Exchange (market)

The contemporary and most developed form of a regularly functioning wholesale market for mass quantities of negotiable commodities sold according to standards (established grades and qualities), and sometimes by sample (grain, sugar, wool, cotton, coffee, rubber, metals); also, a market for negotiable securities (stocks, bonds) and foreign currency.
There are commodity, stock, and currency exchanges. The beginnings of commodity and draft (currency) exchanges (trading in drafts) appeared in the 15th and 16th centuries in the Italian Mediterranean cities of Venice, Genoa, and Florence, where manufacturing had sprung up; in these cities and in Bruges (Low Countries) a broad foreign trade developed. In Bruges, merchants from various countries gathered at a square near the house of a noted money changer and broker, van der Beurs (whose coat-of-arms consisted of three purses; hence the word “Beurs,” from Late Latin bursa, meaning purse), for the buying of foreign drafts and the exchange of trade information.
The Amsterdam Exchange was established at the beginning of the 17th century (1608); there mainly the royal bonds and shares of the Dutch East India Trading Company and British East India Trading Company were quoted. An exchange was also created for trading in colonial commodities. The Royal Exchange (commodities and drafts) arose in London in the 16th century (1566); at the end of the 17th century the London Stock Exchange began operations. In New York, the Stock Exchange was established unofficially at the end of the 18th century and officially at the beginning of the 19th.
In Paris, Berlin, and Vienna, exchanges were organized in the 18th century. The flowering of exchanges took place in the second half of the 19th century and was linked with the development of capitalist production; with growth in the volume of trade, transport, and communications (commodity exchange); and with the broad development of stock companies (stock exchange).
The stock exchange The stock exchange fulfills an important economic function in capitalist countries. Through it, funds are mobilized for investment in the fixed capital stock of industry, leading to an enormous centralization of capital. The shares and bonds of stock companies, and also bonds of the state, are bought and sold on an exchange. State bonds provide funds with which the state covers budget deficits. In a period of general crisis for capitalism, the relative proportion of domestic state bonds grows in the sum total of securities quoted on the exchange.
The rates (price levels) of securities take shape on an exchange. These rates are a sensitive barometer of any changes in the economic and political life of one or another capitalist country. Rates fall sharply in years of crises and unfavorable circumstances, and conversely they rise in periods of revival and upsurge in production. A general fall in the rates of securities is called a stock market crash.
Financial magnates always win on the exchange, and the small and average capitalists lose. The bosses of monopolies, who control production, find out sooner than others of the impending fall or rise in production, the decrease or increase in dividends, and the fall or rise in the rates of securities. Buying securities at low rates and selling them at high rates, monopolists obtain a substantial market profit. Up to the 1860’s, the stock exchanges did not play a large role. Most securities were state bonds, and joint-stock companies were few. From the 1870’s, joint-stock companies grew quickly and became the main form of capitalist enterprise, with shares becoming the leading types of securities quoted on stock exchanges.
After World War I (1914–18), the USA took the lead in the world’s capitalist economy, and the New York Stock Exchange took on a leading role. The value of shares quoted on this exchange, toward the end of 1967, was over $600 billion; at the same time on the second biggest, the London Stock Exchange, values totaled about $200 billion. The New York Stock Exchange and the London Stock Exchange quote the shares of the largest enterprises, companies that account for three-quarters of the industrial production of these countries. Large stock exchanges function in Paris (more than $20 billion in 1967), Frankfurt am Main (about $18 billion in 1967), Basel, and other cities.
The organization of an exchange is varied, but basically there are two types: an open exchange, accessible to all trading in the market and under the supervision of the state (Austria, France, and others); and an exchange as a closed corporation for its traders, accessible only to its members and free from interference from the state (Great Britain, USA). Access to the latter is conditioned by property qualifications, recommendations of several older members of the exchange, and a vote. The administrative organ of an exchange, the exchange committee (in the USA, the board of directors), is selected from its membership. Within it is the so-called admissions commission, which decides questions concerning the admission of new securities. It takes measures to prevent the admission of securities of small- and medium-sized companies to the official exchange. Many countries have unofficial exchanges, sometimes called over-the-counter exchanges, where any securities may be quoted.
The masters of monopolies are, as a rule, members of the exchange, and the exchange committee is made up of their henchmen. That is why obstacles are placed in the way of those desiring to become members of the exchange. Membership on the New York Stock Exchange costs $200,000. Furthermore, it is imperative to provide several recommendations from older members of the exchange. In the USA, in 1968, there were fewer than 1,400 members on the exchange. Members of the exchange are subdivided into exchange middlemen (traders and brokers) and dealers, who speculate in securities for their own account. The general public participates in exchange operations through brokers. The most prominent capitalist banks have their own brokers. In order to publicize information concerning the quantity of securities sold and their prices, the exchange committees include quotation commissions that publish daily price bulletins.
Despite the expansion of operations, the volume of which has grown enormously, the independent role of the exchange in the epoch of imperialism has diminished. Securities operations are concentrated in the large banks, which distribute these securities among their clients.
In premonopolistic capitalist conditions, stock exchanges also included currency exchanges where foreign currency was sold and bought. Under imperialism, transactions in foreign currency and gold almost wholly pass through the hands of the banking monopolies.
The commodity exchange The commodity exchange is a wholesale market where negotiable raw materials and foodstuffs are traded. All products are sold according to samples or to standards which list the specifications (quality, grade). In the USA, the New York and Chicago exchanges are considered to be world trading markets; and in Great Britain, the London and Liverpool commodity exchanges have this role. New York has specialized exchanges for cotton, coffee, sugar, cocoa, and others; Chicago is the leading grain exchange center. On commodity exchanges, not only are physically existing commodities bought and sold but also commodities which have yet to be produced (for example, wheat of a future harvest), which leads to the swelling of exchange turnover.
Under state and monopolistic capitalism, the government, especially in the USA, utilizes its resources to create reserves of exchange commodities (in particular, strategic raw materials) and to influence prices—for example, in order to decrease prices of raw materials produced by developing countries. In these circumstances, individuals associated with the government, knowing that such measures are to be taken, play through their dummies on the exchange and make enormous profits. Under the domination of monopolistic prices, the role of commodity exchanges has lessened because an exchange can function only when conditions permit freely vacillating prices.
Transactions in securities (and also in commodities and foreign currencies) executed on an exchange are classified either as cash trades, in which case payment is made immediately or in two or three days, or term trades when the transfer of the shares (or the commodity) and payment are effected in a stated period, usually within a month. Term transactions are of a rather speculative nature because, as a result of the differences in the rates of exchange or in prices, one participant in the transaction becomes richer at the expense of the other between the moment the transaction is executed and the moment the account is settled. If the loser pays only the difference that is lost without transferring the security, then the transaction is called “a play on the difference.” Substantial sellers of shares, gambling on a decrease in the price of a share, are called shorts (“bears”), and buyers gambling on their increase are called longs (“bulls”). Capitalist banks not only provide credit for exchange speculation by giving exchange traders loans on shares as collateral but also themselves actively participate in this speculation, buying securities and reselling them at a much higher price.
In prerevolutionary Russia, the first commodity and currency exchange was officially opened in 1703 in St. Petersburg. Most exchanges were organized in the second half of the 19th century (in 1914, there were 115). The most important was the St. Petersburg Exchange, which had commodity and stock departments. It quoted 312 different types of shares worth 2 billion rubles, as well as state bonds and state-guaranteed loans. Major St. Petersburg banks played the most important role on the exchange. At the beginning of World War I (1914–18), the official exchanges were closed, but the black market exchanges continued to function.
In the USSR, transactions in securities were forbidden in December 1917, and in January 1918 bonds covering tsarist borrowing were annulled. Exchanges existed from 1921 to 1930 and were organs for state regulation of the market in the multilayered economic structure. The overwhelming majority of exchange members were socialist enterprises and institutions. In 1923 stock departments were organized at the commodity exchanges, which effected transactions in foreign currency and state securities and in shares of joint-stock and other companies permitted by law. The number of exchanges in the USSR reached 100. In 1930, as a result of the liquidation of the multilayered features of the country’s economy and the strengthening of planning principles, exchanges became unnecessary, and so they were closed.
===REFERENCES===
Marx, K. Kapital, vol. 2, book 2. In K. Marx and F. Engels, Soch., 2nd ed., vol. 24, ch. 17.Marx, K. Kapital, vol. 3. Ibid., vol. 25, part 1, ch. 27; vol. 25, part 2, chs. 30,32, and appendix 2, the article “Birzha” by F. Engels.Marx, K. “Ekonomicheskie rukopisi 1857–1859 gg.,” ch. 1. Ibid., vol. 46, part 1, pp. 231–33.Lenin, V. I. “Imperializm, kak vysshaia stadiia kapitalizma.” Poln. sobr. soch., 5th ed., vol. 27.Lenin, V. I. “O karikature na marksizm i ob ‘imperialisticheskom ekonomizme.’ ” Ibid., vol. 30, p. 98.Bregel’, E. Ia. Kredit i kreditnaia sistema kapitalizma. Moscow, 1948. Chapter 5, section 3; chapter 8, section 5; chapter 15, section 5.Bortnik, M. Iu. Denezhnoe obrashchenie i kredit kapitalisticheskikh stran. Moscow, 1967. Chapter 3, section 3.
Finansovo-kreditnyi slovar’, vol. 1. Edited by V. P. D’iachenko and others. Moscow, 1961. (The article “Birzha” by F. P. Bystrov.)Trakhtenberg, I. A. Denezhnye krizisy (1821–1938 gg.). Moscow, 1963. (Contains bibliography.)Gindin, I. F. Russkie kommercheskie banki. Moscow, 1948. Pages 55, 84, 115, 171–77, 235–43, 444–51.M. IU. BORTNIKArchitecture of exchanges From the 15th century, exchange buildings, with large halls, were erected, mainly in coastal cities. Among these were the late Gothic exchanges in Spain (Lonja, in Palma on the island of Majorca, 1426–51, architect G. Sagrera; in Valencia, 1483–86, architects P. Compte and J. Iborra) and Flanders (exchange in Antwerp, 1515 and 1531–32, architect D. de Waghemaekere) and, later, the exchange buildings in Renaissance style (Logia dei Banchi in Genoa, 1570, architect G. Alessi; the Börs in Copenhagen, 1619–40, architects L. and H. Steenwinkel), baroque (exchange in Leipzig, 1678, architect C. Richter), and classical (Birzha in St. Petersburg; Bourse in Paris, 1808–26, architect A. Brongniart; in New York, 1836–42, architect I. Rogers; in London, 1841–44, architect W. Tite).From the middle of the 19th century, large and magnificent eclectic exchange buildings were erected (exchange in Brussels, 1873–76, architect L. Suys; in Vienna, 1874–77, architect T. E. Hansen). The exchange in Amsterdam (1897–1903, architect H. P. Berlage) became the model for exchange structures of the 20th century, with their restrained architecture and large-span ceilings covering huge halls.
Category:Market
Category:Economy