The New York Stock Exchange

The New York Stock Exchange devoted itself during most of its history almost exclusively to securities of railway enterprises, even the dealing in United States Government bonds and in other American public securities being chiefly conducted outside the Exchange. In recent years, however, along with the development of the London movement of industrial incorporation, the New York Stock Exchange has been largely utilized for the exploiting of shares of American companies of this nature. This movement, which flagged during the hard times of the early nineties, was renewed in enormous volume during the great "boom" in trade which followed 1897. In the course of this time listing of industrial securities on the New York Exchange attracted an immense business to that branch of its activities. The New York Stock Exchange has never dealt to any noteworthy extent in foreign securities, thereby reflecting the general tendency of American investors. Even the large purchases of British consuls by American bankers during the Exchequer's loan issues of 1900, 1901, and 1902 were disposed of privately, and were never allowed a place in the formal trading of the Stock Exchange.

There has been some rather notable diversity in the business of the New York Exchange and other American exchanges. For example, the Philadelphia Stock Exchange has long been noted as the market for various street-railway securities. This was because Philadelphia capitalists had interested themselves particularly in that form of investment. For similar reasons the Boston Stock Exchange, though not an organization which commanded the resources and capital of New York, monopolized for many years, and largely controls now, the trading in shares of copper-mining companies.

Stock exchanges of Continental Europe have in general devoted themselves to transportation enterprises of their own countries, to their own Government's securities, and to securities of other European governments which came to those markets to raise capital. More recently the stock exchanges of Paris Berlin, and Vienna have followed London's example in taking up on a large scale shares of incorporated industrial enterprises. This has been particularly true of Berlin, where the iron industry has been extensively exploited in this form.

History

Stock exchanges as an institution had their origin at the time of the creation of public debts on the modern plan, at the close of the seventeenth century. The incorporation of the East India Company in London further developed the possibilities of the raising of public capital for corporate uses through the medium of stock-exchange trading. In 1720 the enormous public speculation in the shares of the South Sea Company in London and of the Mississippi Company in Paris brought stock-trading to a height never before conceived of. No city at that time, however, possessed a stock exchange in the sense now attached to the term. In London transactions in stocks were conducted through stock brokers, whose headquarters were at Jonathan's and Garraway's Coffee Houses in ' Change Alley.' 

There does not appear to have been any formal organization among these brokers. Addison in the Spectator speaks humorously of having been taken for one of their number by the stock-jobbers at Jonathan's. The London Stock Exchange Building was not erected until 1801; the Paris Bourse not until 1826. The New York Stock Exchange membership, even after it had become a formal organization, conducted its business in hired rooms until December, 1865, when the building was erected on Broad and Wall Streets, which has been replaced by the new structure on the same site, dedicated in April, 1903. 

The history of stock exchanges is very largely a mirror of the financial history of the community in which they are situated. The New York Stock Exchange rose to a position of real prominence only after the Civil War. Even at that time the fact that it did not deal in gold as a commodity threw a great part of the community's highly speculative business over to the Gold Exchange, which was formed for that purpose exclusively. The dramatic incident of this period was the gold panic on Black Friday in September, 1869, when a combination of several unscrupulous speculators, among them James Fisk, Jr., and Jay Gould, attempted to corner and put to extravagant figures the gold supply of the market. Operations on the Stock Exchange proper at that time were largely made up of the personal struggles of rival capitalists, notably in connection with the Erie and New York Central railroads.

The completion of the Pacific Railway (1869) caused extensive speculation in shares of the two transcontinental railways, and as capital increased and the railway mileage of the country extended the transactions of the Exchange became of a national rather than provincial character. The leading operators of that time were Gould, Fisk, Daniel Drew, Cornelius Vanderbilt and their associates. None of the capitalists named was accustomed to trade personally on the Stock Exchange; indeed, such a practice has always been the rare exception among active financiers.

The crisis of 1873 was felt in its full force on the New York Stock Exchange, which was obliged to close for two days at the height of the panic in order to stem the tide of liquidation in securities. With the great trade revival which followed the resumption of specie payments and the profitable grain harvests of 1879 the New York Stock Exchange entered upon a period of renewed activity. During the year 1880, which marked the climax of the "boom" of that period, trading on the Exchange reached an enormous volume, and the value of seats in the Stock Exchange rose to an unprecedented figure.

In 1881, when a reaction in the tide of prosperity began, the New York Stock Exchange reflected the change by a contraction in the volume of business done and by an extensive fall in prices. Speculation by the general public was again rife in 1882, but was checked with great violence by the sudden fall in railway and industrial profits at the close of the year. The severe reaction of 1883 was followed by the panic of May, 1884 in which half a dozen Stock Exchange Houses failed and two important banks were compelled to close its doors.

The period from 1886-1888 inclusive was chiefly marked by the large issues of securities to provide funds for the very extensive railway building then in progress. There were several excited markets on the Stock Exchange, though the tendency at the close of the period was toward depression of values, largely because of the enormous creation of new securities. The year 1890 was again marked by great activity and rising prices on the Stock Exchange. This "boom" was checked by the Baring panic of November, 1890, in London, which was reflected by a prompt recall of English capital from the United States, and by a New York Stock Exchange panic, in the course of which two or three broker houses failed. From then until the outbreak of the more serious panic of 1893 a shrinkage in business was the chief characteristic of the New York Stock Exchange's history.

The panic of 1893 was in many respects one of the most dramatic episodes in the Stock Exchange history. There was at one time, during July of that year, talk of repeating the expedient of 1873 and closing the Exchange. This turned out to be unnecessary, as foreign capital came to the market's relief in the moment of emergency. The following year, 1894 was a period of great depression, when the volume of Stock Exchange business fell to the lowest point since 1878. 

Recovery followed in 1895, when foreign capital was again commanded in connection with the international syndicate to float the United States Government's bond issue and protect the Treasury gold reserve. A panic of smaller proportions swept over the Stock Exchange at the close of this year, in connection with the collapse of the protective operations and the international clash between America and Great Britain over Venezuela. The two ensuing years were chiefly characterized by the reorganization of the great number of important railways which had failed during 1893 and 1894, and whose new securities, largely increased in quantity, were placed through the medium of the Stock Exchange in 1896 and 1897.

The financial revival which began at the close of the last-named year introduced a new epoch in the history of the New York Stock Exchange-an epoch in all respects the most remarkable of its history. Supply of American capital available for investment purposes seemed suddenly to have become unlimited-largely because of the country's immensely profitable harvests at a time of European famine, but also on account of a wholly unprecedented increase in our general export trade, in manufactures as well as in agricultural products, which gave to our markets a command over foreign capital which they had never before possessed. This increase in capital was made use of by promoters of all kinds of enterprises, and their shares found active reception on the Stock Exchange. A highly excited movement for the rise at the opening of 1899 converged chiefly on shares of industrial companies organized to buy up independent plants. Checked by the excess of the speculators and by an industrial reaction during the Presidential contest of 1900, this movement was renewed with immense force at the opening of 1901.

At that time all precedents of every kind in Stock Exchange history were broken. Where a few years before, transactions of 200,000 shares a day had been regarded as constituting a large market and half a million shares as a day of extreme activity, scarcely a day now elapsed in which the volume of business did not run from one to two million shares, culminating on April 30, 1901, in transactions of 3,200,000 shares. Prices in the meantime were advancing at a rate which brought the entire financial public into the field as a speculator. 

The real force underlying the movement was the purchase of stock companies by other companies which pledged their credit to raise the funds requisite to provide for the purchase. This movement culminated in the famous Northern Pacific corner of May 9, 1901, when the efforts of two rival groups of capitalists to get hold of that railroad property forced its shares to the price of $1000, the stock having never touched $100 until three weeks before. Apprehension that operators who were unable to deliver stock which they had pledged would be dealt with summarily, caused one of the most violent collapses of values in the Stock Exchange's History. 

Recovery was prompt, and both 1901 and 1902 were characterized by numerous sensational movements for the advance, the second of those years scoring as a rule the higher values. In general, however, it was recognized that high-water mark in Stock Exchange activity had been reached. In the autumn of 1901 and in the fall of 1902 and the early part of 1903 severe reaction in values supervened.

The noteworthy characteristic of the period was the employment of enormously wealthy syndicates to sustain prices for the newly issued shares on the Stock Exchange until the public could be induced to buy. Such syndicates were remunerated at first by large allotments of stock and later by heavy cash payments, the syndicate formed in March, 1901, to "underwrite" the billion-dollar stock issued by the United States Steel Corporation to take up the shares of other steel and iron combinations, pledging itself, in case of necessity, to advance $200,000,000 capital for the purpose. The stock issue worked out so successfully, however, that only a small fraction of the guarantee was called for, and two years later the original capital subscribed was returned to subscribers, with an additional cash allotment sufficient to raise profits to 200 per cent.

A second syndicate, formed in 1902 to underwrite a $50,000,000 bond issue by the same corporation and the conversion of $200,000,000 of its stocks into bonds, fared less fortunately, being obliged to perform the whole of its guarantee at a time of falling prices. In the spring of 1903 it was generally recognized that the extensive employment of the syndicate underwriting plan had "tied up" immense amounts of capital which were usually available in the general market. The investing public having bought very sparingly and the syndicate banking interests being unable to support prices, a very severe and general decline on the Stock Exchange ensued.