New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-05-13
The Service of Speculation

war, and there are many who are dis
posed 70 strike heavily at the earnings
Of munitions companies as a means OF
hitting at the profits OF the war stock
spectators. With the spirit Of this
we must all be in sympathy. That men
should make money out Of the vicissi-
tudes Of victories and defeats, that the
death Of ten thousand brave soldiers
in a victorious charge should add 20
points to the price OF Industrial Alec
hol, with 4 100 per cent profit to the
margin Spectator who is holding the
stock on a 2O-point margin. Is a thing
that shocks the sense Of justice and
propriety.
But various cautions are needed here.
For one thing, the "bears" are also
stock spectators and they would well
come heavy taxes on the munitions cor
porations! They have sold the stocks
short in anticipation of heavy taxes.
The bears are no more patriotic than
the bulls. Nor is it in fact just to
suppose that either bears or bulls arc
exulting in the slaughter on the battle
field. There are many patriots even IN
Wall Street. Moreover. II is hopeless
TO expect that the slow moving Con-
gress will be able to get ahead OF the
swiftly moving professional Spectator,
who can shift from one side OF the
market to the other in five seconds. II
might be possible to ruin a lot Of
"lanbs" at the crest of bull move
ment. but that was done last December
and again when the new submarine pol
icy was announced, and it is improbs-
bic that there are very many left in
the market at the present time. The
stock market is probably already sd-
iusted TO any reasonable scheme Of
taxation. Probably existing stock prices
could stand higher taxes than are like
~ to be imposed without going lower.
Bears have already done their work.
But one who realizes the extent to
which banks and industries are tied
up with the stock market will not run
amuck with taxation. or any other pol
icy primarily designed to bring on a
stock market panic.
Great industries are financed through
the stock market. II is the active spec
ulation on the stock market, making
an immediate and ready market for
stocks and bonds, which makes it safe
for the banks to finance industry by
lending on stock and bond collateral
and by buying bonds. Bank assets
must be kept liquid. Banks can lend
safely on easily marketable things. The
Spectator performs a real service
here both by making stocks and bonds
marketable and by putting up mar
gin" TO relieve the banks Of risk. Ex-
Guiding real estate loans and items
"due from other banks and bankers,
more than half Of all the credit ex-
tended by state banks, national banks
and trust companies is normally either
in the form Of stock and bond col
lateral loans. or else in the outright
ownership of Stock Exchange securi-
ties, chiefly bonds. The old theory
that banks have as their main function
the financing Of movable physical
goods, making Commercial loans" and
that il is unsafe for q bank 10 provide
any Of the manufacturers fixed CAPT
buildings. machinery. furnace,
etc.-is no longer valid. Liquid com
mercial loans" cannot exceed 13 per
cent of the assets Of the Commercial
banks" Of the United States.
Corporate organization Of industry.
together with the active speculation
in the stock market, have made the
factory and the furnace as liquid" as
the finished product and so 1t is safe
for banks to finance industry as well
as commerce. You cannot wreck the
stock market without demoralizing the
banks, and you cannot demoralize the
banks if you wish to speed up indus
try. Moreover. the stock market is q
vital necessity to aid in the fotation
OF our enormous forthcoming public
loans. Stock markets originated in
connection with government loans, and
their activity has always been highly
important in this connection. Many
men will invest temporarily idle funds
in the government securities when they
know they can sell them again in an
active market who would not dare DO
so if there were no active market.
Further, drastic taxation on the ac-
tive businesses which you wish TO ex-
pand is very iniudiclous. We need dur
ing the next few months TO attract
a. 81 tal
and labor 10 the munitions industries.
Excess profits taxes should therefore
be applied moderately to these enter
prises. II will be better TO apply heavy
graduated income taxes. rising TO very
high rates indeed on the larger in
comes. without reference TO the source
from which the incomes are derived,
than TO single out for very high taxes
the active businesses which are produc-
ing the things we most need. These in
come taxes will get the excess profits
If they are paid out in dividends, par
ticularly # we apply the excess earn
ings" principle 10 individual incomes.
II the earnings Of munitions enter
prises are not paid out in dividends,
but are put back into the plant. this
is exactly the kind Of expansion we
should be most anxious 70 encourage.
Provisions can be made in the tax laws
10 deal with the case where a corpora
ton withholds its dividends TO enable
the stock holders 70 escape high income
taxes.
The purport Of this is not to urge
tina. we should not tax. nor is II plea
for the immunity Of any element OF
the population from its share OF the
burden Of the war. IL Is merely 20
urge that our taxing programme should
be used with reference to the revenue
of the state and not as a weapon for
furnishing an unpopular class. II this