Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-03
URGES SHORT SALE
BAN BY EXCHANGE
Economist Takes Issue With
Whitney-Says Weak Mar
ket Hurts Business.
Special Dispatch TO The Star.

special Dispatch to The Star.
NEW YORK, October Suspend
short selling Of stocks and general
business conditions will show almost
immediate improvement. This is the
opinion expressed yesterday by Gage
P. Wright, editor of the Business Eco
nonic Digest and New York business
and investment counselor. Mr.. Wright
asserted that whatever its academic
merits. short selling tended to push
quoted prices lower and thereby shake
the confidence of business executives
throughout the entire country.
Mr.. Richard Whitney president OF
the New York Stock Exchange. in n
speech before the Merchants Associa-
ton the other day" said Mr.. Wright,
stressed the fact that the law of sup
ply and demand should always be per-
mltted to operate, and stated further
that any interference with the opera
tlon OF this law merely tended to pro-
long any period of readjustment.
Dangerous Interference.
How can the law Of supply and de-
mand, in the sense used by Mr.. Whit
ney, operate in the stock market with
short selling automatically creating an
artificial supply. or an artificial de-
mand? The prices Of stocks, of course,
huctuate In accordance with the num-
Der OF buyers or sellers When more
people want to sell than there are
people who want to buy, naturally
prices decline, and conversely. when
more people want to buy than want
to sell, prices advance. Short selling
creates dangerous interference. At
any moment it is possible for the sup
ply OF securities TO be tremendously and
artlncially increased by putting out
short lines
Why, then, does the Stock Exchange
not forbid short selling? Brokers an
sWer that short selling is an economic
necessity, that without it bull markets
would have no end and bear markets
no cushions to halt their fall. There is
merit in this argument. though it is
open TO discussion whether similar
benefits might not be acquired without
the risk always inherent in short
selling.
Even its blindest partisans cannot
deny that short selling, though it may
bolster falling stock when the sue
ceSsful bear covers his shortage. first
tends TO drive this stock downward and
carries on a movement which might
not have gone so far, or initiates one
which might never, otherwise, have
happened.
This is no time to argue the eco
non1ic merits or faults of short selling.
Suspension of short selling on the two
days following Great Britain's aban-
donment of the gold standard enabled
the market to register a rise, not only
sensational but sustained. The upward
movement was halted only when short
selling was permitted again. Here is
testimony of the dangerous effect Of
snort selling in times like these wheth-
er or not 1t be argued that at other
times there is value in the procedure.
"A depressed stock market tends to
depress business activity. because to-
day business executives throughout the
entire country follow the movement of
quoted prices on the New York Stock
Exchange more closely than is good
for them. When the market is declin-
ing rapidly. they lose confidence in the
outlook and unconsciously tend to gov
ern their policies accordingly. TWENTY
years ago this was not so true. because
few executives at that time knew. or
cared, what was going on in the mar
ket.
Sees Legislative Threat.
THE wide ownership of securities
brought about in recent years has CEN
tered interest on the movement of stock
prices and the business executives have
more and more come to accept a de-
Ginning security market as a forecast
OF poor business in the future. the ex-
pectation of which tends to retard re-
COY cry
Mr.. Wright added that he could see
but one reason for continuing the prac-
tice Of short selling and that was the
fact that 1t probably increased the
profits Of the broker members by ap-
proximately 30 per cent annually. He
stated further that. in his opinion. if
the New York Stock Exchange did not
voluntarily abandon short selling. leg
islation which would probably be Of
too great restrictive nature might be
eyDecfed