deal in five or ten share lots on a one per cent. or two per cent. margin they enormously increase those evils which are bad enough already in the case of the stock exchanges. This evil of speculating on margin is largely a matter of degree. To put up one per cent. in cash and borrow ninety-nine per cent. is, on the face of it, an irresponsible practice. It may well be questioned if the ten per cent. margin of the stock exchange is not lower than should be allowed. Probably if the members of that institution could bring themselves to change their rules to the extent of requiring twenty-five per cent. in all cases, they would remove a good deal of the evil without seriously hampering legitimate business.

Great then as the evils are which result from the facility with which men of small means can borrow through this practice of using the purchased securities as collateral, there is no way whatever of distinguishing the desirable from the undesirable transactions on this basis. No general legal regulation could be made which would not severely hamper many kinds of perfectly legitimate business on the stock exchange and in commercial markets everywhere.

It will be seen then that since the form of transaction is in all cases the same, any attempt to discriminate between them would be fraught with very grave danger. Furthermore, it should not be forgotten that there is very close connection between speculation and what some people would call "real commerce" in distinction to speculation. No one can properly understand the real meaning of the speculative market who cannot grasp the idea that it is commerce which makes speculation and that speculation cannot exist apart from genuine business. On the contrary, speculation and the machinery of the speculative market have arisen as devices for facilitating real commerce. Consequently a restriction of the speculative market almost always involves a curtailment of trade in real commodities. The illustrations of this, historically, are numberless. Back in the fourteenth century it is reported that the town authorities of Yarmouth attempted to stop speculative jobbing in herring with the result that the whole herring business, that is, the commerce in real herring, left the town of Yarmouth and went to neighboring towns where methods of business were unrestricted. From that time to the present similar instances all point in the same direction. The coffee business was at one time centered in the city

of Havre. Interference there with the freedom of speculative transactions drove the business to Hamburg, and the interference with speculation in Germany in the last ten years has tended to reduce the importance of Hamburg as a center for the real coffee trade and to increase the importance of London. Ten years ago Hamburg did twice the business of London. To-day London

does more business than Hamburg.

In the same way the speculation in securities is bound up in the closest way with the whole matter of the investment of capital and the accumulation of the necessary means for carrying out great industrial enterprises. Just in so far as the stock market has a speculative clientele, it becomes an open and broad market; and just in proportion as it becomes an open and broad market, it facilitates the disposal of great issues of stocks and bonds which are necessary for the carrying out of the industrial undertakings of the present age. The limitation of this broad market must inevitably prove a hindrance in the financing of the most legitimate enterprises, and any interference with the freedom of speculation must inevitably lessen openness of the market.

The conclusion from the above is that if we attempt to secure the benefits, while restricting the evils, of speculation, through discriminating against certain kinds of transactions, we find it impossible to really discriminate in any way according to the form of the transaction, while inevitably, by restricting the forms of commerce and of commercial methods, we put a severe handicap on entirely legitimate enterprise.

If we turn now to the second problem under this head, namely, the question of excluding a certain type of speculators, we cannot fail to realize that if this can possibly be done it would be from many points of view a very desirable action to take. The question, however, is an extremely difficult one. What rules can we lay down as to the fact that John Doe shall be allowed to speculate and Richard Roe shall not? One of the most interesting facts of the German act was the serious effort which was made to accomplish this result. No more genuine effort in this regard was ever made, and yet the act has proved a confessed failure in this regard. The scheme adopted was that all people wishing to deal in the speculative markets should have their names registered in an exchange register. It was then provided that all transactions carried out for unregistered persons should not be binding, and the customer could escape the obligation by advancing the

defense of wager. It was supposed that this would have the result that the outsider would not dare to publicly announce himself as a speculator through registration, and the broker would not dare to deal with an unregistered party for fear of loss.

It must be admitted that this feature, among others of the act, seriously reduced the amount of business done, but there is every reason to suppose that it checked legitimate business fully as much, if not more, than the kind that the reformer wished to exclude. In the first place, it was certainly a high price to pay for the desired result even if accomplished. It had the effect of stimulating fraudulent speculation in the place of honest speculation. As a matter of fact, the outsider did not stay away from the speculative market, but found that the brokers inevitably were obliged to take their chances in order to carry on business. Hence, it simply had the effect of stimulating the whole dishonest element to enter into speculative transactions, since, in case of gain, they could claim the profits and, in case of loss, could throw the defense of wager in the broker's face. In fact, under this act of course it would be possible for a man to play both sides of the market and take his profits in the one case and refuse to meet his losses in the other. It is very questionable whether the best way of stopping gambling is to publicly inculcate the principle of "welching' on gambling bets. Certainly the effect on both trade and morals seems to have been undesirable.

In the next place one effect of this provision was to lead to great loss of trade on the German exchanges in favor of foreign exchanges. Statistics show that the securities held abroad by leading banking and brokerage houses for their customers increased in a few years all the way from threefold to fivefold, according to the individual case. Enormous sums were put into speculative mining shares abroad by the German speculating public who were hampered in their enterprises at home. In the same. way the number of agents of foreign brokerage houses on the German exchanges increased rapidly, showing that that section of the public whom the law desired to exclude were simply finding methods of carrying out their intentions in other ways.

Again a result of this restriction of business was to make the extremes of speculation even greater. In the boom of 1900 the prices of mining and industrial shares in which speculation had been prohibited went soaring as the outside public bought recklessly by roundabout methods. The prices were doubtless higher

than they would have been had there been an unrestricted bear element in the market to oppose this bull movement. On the other hand when the collapse came in 1901 the resulting fall and the consequent losses were all the greater. This again, I believe, was due to the fact that the market was restricted and there was no sufficient force to withstand the panic.

Considerations like this indicate a fact which is sometimes forgotten even by those who fully appreciate the necessity of the speculative market. This fact is that speculation, even on the part of the public, with all its evils, has a very important beneficial effect. Unless the public speculates to some extent the market will be not only very restricted but will be in consequence much more open to manipulation. The bigger and broader the market the less chances there are for rigging prices. It may seem a very high price to pay for the open market that the speculative spirit should continue on the part of the public, but it would be a mistake to suppose that speculation can be confined to a few great operators and still offer the benefits which the present market gives. This again has been a noticeable feature in the case of the German market. The small brokers and bankers have been more and more crowded to the wall, and business had been centered increasingly in the great banks. There are doubtless other reasons for this, but the difficulties of carrying out transactions on the exchange stimulated the dealings with the large banks who carry great masses of securities and can make their offsets directly in the bank, so that the control of a few institutions over the prices of the stock market is much greater there than would be the case if a wide public was included.

The conclusion then in this regard is that, first, any method of discriminating between individual speculators is extremely difficult and on the whole contrary to all our American ideas. We have never yet gone so far as to restrict individuals by law from buying any kind of property, whether expensive cigars for consumption, or houses to live in, or stocks for speculation, on the ground that they were not able to afford such indulgences. To make it unlawful for one man to buy because he has only $5,000 a year and lawful for another man to do exactly the same thing because he has $10,000 a year would be a degree of paternalism which if effectual would be extremely exasperating. Secondly, as shown by German experience any measures that could be

devised are almost certain to prove unsuccessful in accomplishing their ends. The chances are that restriction will much more seriously lessen the amount of legitimate transactions than that it will keep out the incorrigible and undesirable element.

It may seem that what has been said above shows a sad lack of appreciation of the harm which comes from irresponsible speculation by the outside public. It is not, however, in proportion to our feelings on this subject that intelligent men will advocate legislation, but in proportion as they feel that such legislation will be successful. From a study of the effects of speculation and the effects of all suggested methods of controlling it, the conclusion is almost irresistible: that legitimate and illegitimate transactions are so closely bound together, and the whole business of speculation is so closely connected with the interests of actual commerce, that any interference with the delicate machinery by the blundering fingers of the law will diminish the beneficial elements of speculation without effectually diminishing its evils. The recent suggestion of Governor Hughes that we should "ascertain the manner in which illegitimate transactions may be presented and legitimate business safeguarded," is not so simple as it sounds.

Improvements of this kind must come by means of a very different movement, and this movement must be in the nature of increased intelligence and a higher moral standard on the part of both the speculating public and on the part of the brokers themselves. It is, perhaps, too much to hope that the speculating public, which is recruited year by year by the growth of new generations, will ever become more conservative. It may at least be hoped, however, that a more public-spirited standard may be gradually adopted by the fraternity of brokers and that those who consciously allow customers to plunge beyond their means and to run the dreadful risks of bankruptcy and embezzlement will be so ostracized by their fellows that the practice will be restricted from the inability to find men to carry out transactions of this kind. As to how this is to be brought about, whether possibly by the adoption of new rules by the exchanges or by gradual increase of the better and more conservative element in those bodies, it is impossible to discuss here. A hint was given above as to a possible change in rules regarding margins. The plain fact remains, however, that the solution lies in the reformation from within rather than from without.