Finance Capital, Hilferding 1910


The Stock Exchange

1. Securities and speculation

The stock exchange is the market for securities. By 'securities' I mean here every kind of scrip which represents sums of money. They fall into two main groups : (1) certificates of indebtedness, or credit certificates, which bear a statement of the amount of money for which they are issued, the principal example being the bill of exchange; (2) certificates which do not represent a sum of money but its yield. The latter may be further subdivided into two groups : (a) fixed-interest paper, such as debentures and government bonds; and (b) dividend certificates (shares). As we know, in a capitalist society, every regular (annual) return is regarded as the revenue on a capital, the amount of which is equal to the capitalized yield at the current rate of interest. Thus these securities also represent sums of money, but they differ from those in the first group in the following way. The prime consideration in the case of credit certificates is the amount of money they represent; money, or value of equal magnitude, has actually been lent and now bears interest. The certificates circulate for a specified period of time and are withdrawn when the capital is repaid. The bill has fallen due. Bills are always falling due and the capital which has been lent then flows back to the lender. The latter now has the money in his hands once more and can proceed to lend it again. The cycle in which bills fall due and the capital flows back continually to its owner, is a condition for the constant renewal of the process.

The situation is different with the second group of securities, since here the money is definitively surrendered. In the case of government bonds it may have been withdrawn from productive uses for a long time, and thus ceased to exist; or if it was put into industrial shares, it has been used to buy constant and variable capital, has served as a means of purchase, and its value is now incorporated in the elements of productive capital. The money is in the hands of the sellers of this productive capital and will never return to its starting point. It follows, therefore, that shares cannot represent this money, because it has now passed to the sellers of commodities (of the elements of productive capital) and has become their property. But neither do they in any way represent the productive capital itself. In, the first place, the shareholders have no claim to any part of the productive capital, but only to the yield; and second, the share, unlike vouchers or bills of lading, does not represent any specific use value, as it would have to do if it were really a share in the capital actually used in production, but is only a claim to a certain amount of money. It is this which constitutes the 'mobilization' of industrial capital. This money is, however, nothing more than the yield capitalized at the current rate of interest. Hence the yield, or annual income, is the basis on which the certificates are valued, and only after the yield is known is the amount of money calculated.

Fixed-interest certificates have some resemblance to those in the first group, in the sense that a fixed return at a given point of time always represents a definite sum of money. Nevertheless, they really fall into the second category, because the money which they originally represented has been definitively given up and does not have to return to its starting point. The capital which they represent is fictitious, and its magnitude is calculated on the basis of its yield. The difference between fixed-interest certificates and other titles to income seems to be (if we disregard fortuitous influences) that the price of the former depends only upon the rate of interest, while the price of the latter depends upon both the rate of interest and the current yield on capital. The former group, therefore, is subject to only comparatively minor fluctuations in price ; and when such fluctuations occur, they are gradual and follow the more easily predictable fluctuations in the rate of interest. By contrast, the rate of return in the second group is indeterminate, and subject to countless changes which cannot always be foreseen; and this produces considerable fluctuations in the price of these certificates. As a result, they are a favoured target of speculation.

It follows from what has been said that the customary description of the stock exchange as the 'capital market' misses the essential nature of that institution. The certificates in the first group are certificates of indebtedness. The vast majority of them originate in circulation, in the transfer of commodities without the intervention of money except as a means of final settlement. They are a form of credit money which replaces cash. When they are traded on the stock exchange, a grant of credit is simply transferred from one person to another. The circulation of credit money, as we have seen, requires as its premise and complement the circulation of real money. Since credit money is used in foreign as well as domestic payments, the stock exchange must be able to supply both domestic credit money and foreign credit money as well as metallic money. Hence, in order to complement the traffic in credit money the stock exchange also becomes the centre of dealings in foreign exchange, both credit and cash. Into the stock exchange streams the ever available money capital seeking investment, which it finds in the various types of credit certificates. In this activity the stock exchange competes with the credit institutions proper, the banks. Nevertheless, there is a quantitative as well as a qualitative difference between the two institutions. From a quantitative standpoint, the stock exchange differs in its activities from the banks because it is not mainly concerned with collecting small savings, but attracts large amounts of already accumulated capital which are seeking investment. The concentration of funds, which is such an important function of the banks, is here an accomplished fact. The qualitative difference between the two institutions turns on the fact that the stock exchange is not concerned with the diverse ways of making credit available. It simply provides the money which is necessary to sustain the circulation of credit money. The money is supplied in large amounts, in the form of first-class bills. Both demand and supply involve large, concentrated sums of money, and it is on the stock exchange that the market price of loan capital (the rate of interest) is established. It is pure interest, devoid of any risk premium, for these are the best certificates that can be had in this wicked capitalist world, and their excellence is even less open to doubt than is the goodness of the Almighty. The interest which is paid on these finest of all bills (finest, of course, not in terms of their lowly use value, for even first-class bills are not written on handmade paper) seems to stem directly from the mere possession of money capital. It is as though the money had not been given away at all, since it can always be recovered simply by transferring the bill again. In any case, the money is only temporarily invested and is always available for some other use. The absolute security and short term of repayment make for a low rate of interest on such investments, which are suitable only for very large, temporarily available, capital sums. The interest rate on such investments is the basis for calculating the interest rate on other types of investment, and it also determines the movement of available floating money capital from one exchange to another. These funds, in ever-varying amount, flow in and out of the circulation of world money.

The stock exchange constitutes the market for the traffic in money among the banks and the big capitalists. Bills usually bear the signature of one or other of the leading banks. Both domestic and foreign banks, or other big capitalists, put their funds in these bills, which bear interest and are absolutely secure. On the other side, the large credit institutions can sell such bills on the exchange to obtain whatever funds they may need to meet obligations in excess of their freely available capital.[1]

Although the sums of money required for such operations vary from time to time, a certain minimum amount is always available, which is used to purchase the bills and then returns to its starting point when they fall due. This continual reflux of money, and its function as a mere intermediary in the credit process, at once distinguishes the circulation of money which belongs to the first category of stock exchange securities from the circulation of money in the second category; for example, that which is invested in shares. In the latter case the money is definitively relinquished, converted into productive capital, and comes into the hands of those who sell commodities. It does not return to the stock exchange. In place of money there are now capitalized claims to interest. Money is here actually withdrawn from the money market.

The stock exchange and the banks are competitors in the bill market, and the development of the latter has actually cut into this business of the stock exchange. The banks have even taken over the major part of the business of supplying payment credit to industrial capitalists, which was initially the principal function of the stock exchange, and all that is left to the latter is the function of an intermediary between the banks themselves and the foreign exchange market, where foreign payments are dealt with and foreign exchange rates are determined. Even here a considerable part of the business is handled directly by the banks, which maintain foreign branches for this purpose. The development of the banks has reduced this part of the business of the stock exchange in two ways : first directly, inasmuch as the banks invest their ever growing funds in bills, to an increasing extent without involving the stock exchange ; and second, by substituting, in part, other forms of credit for bills.

The bill of exchange represents a credit given by one productive capitalist (understood as any capitalist who produces profit, thus including the merchant) to another in lieu of cash payment. The capitalist who receives it discounts it at the bank, which now becomes the creditor. If, however, both the capitalists have deposits or open credits at the bank, they can make their payments by cheque or by a transfer on the books of the bank. The bill has become superfluous. Its place has been taken by a book-keeping transaction in the bank, and this, in contrast to the bill which can be circulated, is a private affair. The increasing involvement of the banks in making payments for their clients has brought about a contraction of the traffic in bills, which has further affected that part of stock exchange business. Furthermore, in those countries where the note issue is a monopoly, the note-issuing bank has a dominant position on the foreign exchange market, and if that position is weakened the change benefits the large banks rather than the stock exchange. There is, therefore, no specific and exclusive stock exchange activity in the sphere of credit money circulation, except speculation in foreign exchange. The stock exchange is only a concentrated market for the sums of money which are made available for credit transactions.

The true sphere of stock exchange activity is as a market for titles to interest, or fictitious capital. Here the investment of capital as money capital, which is to be converted into productive capital, takes place. The money is committed definitively in the purchase of these titles, and does not return. Only the interest yield flows back annually to the stock exchange, whereas in the case of money invested in credit instruments the capital itself is also returned. Hence, new money, serving stock exchange circulation itself, is required for the sale and purchase of titles to interest. The amount of new money is small in relation to the aggregate sums turned over. Since the interest titles represent claims to money, they can be cancelled out against one another, and there is never more than a small balance to be settled. The balances are calculated by specialized institutions which ensure that cash is used only for settling these. Nevertheless, the absolute amount of means of circulation required on the stock exchange is quite considerable, especially during periods of heavy speculation, when speculative activity is usually oriented in one direction, and the balance for cash settlement tends to grow appreciably.

The question now arises whether the activities and functions of the stock exchange have any distinctive features. We have already seen that its activity in the bill market overlaps with that of the banks. Equally, the purchase of securities for investment is not a specific function of the stock exchange, for they can be bought just as easily from the banks, and indeed it is increasingly common for them to be bought there. The specific activity of the stock exchange is really speculation.

At first sight, speculation looks like any other purchase and sale. What is purchased, however, is not commodities but titles to interest. A productive capitalist must convert his commodity capital into money - that is, sell it - before he can realize a profit. If another capitalist assumes the task of selling, the industrialist must assign him part of the profit.

The entire profit contained in the commodity is definitively realized only when it is sold to the consumer. The commodity is thus transferred from the producer to the consumer, but it would be absurd to regard this as a change in location (just think of the sale of a house) and to confuse trade with transport. Buying and selling do not consist in changes of location, but in economic events, transfers of property ; although in all processes which are not purely intensional a change of position in space is also involved. But who would conceive the essential element in visiting the theatre as being to find the theatre building itself?

The commodity is finally consumed and disappears from the market. The title to interest, however, is by its very nature eternal. It never disappears from circulation in the way a commodity does. Even when it is temporarily withdrawn from the market for investment purposes, it can return at any time, and in fact such titles do return sooner or later, in larger or smaller quantities. But the withdrawal of interest titles from the market is neither the aim nor the consequence of speculation. Speculative stock is constantly circulating on the stock exchange. Its movement is always back and forth, or circular, not straight ahead.

The purchase and sale of commodities is a socially necessary process, through which the essential conditions of social life in a capitalist economy are met. It is the conditio sine qua non of this society. Speculation, on the other hand, is nothing of the sort: It does not affect the capitalist enterprise ; neither the plant nor the product. An established enterprise is not affected by a change of ownership or by the constant circulation of shares. Production and its yield is not affected by the fact that claims to the yield change hands; nor is the value of the yield changed in any way by changes in share prices. On the contrary, it is the value of the yield, other things being equal, which determines these changes in share prices. The purchase and sale of these claims to interest is a purely economic phenomenon, a mere fluctuation in the distribution of private property, without any influence upon production or upon the realization of profit (by the sale of commodities). Speculative gains or losses arise only from variations in the current valuations of claims to interest. They are neither profit, nor parts of surplus value, but originate in fluctuations in the valuations of that part of surplus value which the corporation assigns to the shareholders; fluctuations which, as we shall see, do not necessarily arise from changes in the volume of profit actually realized. They are pure marginal gains.[2] Whereas the capitalist class as a whole appropriates a part of the labour of the proletariat without giving anything in return, speculators gain only from each other. One's loss is the other's gain. 'Les affaires, c'est l'argent des autres.'

Speculation consists in taking advantage of price changes, though not of changes in commodity prices. Unlike the productive capitalist the speculator does not care whether commodity prices rise or fall; all that concerns him is the price of his titles to interest. These prices depend upon the amount of profit, which can rise or fall, whether prices rise, fall, or remain stationary. The decisive factor affecting profit is not the absolute level of prices, but the relationship between costs and prices: But it is also unimportant to the speculator whether profits rise or fall ; he is only concerned with being able to foresee these fluctuations. His interests, therefore, are entirely different from those of the productive capitalist or the money capitalist who desire the maximum stability of profit, and whenever possible, a constantly increasing profit. Increases in commodity prices only have an influence upon speculation in so far as they are an indication of increased profit. Speculation is affected only by such changes in profits as are either bound to occur, or can be expected. But the profit which an enterprise produces is distributed to the owners of productive capital or to holders of shares without regard to speculation. The speculator as such does not derive his gain from the increase in profit. He can gain just as easily from a fall in profit. In general, therefore, he does not think in terms of a rise in profit but in terms of changes in the price of securities induced by a rise or fall in profit. He does not hold securities in the hope of sharing in the higher profit - as an investor does - but seeks to gain by buying and selling his securities. His gain does not arise from a share in the profit, for he gains also from declining profits, but from price changes, which means that at a particular time he can buy securities more cheaply than he sold them, or sell them more dearly than he bought them. If all speculators played the same side of the market, that is, if they all simultaneously placed the same higher or lower value on securities[3]' there would not be any speculative gains at all. These arise only because contradictory valuations are made, only one of which can turn out to be correct. The different valuations made by buyers and sellers, at a particular time, result in losses for some speculators and gains for others. The profit of one is the other's loss; and this is in sharp contrast with the profit of the productive capitalist; for the profit of the capitalist class is not a loss for the working class, which cannot expect, under normal capitalist conditions, to receive more than the value of its labour power.

What are the factors which speculators must reckon with in their operations? The principal objects of speculation are securities which do not bear a fixed rate of interest. Their price fluctuations depend essentially upon two factors: the level of profit and the rate of interest. Theoretically, the level of profit is given by the average rate of profit. But the latter is simply the expression of innumerable individual profit, which may diverge widely from the average. An outsider, however, is not in a position to know the level of any individual profit, for this is determined not only by general factors, such as the amount of surplus value and the quantity of invested capital, but also by all the fortuitous variations in market prices and by the entrepreneur's skill in taking advantage of business opportunities. The external observer can see only the market price of the commodity; he cannot have any knowledge of the really decisive factor, which is the relation between market price and cost price. Even the entrepreneur frequently does not know what this relation is until he has made an exact calculation at the end of a period of turnover. Moreover, aside from the actual amount of profit, a whole series of more or less arbitrary factors affect the sum which is actually paid out on the securities; among them the level 91 depreciation, bonuses, allocations to reserves, etc. These factors give the directors of an enterprise the power, within limits, to fix in an arbitrary fashion the amount of profit available for distribution and so influence stock market prices. At all events, the majority of speculators are completely in the dark about the crucial factor which determines the price of shares. A general, more or less superficial knowledge of an enterprise will avail them little should they wish to take advantage of the slight price differences which sometimes occur, or of those movements in the price of its securities which result from the capitalization of changed profits. Conversely, the intimate knowledge of an enterprise which an insider enjoys gives him the confidence and ability to use this knowledge for speculative gain with scarcely any risk.

It is a different matter with respect to the second factor which determines share prices : the rate of interest. As we have seen, the activities of speculators depend upon differences of opinion about the probable movement of share prices; such differences, for instance, as those which arise from uncertainty about future profits. The rate of interest, on the other hand, is like the market price of commodities; at any given time it has a definite magnitude, which is known to all speculators.

Furthermore, changes in the rate of interest - or at least their direction - can be predicted with a high degree of probability, except when there are sudden and more or less powerful disturbances, caused by extraordinary events such as wars, revolutions, or natural disasters, which react directly upon the demand for money. Besides, the influence of fluctuations in the rate of interest upon share prices tends to diminish; thus during a depression, a low rate of interest usually prevails, speculative activity is sluggish, confidence is impaired, and share prices are low, in spite of the low rate of interest. Conversely, during a period of prosperity and unlimited speculation, the effect of a high rate of interest is lost in the general anticipation of increased stock market gains. Hence, although the level of the rate of interest is a more certain factor than any estimate of future profits, it is still essentially the latter which determines the direction and intensity of speculation. It is, therefore, precisely the uncertain, incalculable factor which speculators are obliged to take into consideration. In short, no certain foresight is possible in speculative activity, which is essentially a groping in the dark. Stock market speculation is like a game of chance or a wager, but for insiders it is a wager a coup stiff.

As in the case of all prices, we can distinguish the real causal factors which determine stock market prices from the incidental influences expressed in changes in the relation between supply and demand. This distinction is, of course, of no concern to the speculator, who is interested only in the price changes themselves, not in their causes. Nevertheless, it is speculation itself, and the ever changing moods and expectations of speculators, arising largely from their uncertainties, which produces the ceaseless fluctuations in supply and demand and hence the changes in the price of shares. Every price change, in turn, provides the impetus for a fresh wave of speculation, new commitments and changes of position, and further changes in supply and demand. In this way, speculation creates an ever ready market for the securities which it controls itself, and thus gives other capitalist groups the opportunity to convert their fictitious capital into real capital, to change from one investment in fictitious capital to another, and to convert fictitious capital back into money capital at any time.

But the uncertainty which characterizes speculation has still another consequence; it creates the possibility of influencing the direction of speculative activity, through the large speculators drawing in the small ones. Since the speculator is not 'in the know' (frequently even with regard to general conditions, and invariably when it is a matter of particular cases)[4] he tends to be influenced by superficial indications, by the mood and the general trend of the market. This mood, however, can be manufactured, and is actually manufactured, by the big speculators, who can be regarded more or less correctly as 'insiders'. The petty speculators follow their lead. The big speculators stiffen the market by making large purchases, thus driving up the price of shares, and once the trend is under way demand increases further as a result of the purchases by all those people who think they are following the example of the big speculators, so that prices continue to rise although the latter have already withdrawn. They can now either take their profit, or maintain the higher price level for a longer or shorter time, depending upon their aims. In this case, disposal over a larger sum of capital gives rise directly to a superior position on the market because market trends themselves are determined by the way in which this capital is used. In the sphere of production, a large capital enjoys an advantage because it can produce more cheaply and so reduce prices, but in the stock market, capital acts upon prices directly. The large dealers in securities, the banks, can take advantage of this situation to push speculation in a particular direction. They need only drop a hint to their numerous customers to buy or sell certain securities, in order to bring about, in most cases, a change in the relation between supply and demand, which is thus known to them in advance, and like all foreknowledge in the field of speculation produces a profit for them. We can now also appreciate the importance of the hangers-on, the outsiders, and the public at large. Gains and losses among professional speculators may balance out, but the great public which simply follows the lead of the big speculators, and continues in the same course after the latter have already pulled out with the gains they have made - these naive people who believe the moment has now come for them to share in the fruits of prosperity - are the ones who have to bear the losses, and to pay the balances arising with every turn in the business cycle or in the mood of the stock exchange, which are pocketed by the speculators as the reward for their 'productive activity'.

Nevertheless, the fact that speculation is unproductive, that it is a form of gambling and betting (and is rightly regarded as such by public opinion) does not run counter to its necessity in a capitalist society, at least during a certain period of capitalist development. Obviously, it is nothing but an apologetic artifice to regard everything which is necessary in capitalist society as being productive. The truth is rather that the anarchy of capitalist production, the antagonism between those who own and those who use the means of production, and the capitalist mode of distribution, all generate a large volume of expenses and payments which contribute nothing to the increase of wealth, which would be eliminated in an organized society, and in this sense are unproductive.[5] The fact that they are necessary in capitalist society does not show that they are productive but simply testifies against the way in which this society is organized. Speculation is essential, however, if the stock exchange is to carry out its various functions, which we shall now examine more closely.

2. The functions of the stock exchange

The function of the stock exchange changes in the course of economic development. Originally it provided for the circulation of currency and bills; for which purpose it was only necessary to accumulate free money capital which could be invested in such bills. Later, it became a market for fictitious capital, which first emerged with the development of state credit. It became the market for state loans. But it was radically transformed when industrial capital began to assume the form of fictitious capital, and the corporate form of enterprise began to spread throughout industry. The resources at the disposal of the stock exchange now increase rapidly and without limit, and on the other hand the existence of the stock exchange as a market which is always available is a prerequisite for the conversion of industrial capital into fictitious capital and for the reduction of dividends to interest.

The development of a market for fictitious capital makes speculation possible. In turn, speculation is necessary to keep this market open for business at all times, and so give money capital as such the possibility of transforming itself into fictitious capital, and from fictitious capital back into money capital, whenever it chooses. For the fast that marginal gains can be made by buying and selling is a constant stimulus to engage in these activities and to ensure the permanent existence of an active market. The essential function of the stock exchange is to provide such a market for the investment of money capital. Only in this way is the investment of capital as money capital made possible on a large scale. For if capital is to function as money capital it must in the first place yield a steady income (interest), and second, the principal itself must flow back, or if it does not actually flow back it must always be recoverable through the sale of titles to interest. The stock exchange first made possible the mobilization of capital. From a legal standpoint this mobilization involves a transformation, and at the same time a duplication, of property rights.[6] Ownership of the actual means of production is transferred from individuals to a legal entity, which consists, to be sure, of the totality of these individuals, but in which the individual as such no longer has ownership rights in the property. The individual has only a claim upon the yield; his property, which once meant real, unrestricted control over the means of production, and hence over the management of production itself, has been transformed into a mere claim to income and has been deprived of control over production.

From an economic standpoint, however, the mobilization of capital consists in the possibility for the capitalist to withdraw his invested capital in the form of money at any time, and to transfer it to other branches of production. The higher the organic composition of capital becomes, the less possible is it to make this change by altering the real structure of the material components of productive capital. The tendency to equalize the rate of profit encounters increasing obstacles in the growing difficulty of withdrawing productive capital, which consists in the main of fixed capital, from a particular branch of production. The process of equalization which actually takes place is very slow, gradual, and imperfect, occurring mainly as a result of the investment of newly accumulated surplus value in those spheres with a higher rate of profit, and the withholding of new investment from those with a lower rate of profit. The rate of interest, in contrast to the rate of profit, is equal and uniform throughout the system at any given time. The equivalence of all capital - which, for the individual capitalist, consists not in the fact that they are equal in value, but that equal values produce equal yields - finds a satisfactory expression, first of all, in the uniformity and equality of the rate of interest. The capitalist is indifferent to the use value of his capital, to the specific field in which it is invested at any time; for him it is only a sum of value which breeds surplus value, is only regarded from this quantitative aspect, as an entitlement to profit.

Hence the actual differences in yield (profit) lead to differences in the valuation of capitals of equal size. If there are two capitals which have a value of 100, one of which produces a profit of 10, while the other produces a profit of 5, the first will be valued at twice the amount of the second. These disparities in profit as between different units of capital lead on one side, through the striving of each individual capitalist to maximize his profit, to competition among the various capitals for spheres of investment, and thus to the tendency towards an equalization of rates of profit (and the prior equalization of rates of surplus value), and the establishment of a general average rate of profit. On the other side, since inequalities in rates of profit constantly re-emerge, and constantly provoke movements of capital, the individual capitalist can only surmount them by valuing his capital in terms of its income, capitalized at the current rate of interest. If this valuation is to be achieved in practice, if capitalists are really to be equal, if the equality of everything which yields profit is finally to be accomplished, the capital must always be realizable in accordance with this standard of valuation, and realizable in the socially valid form, as money. Only then is the equality of the rate of profit achieved for every individual capitalist. But this realization is an inversion of the real relationship. Capital no longer appears as a definite magnitude which determines the amount of profit. On the contrary, it is profit which seems to be a fixed magnitude determining the magnitude of the capital. This way of determining the magnitude of capital emerges in practice whenever a corporation is formed, makes possible promoter's profit, and determines its level. The real relationships seem to have been stood on their head. No wonder that those economists who observe economic affairs through the eyes of stock exchange operators regard any presentation of the real conditions as being itself perverse and absurd!

The equality of all capital is thus realized by its being valued according to its yield. But it is only realized, like all capital which is given a value in this way, on the stock exchange, the market for capitalized titles to interest (fictitious capital). If the inherent tendency of capitalism, its need to place all the available social wealth at the disposal of the capitalist class, in the form of capital, and to ensure the same yield for each unit of capital, obliges it to mobilize capital, and thus to make a valuation of it as mere interest-bearing capital, then it is the function of the stock exchange to facilitate this mobilization, by providing the machinery for the transfer of capital.

The mobilization of capital transforms an increasing proportion of capitalist property into titles to income, and in so doing it makes capitalist production increasingly independent of the movement of capitalist property. The trading in income titles which goes on in the stock exchange involves only the transfer of property, which can take place quite independently of the course of production, and without any effect upon it. The movement of property has now acquired independence, and is no longer determined by the processes of production. In the past, a transfer of property also involved a transfer of the capitalist entrepreneurial function, and vice versa, but this is no longer the case. And whereas, in earlier times, the principal cause of changes in the distribution of property was the variability of achievements in production, and industrial competition was thus a crucial determinant of the distribution of property, this cause, still operative today, is now supplemented by others which stem from the circulation of income titles and may produce movements of property which neither originate in any change in production relations nor exert any influence on production.

In the circulation of commodities the transfer of goods and the transfer of ownership go hand in hand. In simple commodity production the transfer of goods seems to be the essential thing, the incentive for transferring property; and the latter is only the means for accomplishing the former. The determining motive for production is still the creation of use value, the satisfaction of needs. But in capitalist commodity circulation the circulation of goods also involves the realization of the profit which arose in production, and this profit is the mainspring of economic activity. In capitalist society the transfer of labour power, as a commodity, to capitalists augments their property through the production of surplus value. The circulation of securities, on the other hand, involves only a transfer of property, the circulation of mere paper titles to property, without any corresponding transfer of goods. In this case, the movement of property is not accompanied by the movement of goods, and capitalist property has lost any direct connection with use value. The market for this circulation of property in itself is the stock exchange.

Mobilization, the creation of fictitious capital, is in itself an important cause of the emergence of capitalist property outside the process of production. Capitalist property used to arise essentially from the accumulation of profit, but the creation of fictitious capital now opens up the possibility of promoter's profit. By this means, a large part of the profit is channelled into the hands of the great money powers, who alone are in a position to give industrial capital the form of fictitious capital. This profit does not flow to them in the way dividends are paid to shareholders, in the form of fragmented annual payments, but is capitalized as promoter's profit, and received in the form of money, both relatively and absolutely considerable in amount, which can immediately function as new capital. Thus every new enterprise pays, from the very outset, a tribute to its promoters, who have done nothing for it and need never have any dealings with it. It is a process which is always concentrating large new sums of money in the hands of the big money powers.

A process of concentration of property takes place in the stock exchange, quite independently of concentration in industry. The big capitalists, who are thoroughly familiar with the activities of the corporations, and have a comprehensive view of business conditions, are thus able to foresee the future trend of share prices. The strength of their capital enables them, through appropriate buying and selling, to influence stock exchange prices themselves, and to collect the resulting profit. This power also makes it possible for them to intervene in the market, amid universal acclaim, in order to buy up securities during a crisis or panic, and later sell them at a profit when conditions have returned to normal.[7] In short, they are in the know, and 'all fluctuations of business are advantageous to those in the know' as that crafty banker Samuel Gurney assured a committee of the House of Lords.[8]

An essential element in the functioning of the stock exchange as a means of endowing industrial capital, through its transformation into fictitious capital, with the character of money capital for the individual capitalist, is the size of the market, because its character as money depends upon the real possibility of selling shares and bonds at any time without substantial losses. That is why there is a tendency to concentrate all transactions to the greatest possible extent in a single market; hence all bank and stock exchange business is increasingly concentrated in the main centre of economic life, in the capital city, while the provincial stock exchanges are becoming progressively less important. In Germany the Berlin stock exchange surpasses all others in importance. Outside Berlin only the stock exchanges in Hamburg and Frankfurt are of some account, but their importance is declining.

According to petty bourgeois theory the development of shareholding should bring about the 'democratization of capital' ; but petty bourgeois practice, which is always more sensible, tries to limit share ownership to the capitalists. The representatives of big business practice subscribe wholeheartedly to such warnings as the following, in the comfortable knowledge that they will have little effect: 'Anyone who needs a fixed income', the authoritative Arnhold maintains, 'should not buy shares.'[9] He goes on to say that the fluctuating return on shares will only be a source of capital losses for anyone who has to live on the interest he receives, because high dividends will probably encourage him to increase his expenditure. Such a person will not sell his holdings when prices are high, but as a rule decides to sell when he becomes uneasy about the small dividends and low share prices (as he always does, because he has no insight into the real condition of the business, and must therefore rely upon the market quotations and the `verdict' of the stock exchange), or for some other reason.

3. Stock exchange operations

Transactions on the stock exchange involve a kind of buying and selling which differs radically from other kinds, not by virtue-of its procedure, but because of the commodity which is dealt in. The crucial factor from an economic standpoint is not the technique employed in such operations, but their substance; and an account of these technical details would be more appropriate in a manual for practical dealers than in a theoretical treatise. Nevertheless, these technical aspects of the subject acquire a more general interest and importance to the extent that the manner of conducting the transactions facilitates certain results which stem from the nature of these operations.

The distinctive regulations which govern the conduct of stock exchange transactions - the practices of the stock exchange - are primarily designed to promote the maximum utilization of credit, the curtailment of risk, and the greatest possible rapidity of turnover. The maximum utilization of credit is already made possible by the nature of the 'commodities' involved. Primarily these 'commodities' are claims to money, either in the direct form of bills or in the indirect form of claims to capitalist profit. As such claims to money, stock exchange values are all equivalent and interchangeable, differing from each other only quantitatively. Even the so-called qualitative differences which exist between the different types of stock exchange paper, as for example those between fixed interest certificates and shares, as well as differences in their reliability, are always converted into quantitative differences by stock exchange transactions, and cannot be expressed otherwise than as differences in valuation. These differences, however, unlike differences in the price of different brands of the same commodity, which are primarily the result of differences in their costs of production, arise exclusively from differences in the supply-demand ratios. When, for example, a sugar share and a railway share give the same return, the railway share may still be quoted at a higher price because more people want to buy the railway share in the belief that it promises more stable earnings. Qualitative differences in the security of the yield are given quantitative expression in share quotations. This interchangeability of stock exchange values thus makes it possible for most purchase and sale transactions to cancel each other out, leaving only a small proportion of the difference to be settled by payment in cash.

The granting of credit is associated with such transactions, since money functions merely as account money and only a small amount is needed for cash payments. In order to reduce these payments to a minimum, there are special institutions to settle the claims which result from purchase and sale operations.[10] For this purpose, however, it is essential that the prices at which transactions on the stock market are concluded should be known; hence, stock exchange quotations are public. At the same time the publication of share prices achieves the main purpose of the stock exchange; namely, to be the market where securities can be traded at any time, and at a known price. Since the price which can be obtained at any time is fixed it becomes much easier to provide the other form of credit - loans - than it was previously in the case of payment credit, because the creditor now knows exactly the price of the object on which he is lending money. The speculator deposits as security with his creditor the papers which he has paid for with the borrowed money. At the same time there emerges a new and surer way of using money capital to earn interest, by using stock exchange securities as collateral.

The provision of credit enables the speculator to take advantage even of minor price fluctuations, in so far as he can extend his operations far beyond the limits of his own resources, and thereby make a good profit, through the scale of his transactions, despite the small extent of the fluctuations. On the other side, credit has not only permitted speculation to increase, and to take advantage of market conditions at any time, but has also had the effect, since speculative operations are always accompanied by counter-operations, of moderating price fluctuations. The use of credit also gives a further advantage to the large speculator. The weight of his resources is multiplied by the use of credit, which grows much more rapidly than his own wealth.

Another distinctive feature of stock exchange transactions is the speed with which they are concluded, which results from a certain informality of procedure. This rapidity is due essentially to the need to take advantage of slight, short-term price fluctuations. The rapid changes in supply and demand, and the speed with which market quotations vary, make it extremely important to conclude transactions as fast as possible. Every new turnover gives speculators a new possibility to make a profit. Hence any time-consuming formality is abhorrent, and in this sphere the expression `time is money' is literally true. Hence, also, the hostility to any legal specification of settlement times, and to legislative intervention in general, which would always involve a loss of time.

Futures trading, which defers the completion of all transactions to the same date, is the best way to take advantage of credit. Since such transactions are mainly the work of speculators, buying and selling are synchronized in such a way that most of the transactions offset each other, leaving only the balances to be settled in money (and most of these payments, for that matter, are also settled by credit or by book transfers in the banks). Money may also be needed in cases where there is only a sale or a purchase, but such transactions are few compared with those which cancel each other out. Here, too, the effect of credit is to expand the market. Futures trading allows a great extension of operations : securities which are dealt in for future delivery always find a market, and it is always possible, therefore, to bring a speculative operation to an end by buying or selling, to realize the profit or minimize the loss, unless the market is disrupted by a panic. Furthermore, since actual possession of the securities is not involved when speculating in futures, but the aim is simply to make a marginal profit, and the securities can be sold at any time, the extent of the commitment is determined not by the price of the securities, but only by the amount of the marginal differences which may arise from the speculation. At the same time, the securities actually available on the market are required only to the extent that the speculative operations of buying and selling do not cancel out. The volume of dealings entered into is therefore likewise independent of the total sum of prices for the securities actually available on the market and can be many times that amount. Furthermore, the typical conditions under which deals are concluded give the most complete assurance that such transactions will be completed very speedily.

The greater simplicity of the futures market, the increased possibility of cancelling out purchases and sales, reduces the amount of capital which is needed in order to take part in speculation. Accordingly, the circle of people who can participate in speculation has been extended, and the scale of individual transactions has increased. The futures market is expanded as against the market for cash operations. At the same time it absorbs fewer resources in order to maintain and develop speculative operations, and so affects less strongly the rate of interest on the capital which is made available for speculation. However, since a great deal of speculation is always carried on with borrowed capital, and the rate of interest on this capital has a strong influence upon the continuation of speculation, there is always a general tendency for the futures market to continue to promote speculation. This greater continuity of operations results in smaller variations in the relation between supply and demand, and more moderate fluctuations in share prices. At the same time, given the large scale of the transactions, much smaller fluctuations are sufficient to induce speculators to engage in their activities. A similar consequence follows from the fact that futures operations also make it possible to sell securities for speculative purposes, so that it is easier here to counteract a one-sided increase in the supply than it is on the cash market.[11]

Trading in futures makes it possible to invest capital, which will only become due at a later date, at predetermined prices, or to obtain capital on favourable terms for use at a later date. In addition, there is the expansion of the market, already mentioned, which futures trading assures through the ease of obtaining credit and of business procedures generally. The absorbent capacity of the futures market is greater than that of the cash market, and this facilitates the issue of securities by making it possible for the issue houses to place their offerings gradually without depressing the price of securities.[12] Trading in futures is also the standard method of carrying out arbitrage operations and equalizing price differences between the various stock exchanges.

Speculation requires that a certain quantity of securities should be made available for its own purposes. A security which is in 'safe' hands, and has been withdrawn from the market as an investment for a long period of time, cannot serve the purposes of speculation. The same is true of securities which have a very small aggregate value. In such a case, small purchases and sales can exert a strong influence on the price level and give a few capitalists the opportunity, by buying up all the available 'material', to dictate monopoly prices to their competitors. Speculation presupposes a large market which cannot be too easily dominated; monopoly is the death of speculation.

As we have seen, credit transactions always go hand in hand with speculative operations. What is involved in speculation is not the total sum of quoted security prices, but the size of the possible variations in price. In accepting securities as collateral, the supplier of credit cannot extend himself beyond the sum which is guaranteed against changes in price. Thus, for example, if the price of a security subject to relatively small fluctuations is 110, a speculator can pledge it as collateral at any time and obtain 90 for it, and need then only advance 20 out of his own funds. This is the most common method by which stockbrokers, bankers and banks extend credit to enable their clients to participate in stock exchange transactions. The withdrawal of such credit, or making it more difficult to obtain, is a favourite means of putting these clients 'out of commission', making it impossible for them to go on speculating, forcing them to unload their securities at any price, and by this sudden increase in supply, depressing prices and enabling creditors to pick up these securities very cheaply. In this case too the provision of credit is a means of expropriating small debtors.

The provision of credit for the really large speculators is arranged in an entirely different manner. In this case the speculators obtain the necessary funds on a contango basis. In a formal sense, such contango operations consist of buying and selling. If a bullish speculator wants to hold on to his securities beyond settlement day until the next due date, because he hopes for a further rise in their price in the interim, he simply sells them to a money capitalist and buys them back for the next term. The interest which the lender receives on his money is contained in the difference between purchase and sale price. But this is only a matter of form. In reality, the lender has simply taken over the securities for the specified period of time, and has assumed the place of the speculator. Yet there is a difference between him and the speculator in that he assumes no risk and does not seek any speculative profit, but has merely invested his money for that period of time and received interest on it. It is the specific form in which the advance is made that is important here. For since the credit transaction here takes the form of a purchasing transaction, ownership of the securities is transferred during the interim period to the supplier of credit. This enables him to make such use as he pleases of the securities during that time, and this may be important where industrial shares are concerned. It may be a matter, for example, of a bank securing a decisive voice in the decisions taken by a general shareholders' meeting, thanks to its large shareholdings. Through contango business the bank is enabled to acquire temporary ownership of the shares and thus to obtain control of the corporation. By reducing charges, and thus making contango arrangements more attractive, a bank may find it easier to obtain these securities from speculators. Quite frequently the banks co-operate with each other in this field, in order to eliminate competition in contango business for certain securities during a given period of time."[13] In this way shares acquire a dual function. They serve, on the one hand, as objects of speculation and as the source of marginal profits. At the same time they also serve the banks in their effort to gain a controlling influence in the corporations and to impose their will on the shareholders' meetings without being obliged to make long-term investments of their funds in the shares concerned."[14]

Other things being equal, the extent of stock exchange speculation depends essentially upon the volume of money which is available to speculators. For the frequency of turnover of the securities - and every turnover brings a marginal profit - is obviously independent of the number of existing securities. This accounts for the influence which banks have upon stock exchange speculation, for by granting or withholding credit they affect very strongly the scale of speculation. The greatest demand for credit arises from contango operations. Very considerable sums, of floating capital, for the most part, are invested in these operations,"[15] and such investments have an influence in establishing the rates for call money. During periods when money is less mobile, they also have an influence on the discount rate and thus on the movement of gold. By restricting the supply of credit, therefore, the banks can directly influence the rate of interest, because in this case the supply of credit is to an exceptional degree at the discretion of the banks. These are purely financial transactions which have no crucial effect, one way or the other, on the course of the economy. It is a different matter when credit is being supplied to traders and industrialists, for in this case a sudden and excessive restriction of credit would be bound to lead to a collapse and an acute crisis.

The development of the banking system has been accompanied by a change in the organization of trading in securities. At first the banker is simply a broker who handles a business affair for his client. But the more the capital resources of the bank and its interest in the share market increase, the more actively does it go into business on its own account. A great many of the transactions no longer take place on the stock exchange, but instead the bank simply cancels out the orders of its clients against one another, and only the outstanding balance is settled on the stock exchange or covered by the bank's own funds. Up to a certain point, then, the sums which will be provided for buying and selling on the stock exchange are at the discretion of the bank, and this gives it a means of influencing the movement of security prices. The bank thus ceases to be simply a middleman in securities trading and becomes a dealer itself. 'In fact, banking today is no longer a brokerage business, but has become a business which trades on its own account.'[16]

At the same time the large bank also takes over part of the function of stock exchange, and itself becomes a securities market; all that remains for the stock exchange is the balance which cannot be cleared in the banks.[17] `A large bank represents in itself a volume of supply and demand such as was previously represented only by one of the larger stock exchanges.'[18]

With the increasing concentration of the banking system the power of the big banks over the stock exchange has grown enormously, especially during those periods when the participation of the general public in stock exchange speculation declines.

Considering the way in which affairs have developed on the stock exchange, one should speak today of the trend in banking rather than the trend of the stock exchange, because the big banks are increasingly turning the latter into a subservient instrument and directing its movements as they see fit. Just as last spring there was much talk of how an unfavourable forecast of business conditions by one of the big banks gave the external impetus to the sudden collapse of security prices, which had, of course, more profound inherent causes, so the contrary attempts by the haute banque this week to reassure and stimulate have brought about a change of mood on the stock exchange, which is now alert to auspicious signs instead of paying attention only to the unfavourable aspects.[19]

In addition to this powerful influence on the trend of the stock market, the banks, as a result of their increasingly close relations with industry, now have an intimate knowledge of the situation of particular enterprises, can anticipate their earnings, and under certain conditions influence the level of earnings as they wish. All these factors enable the banks to carry on all their speculations with considerable security. The declining importance of the stock exchanges is obviously connected with this development of the large banks.[20]

On the stock exchange capitalist property appears in its pure form, as a title to the yield, and the relation of exploitation, the appropriation of surplus labour, upon which it rests, becomes conceptually lost. Property ceases to express any specific relation of production and becomes a claim to the yield, apparently unconnected with any particular activity. Property is divorced from any connection with production, with use value. The value of any property seems to be determined by its yield, a purely quantitative relationship. Number is everything; the thing itself is nothing! The number alone is real, and since what is real is not a number, the relationship is more mystical than the doctrine of the Pythagoreans. All property is capital - and not simply property. Debts are also capital, as every state loan demonstrates. All capital is equal, and is embodied in those printed certificates which rise and fall in value on the stock exchange. The actual formation of value is a process which remains entirely outside the sphere of property owners but determines their property in a completely mysterious way.

The magnitude of property seems to have nothing to do with labour; the direct connection between labour and the yield on capital is already partially obscured in the rate of profit, and completely so in the rate of interest. The apparent transformation of all capital into interest-bearing capital, which the fictitious capital form involves, makes any insight into this relationship impossible. It seems absurd to connect interest, which is always fluctuating and can change regardless of what is happening in the sphere of production, with labour. Interest seems to be a consequence of the ownership of capital as such, a Tóros, the fruit of capital which is endowed with productive powers. It is fluctuating and indeterminate, and the 'value of property , a category, fluctuates along with it. This 'value' seems just as mysterious and indefinite as the future itself. The mere passage of time seems to produce interest, and Böhm-Bawerk has founded his theory of the interest on capital upon this illusion.


[1] See the informative work by W. Prion, Das deutsche Wechseldiskontgeschäft.

[2] Nota bene: I am not referring here to so-called 'bucket shop' transactions, where no securities are actually delivered, and speculation is concluded by payment of the difference in share quotations. In the economic sense, every speculative gain is a marginal profit. In this respect the technique of stock exchange transactions is just as immaterial as is the circumstance that capitalists - and also some economists - regard all capitalist profit as marginal, regardless of whether it is a matter of industrial or commercial profit, rent, interest, or speculative gains.

[3] This is not all. They must also make the valuations at the same time and in the same degree. A speculative profit is still possible, for instance, if one speculator purchases a security at a higher price at a later time than another has been selling at, or if one speculator pays a higher price than another, who is already selling at this price, has paid.

[4] To cite one striking example of this: 'A report circulated recently that Phoenix had received a very large order for steel tubes from America; a value of several million marks was mentioned. The stock exchange, without any misgivings, gave full credence to the report and drove up the price of our domestic steel securities, especially those of Phoenix. Yet it was known, of course, that conditions in America had not improved significantly over the last few months . . . . But in the country, in the industrial districts, and especially among the directors of Phoenix, there must have been a good deal of secret laughter at the sensational report which evoked so much optimism on the Berlin stock exchange. It subsequently turned out that the order, for several millions, and for an American account, was attributed to an enterprise which does not even produce steel tubes, and does not have a quota for tubes as a member of the German Steel Combine. In short, it was a bare-faced swindle.' Berliner Tageblatt, 15 July 1909.

When, therefore Mr Arnold (Deutsche Börsenenquete, Part I, p. 444) talks of speculative intelligence, he is really speculating on the lack of intelligence of his audience. In any case, he has to concede the accidental and irrational character of speculation for the bulk of small investors and the general public.

[5] On the concept of 'productive labour' in the narrower sense, see Karl Marx, Theories of Surplus Value, vol. I, chapter IV.

[6] In the terminology of J. Karner (Karl Renner) there is a change in the function of a legal institution without a simultaneous change in the legal norm. See Marx-Studien, vol. I, p. 81. [See Karl Renner, The Institutions of Private Law and their Social Functions, pp. 74-7 - Ed.]

[7] Perhaps the most important recent example is the take-over of the Tennessee Steel & Coal Company by the Steel Trust during the panic in the autumn of 1907. The Tennessee Steel & Coal Company was an important competitor of the Steel Trust. An indignant correspondent writes in the Berliner Tageblatt (17 November 1907): 'Well informed sources have now confirmed that the two representatives of J. Pierpont Morgan who have been in Washington for several days, E. H. Gary (of the Steel Trust) and H. C. Frick, presented the following ultimatum to President Roosevelt: either quietly countenance the absorption of the Tennessee Steel & Coal Company by the Morgan Trust, and promise that the government will take no preventive action on the basis of the existing anti-trust legislation, or be prepared for the worst panic in the history of the country and the suspension of all bank payments.

This threat to the president at the most turbulent and dangerous point of the economic crisis naturally bore fruit. Bowing to necessity, the president had to abdicate his power to the stock exchange. He was brutally compelled to foreswear temporarily his highest duty as the first officer of the government, and to disregard the existing laws. The executive power was rendered powerless, and the worthy Morgan, in return for "saving" the Trust Company of America and the Lincoln Trust Company, secured a monopoly of the country's iron and steel for his Steel Trust. A few days later, in the course of his rescue activities, he succeeded in another coup, by taking over the C. W. Morse Coastwise Steamship Co.

This indicates the present state of affairs in the republic of the United States of America, founded by selfless patriots like George Washington, Benjamin, Jefferson, and other outstanding men.'

[8] Capital, vol. III, p. 496. [MECW, 37, p.417]

[9] Stenographischer Bericht der deutschen Börsenenquete (Verbatim Report of the German Stock Exchange Inquiry) 1893, vol. I., p. 190.

[10] Thus, for example, London 'has had a Stock Exchange Clearing since 1874, through which all transactions involving the leading securities are, so far as possible, settled; so that cheques need only be drawn for the balance. The result has been that only about 10 per cent of the transactions on the capital market are paid by cheque while 90 per cent of the reciprocal claims are settled by simple balancing.' E. Jaffe, Das englische Bankwesen, p. 95. Similar institutions also exist in other stock exchange centres.

[11] 'The various forms of stock exchange procedure are not only important for ascertaining prices. The conditions for taking part in and concluding stock exchange operations are more than legal and technical aids in such transactions; they are themselves factors in price-formation whose importance should not be underestimated, even though, in the final analysis, supply and demand are the deciding factors. Whether it is securities or commodities that are dealt in, whether the transactions take place in cash or in futures, whether in long-term or short-term futures, whatever units the deals are concluded in, whatever the commodity traded, whatever the stock exchange group involved (kerb trader or member); all these as well as other formal considerations are important factors, not only in ascertaining prices correctly, but also in forming them. Every change in these conditions has an influence on the course which prices will take over time in an organized market.' M. Landesberger, 'Die Reform der landwirtschaftlichen Börsen in Deutschland', Zeitschrift für Volkswohlfahrt, Sozialpolitik und Verwaltung, vol. XI, 1902, p. 36.

[12] Deutsche Börsenenquete, vol. I, report of the Commission, pp. 75 et seq.

[13] This can also occur for other reasons. 'On the continent, it is not unusual for the banks to pursue a contango policy of their own. It happens, for example, that banks preparing a large issue of shares, reduce the contango rate in order to provoke a "bullish" mood; they can make good the losses sustained in this way by their profit on the shares issued.' E. von Philippovich, Grundriss der politischen Ökonomie, vol. II, part II, p. 181.

[14] See the Deutsche Börsenenquete, vol. III, p. 1930, where one expert witness, König, maintains that futures operations are undesirable for industry, and justifies his opinion as follows: 'All these securities involved in the futures trade float about on the stock exchange, for the most part in the hands of people who have no permanent interest in them. They are only interested in the shares, not in the businesses as such, and their sole interest lies in driving the share prices up or down. Given the procedures which exist in the futures trade, it is extraordinarily easy for almost anyone to acquire influence in an enterprise through contango operations which enable him to obtain a large number of shares at the end of a month when there is a general meeting of stockholders. He suddenly appears as the owner of a few million shares, which do not really belong to him, in front of the regular shareholders, who suspect nothing, but are taken by surprise and sold all sorts of beautiful schemes which they never imagined.'

[15] See the testimony of Meier (Börsenenquete, vol. III, p. 1608) who attributes the powerful development of the futures business in England to the fact that there has always been a considerable volume of floating capital available for contango operations.

[16] Börsenenquete, vol. I, p. 347. Testimony of Arnhold.

[17] See, for example, the following statement of a 'prominent member of the Berlin banking community', as reported by the Berliner Tageblatt of 25 February 1908. `Do not forget that only a comparatively small proportion of all turnovers are actually concluded at the official cash prices. The concentration in German banking is responsible for the fact that a large part of purchase and sale orders are cancelled out in the offices of the large banks. Only dealings in the top securities are settled on the Berlin exchange.'

In Austria there is a similar development. At the general meeting of the Vienna Giro- und Kassenverein, one shareholder complained: 'Owing to the fact that the commercial life of the Monarchy is being increasingly concentrated in the hands of the banks, with the result that all the weaker private houses are bound to disappear, dealings on the stock exchange do not even require, in a great many cases, the services of brokerage offices. Every bank is a clearing house without any expenses or officials. The securities business prospers in the banks, while there is an associated reduction in the brokerage services of the Giro- und Kassenverein' Neue Freie Presse, 1 February 1905).

[18] Berliner Jahrbuch für Handel und Industrie, 1905.

[19] Frankfurter Zeitung, 21 June 1907.

[20] Thus the Frankfurter Zeitung of 28 January, 1906, writes: 'There is hardly any such thing as a monthly settlement today. True, renewal rates are published, but most of the postponements are- arranged in the big banks which also have the right to set their own rates. It is quite impossible to form any idea of the volume of floating commitments because, as was said, only a very small proportion of the dealings are finally settled on the stock exchange.'

To some extent stock exchanges abroad are in a different position. In particular, the New York stock exchange plays a much more important role than do European exchanges in the transfer of property, that is expropriation. The unique system of fiscal regulation complements the techniques of the stock exchange. The New York stock exchange only allows cash business in which differences must be settled daily. When there are strong market movements, and especially when they are all in the same direction, a strong demand for money arises. If the money market is tight, the American bank note legislation, with its lack of flexibility, is calculated to produce exorbitant interest rates which small speculators cannot pay. This is the moment for the large suppliers of money to 'throw them out of speculation' and to acquire their securities cheaply on the occasion of forced liquidations.