The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1917-12-22
GOVERNMENT DIRECTION OF
FINANCIAL INVESTMENT IS
NEED WAR HAS BROUGHT u. S.
Written for the Washington Herald by
DR.. ARTHUR J. SELWM BROWN.
Famous Financial Authority.

New York, Dec. 1.-THE United
! States government must sooner or
later take action to direct the course
Of financial investment in the United
States. II the security market II to
! be saved from a possibly disastrous
crash.
Two weeks ago the bottom dropped
out of the New York stock market.
Today the bond market has reached
the lowest point since the sensational
decline Immediately following the out
break of war in 1914
The panlcky conditions which have
recently depressed the stock exchange
were brought about by disturbing war
events. by the worldwide initiation OF
the surrnecies and by the increasing
demand for capital for carrying on
! the currences and by the increasing
! operations necessltated by our entry
; into the war.
The decline In security prices has
been temporarily halted by favorable
war news. the possibility Of freight
rate increases for the railroads, and
by the action of the stock exchange
governors in drastically controlling
short selling
But the trend Is unmistakably down.
ward and must continue to be so until
effective governmental action IL taken.
The reason for this Is obvious. The
government has suddenly become the
largest competitor for ready capital
in the money market. And as war
operations continue. the government 10
going to require all the available cap
ital in the country. This will put the
cost Of capital up and therefore force
the liquidation of low interest-bearing
securities.
There have been suggestions that
| short selling in the market has been
| responsible for panicky conditions. and
| demands that short selling be made
| Illegal. There are excellent reasons
why this cannot be done.
short selling is a perfectly legiti-
mate and necessary financial practice.
To sell securities short" Is Just as
necessary as to quote prices on the
cost of building a bridge or a sky
scraper, in advance Of construction.
The man who sells stocks short"
believes that in the future he can go
into the market and buy the stocks
! cheaper than they were at the time
the short sale was made. This Is
identically what a contractor does
every time he gives an estimate. He
estimates that at a given date mate
rails can be bought in open markets
at specific rates. and he bases his
estimates on such rates.
In the case of the short seller of
stocks, or Of the contractor. the es-
Inmates may have been wrong. Then,
OF course, the contractors In each
case will lose money. They must live
up to their contracts.
| In such short selling operations the
public Is benefited because the mar
ket Is stabilized by the transactions.
III There were not numerous trans
| actions Of this kind being carried out
every day markets would fluctuate
violently and irregularly. Short sales
| tend to restore equilibrium,
But short selling can be abused
Groups Of powerful operators can Join
funds and force an abnormal state of
prices. 1t is this abuse that must be
| guarded against. And that Is what
the new stock exchange rule aims to
prevent.
Short selling. however, Is not the
cause of present panicky conditions in
the market. Since November, 1916, Sc
keurities have been steadily dropping.
The decline has been particularly
rapid since the middle of August.
High-grade bonds have declined more
extensively than any other class of
security. and railroad shares have
closely followed the declines IN bonds.
Industrial securities. though more
erratic, have also slid down almost
vertically.
This decline Is undoubtedly due to
the knowledge that American partici-
patton In the war must be increased
so as to restore any losses or weak
ness caused to- the ) allies through
Russian and Italian conditions.
Armies. ships and munftions ON \