New-York tribune., 1909-06-17
4 SOUND REPORT.

A SOUND REPORT
The report of the Governors commission
the exchanges in this city presents the results
of a long and painstaking study Of the actual
conditions of speculation, made by body of
business men and economists who are GER
tainly free from any bias in favor of Wall
Street In these days when there is passion
for regulating everything, the report of this
commission is remarkable for the restraint with
which Il advocates state interference. Some
legislation is recommended, but all Is Of
moderate character. Abuses are recognized. but
the cure of most of them Is said 10 lie in the
hands of the exchanges themselves LeGisla-
ton attempting to deal with the manipulation
Of prices would. in the commissions opinion.
be more likely to harm legitimate business than
to accomplish its purpose. Gambling and legit-
innate trading go on together, and it would be
difficult by Law TO separate one from the other.
The exchanges can distinguish between them
and check the one without injuring the other.
They can punish fictitious trading. wash sales
and matched orders" They can discourage
corners and limit their iii effects. As an e1-
ample of the mischievous consequences of at
tempting 10 uproot the abuses of speculation
by legislation the commission calls attention tn
the experience Of Germany, where well in
tended laws caused worse evils than those they
sought 10 cure, and, So far as they accomplished
anything. were Injurious to tho business in
terests of the country.
Speculation. the commission finds. performs Il
practically indispensable service Ia the busi-
ness of the country. For the stocks Of corpora
tions it provides a wide and active market,
where the best information regarding not only
the business prospects of the country In gem
eraI but also those OF the corporation itself,
makes Itself felt. In the commodity markets it
affords. as the commission points out. what ls
virtually an insurance To the farmer producer
or manufacturer For his safety in making
contracts for the future the ability 10 buy and
sell futures" in the market Is indispensable.
Without ii manufacturing would be gamble.
For example If n cotton manufacturer were To
make contract to be filled three months
hence without having cotton hand 10 fulfil
it. or being able TO buy a future" his contract
would he speculative. Buying future for the
time he viii need the cotton. he can make his
contract with 2 clear idea of what his cotton
will cost him He can therefore make future
contract at closer price. for he does not have
10 buy enormous quantities of material ahead
and store them. nor does he have to allow for
possible loss through increase in the price Of
material. Thus speculation insures safety, gives
stability to business and reduces costs 10 the
ultimate consumer. And it cannot be got rid Of.
If the present specialization of functions is de-
stroypd by legislation and the burden of spec
ulation is taken off the shoulders of the pro
fessiOnal spectators. II is shifted upon the
manufacturer and merchant. who must then
bel with each other, when they enter into Il
contract, what cotton will be worth, say, three
months from now.
Speculation then. has its legitimate place in
the Industrial world. 1t mobllzes capital for
the modern corporate organization of business.
1t concentrates, as far possible, certain Of
the risks of business upon those whose func-
ton II is 10 take such risks Therefore the com
mission IS unwilling To recommend anything
that would interfere with proper speculation.
The suggestion Of agitators that trading on a
margin be prohibited is properly rejected for
that is only suggestion that speculation he
abolished. Selling short" the commission also
tustifes. and this will be hard for certain well
meaning reformers to swallow; because, though
they can perceive justification for permitting
buying with borrowed money, they cannot see
any prOpriety III a mans selling what he does
not possess The man who sells short Is pOpu-
larly regarded as sort Of criminal aiming to
depress prices. But short selling is only the
other side of buying n margin. If speculation
Is to be Of any value. the man who has grounds
for thinking a quotation is too high must have
some way Of registering his opinion. "Short
selling" prevents violent fluctuations in prices.
Without it manipulation would he easier than
1t is at present. Bull movements" would en-
counter no impediments. Prices could be rushed
up to the point of a crash
But though the commission would preserve
speculation unrestricted, it would check gam
bling, manipulation Of prices and other abuses
To these it calls the attention of the exchanges
IN no uncertain language, and it Is to be hoped
that they will heed the warning. If the pres
ent report results in causing the public TO per-
ceive more clearly the uses of speculation and
in making the exchanges more alert to correct
its abuses it Will accomplish a great service
And common prudence dictates that the ex-
changes should accept their responsibilities serl-
ously.