known or heard of before.
Trustworthy figures give the best and surest estimate of the increase in the business of the chief Stock markets of Europe, and where we find the stock brokers and jobbers have increased in number we may safely conclude that the business that is transacted in the Stock markets has increased also.[30]
In the London Stock Exchange we find the number of stock brokers and jobbers has increased as follows. We start from the year following the great collapse of 1866, when the ranks were perhaps somewhat thinned:
| The number of Members of the London Stock Exchange in | 1867 | was | 1,261 |
| Ditto | 1868 | 1,297 | |
| Ditto | 1869 | 1,356 | |
| Ditto | 1870 | 1,433 | |
| Ditto | 1871 | 1,442 | |
| Ditto | 1872 | 1,620 | |
| Ditto | 1873 | 1,706 |
The number of members has increased as follows: From 1867 to 1868, an increase of 36; from 1868 to 1869, of 59; from 1869 to 1870, of 77; from 1870 to 1871, of 9; the diminished increase during this period being no doubt traceable to the Franco-German war; from 1871 to 1872 an increase of 178; and from 1872 to 1873, of 86. It is evident in the increase from 1871 to 1872 that the intention of many persons to become members during 1870 and 1871 was only postponed until the storm raging on the Continent had passed over. In fact it very soon became apparent from the transfer of business, especially of a financial nature, to London, that as soon as the war was concluded the increase in the London Stock Exchange operations would be larger than would otherwise have been the case, as in fact it turned out, to speak only of the loan operations of France and Prussia. It may with tolerable certainty be argued that new stock brokers and new jobbers in the early part of their career depend very much upon speculative commission business, and the above figures, therefore, afford ample evidence of the increase of speculation in these markets.
What are the further obvious deductions from the large increase of speculation in public securities thus suggested, to confine ourselves to one kind of market? If the business of the Stock markets were reduced within safe and legitimate limits, that is, was confined to operations of a bona fide investment nature, it is certain that no more than one-tenth, it might be one-twentieth, of the brokers would be required to execute properly all the orders that come into the markets. It follows, therefore, assuming this estimate to be approximately accurate, in the first place that the number of really sound stock brokers, who have a steady legitimate business, upon which pure speculation is an excrescence not particularly encouraged or liked, is small compared with the entire body; secondly, that by far the greater number depend very much for their means of support upon purely speculative “time bargains;” and thirdly, that a crying evil of the whole system is that speculators encourage the establishment of new brokers, who when established are very often compelled, perhaps against their inclination, to encourage in their turn gambling, or there would soon be an end of them. It is thus evident that a large proportion of the brokers in all markets where speculation is carried on to a large extent, must be always living on the crust of a volcano, in imminent peril of destruction from the moment the tide of prosperity, which carried them into their apparently secure and prosperous position, begins to turn.
Unless a speculator, whether in the Stock markets or any other market, is prepared to lay down all the elaborate machinery, without which, in these times, it is utterly hopeless to attempt to achieve favourable results in any degree, he must inevitably in the long run lose his money.[31]