Not All Syndicates Evil Combinations

It is simply just to add that the reader must not attach this opprobrious meaning to all syndicates: a syndicate may obviously be entirely devoid of all nefarious practices and fictitious inventions, and may constitute a legitimate and often useful combination.

Dishonest Syndicates Exert No Permanent Influence Upon Prices

These instances have been cited mainly for the enforcement, from the history of actual occurrences, of the salutary lesson that the investor should not be tempted to sustain a loss by succumbing to the infection of fears which operations of this nature suggest, but do not in reality involve. An inquiry into causes is, as in medicine, the best corrective to the treatment of disease. It is clear that no syndicate can exert a permanent influence upon prices: their effects appear and vanish on the recurrent tides of human craving for the variety and excitement of speculation, animated by the desire for wealth: these combinations essentially contain within themselves the elements of their own disintegration and extinction.

The real nature of the process involved in the variation of prices.

Before closing it is worth while to attend more particularly to the real nature of the process involved in the variation of prices.

For brevity of exposition I select the case of sales only by the public, since corresponding remarks apply to purchases. Although the operation of supply and demand may be appreciated, the mere statement that many sales produce a fall in values, and numerous purchases a rise, is often felt to be too vague, and a closer explanation of general application may be ventured.

The jobber, it has been seen, fixes the price at which he will purchase from the public through the intervention of the broker. He well knows his business in determining the amount of his quotation, and nothing further need be said upon that point. He, as he has been termed, is the merchant and (restrained in the price he makes by the competition of other jobbers in the same description of security) the decision at which he will buy from the selling public determines and constitutes the price in the market for the time being. This is the essential point to bear in mind.

The broker must approach the jobber with an impassive face and demeanour so that no indication may be afforded to the latter that a sale to him - thus biassing his quotation - is intended. But in periods of apprehension which influence holders of any security to sell, the jobber can divine that nearly every broker who applies for a price is a seller, that is, he discovers that he is only asked to buy and thus increase his stock of the security with the natural difficulty and cost of its subsequent disposal. He accordingly lowers the price at which he will purchase, and, moreover, gradually or promptly places a wider interval between his buying and selling price. For his own protection against loss he must balance his transactions: if he buy largely he must be able to sell largely in order to clear his book, and to sell at a price superior to that at which he purchased, or a loss may ensue. But the more extensive be his purchases the more difficult he finds a sale: an ordinary trader may accumulate by constant purchases so large a store of commodities that his supply is in excess of the demand: he cannot dispose of the whole of them, and the remainder is left on his hands, involving him in growing loss.

The jobber when he buys must effect corresponding sales with other jobbers (or brokers); and for observation of the result it will be clearer and more convenient to assume that holders of a specific security have, at a given time, become filled with doubt respecting its soundness and hence seek its abandonment. (The process simply is widened, but in the same form, when the prospect of war, for example, or of any other important influence is existent.)

A jobber to whom a broker applies discerns (or speedily will discern) that a sale to him is the object required; but, at such a time of incessant sales as that which is here supposed, all other jobbers in the same market will be approached with the like intention, so that their separate purchases would store them all with an increasing supply of the same stock. Now each jobber, for the purpose of settling and balancing his account in the stock, must apply to other jobbers to buy in turn from him what he himself has bought, but other jobbers already possess an excessive supply of the stock, and, instead of buying more, desire obviously to sell what they possess for the same purpose of balancing their accounts. And, in the troubled condition of the market here assumed, it would be futile to attempt to deal with a broker, since the latter's object would also be that of selling for his client.

Thus each jobber is unable to clear off what he has bought except probably at a price considerably lower than that which he gave; or perhaps he may discover it to be quite impossible to sell at all. To avoid this loss and possible catastrophe he gradually reduces the price at which he will purchase (and at which the public can sell), and thus gains for himself an improved chance of transferring his purchases to others by sale. The successive reduction of the jobber's buying (the public's selling) price is thus a decision to restrict his supply for the reasons assigned. If the public, notwithstanding the lowered price, persist in selling, the jobber still further diminishes his bid; and finally may refuse altogether to purchase more by objecting to make a price at all. In this manner a sale by the public may become impracticable; and the public then must either retain their remaining stock and endure whatever extent of loss may result, or they may give it away to any one who is willing as a speculation to hazard the possible disaster, or they may even be compelled to offer a sum of money to a transferee to relieve them of the encumbrance. The reader will thus observe the real meaning of a depressed price. The principle of supply and demand evidently applies and determines the result. And throughout the consideration of the subject it is to be noted, I repeat, that the price, which is settled exclusively by the judgment and decision of the jobbers in their own legitimate interests and regulated by competition, constitutes the price in the market by which the transactions of the public are governed.

The reader will meet with peculiar expressions when reading the articles in the newspapers, and it will be convenient, accordingly, to explain those which most commonly occur.