New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-01-28
Saturday, January e., 1917

presents gOOu case iOI llc htoVh
Exchange-much better, IN fact,
than it has made for itself recently
until he comes to this point:
Question What about
short selling?
Answer do not mean to take "A
"holier than thou" attitude, but per-
sonally I have never sold share Of
stock short in my life. Short sellers
arc born, not made. But if there
were not people born who sell short
they would almost have to be in
vented. Short selling has legiti-
mate place in the scheme of things
economic.
1t acts as check on undue OPP
timism; it tends to counteract the
danger Of an upward runaway mar
ket; it supplies a sustaining force in
a heavy declining market at times Of
unexpected shock or panic. 1t is a
valuable element in preventing ex-
tremes of advance and decline.
The short seller contracts to de-
liver at certain price a certain
quantity of stocks which he does not
own at the time, but which he ex-
poets the course of the market to
permit him to buy at profit.
In its essence that is not very diff
ferent from what every contractor
and merchant does when, in the usual
course of business, he undertakes to
complete a job or to deliver goods
without having first secured all of
the materials entering into the work
or the merchandise.
Short selling does not become a
wrong when and to the extent that
the methods and intent of the short
seller are wrong, just as, for in
stance, the practice Of thrift be-
comes a vice when it degenerates
into avarice and miserliness.
Short selling in some of its as
poets is justifiable, but Mr.. Kahn's
defence Of it is not convincing. 1t
is the weaker because of the analo-
gies with which the argument is
pointed. The contention that the
operation of trader who sells short
in the expectation that "the course
of the market" will afford him a
profit on the transaction, and that
of a contractor who undertakes a
job without having first procured
the materials necessary to its COM
pletion, are essentially similar is not
well founded. The two operations
differ morally and in other ways.
The man who makes a contract
for the erection of a house in New
York may not have the brick in his
but he knows where they
can be bought at price, and that
they will be delivered as they are
needed in the work. He does not go
into the market and sell brick which
he does not own in order to depress
the price to the injury of others so
that he may repurchase it at a
lower price. From beginning to end
his operation is constructive and
contributes to the material welfare
of the community. On the other
hand, the operation of the trader is
inherently destructive in character.
From the moment he sells a stock
short, he assumes a moral position
against values, and he is under the
temptation to assist active
ly in their destruction. Too often
he does, as Mr.. Kahn says, go "about
like a raging lion Tor bear) seeking
whom he may devour," smashing
values "by dint of manipulation or
intensified selling amount
ing in effect to manipulation, or by
spreading alarm through untrue re-
ports or even through merely un-
verified rumors" in order TO buy back
the stock sold a few points higher.
1t is because such intent is behind
much short selling which takes place
that it is regarded by many broad
minded persons as unfair, dnneces-
sary and altogether undesirable.
The fact is, however, that not all
short selling is destructive in char
acter, and therefore it should not be
condemned in toto. Forsone thing,
it tends to stabilize the market, and
thereby performs valuable func-
ton. And it has other legitimate
uses, of which arbitrage transac-
tions afford one example. One who
had bought stock in London would
be fully justified from every stand
point in hedging against the de-
livery of that stock. Nevertheless,
the ethics of short selling as COM
monty practised by the Wall Street
operator are hard to defend success
fully.