More than a hundred years ago a small group of men sat in a building located in what is now the heart of New York's financial district and organized an exchange. Their object was the common one of meeting daily to deal in the few securities for which at the time there was a market.

New York, then, although even thus early the financial capital of the struggling young country, was still a small city, not much larger in population than Albany today. But it already had a number of thriving banks and small industries in which its wealthy citizens were financially interested, and they needed a convenient place where these stocks could be bought and sold.

The founders of the exchange, which still exists as the New York Stock Exchange, desired their organization to be an exclusive one. Therefore instead of publicly incorporating their association under the laws of the state, they formed a club whose object was to bring the members together for commercial, instead of social, intercourse.

As it was a club, the members could of course arbitrarily control its policy. They could decide without any outside interference who might join their organization. This rule still prevails. While the members are free to sell their memberships, the stock exchange, or club, as it really is, retains complete jurisdiction over the membership. The exchange can accept or reject the application for membership of any purchaser of a seat.

A seat on the stock exchange is the regular term for a membership. It is a figurative expression, as there are no chairs on the floor of the exchange. There is too much activity to permit trading in securities in such a leisurely fashion. The term, however, has been handed down from the early days of the stock exchange when the business transacted was of limited volume. There were then chairs in the little room in which the members gathered, in which they could lounge while the secretary read the offers and bids the members of the organization made and in which they governed their dealings among themselves. Such calls were made but once a day.

The idea of a stock exchange is not original with us, nor are the functions of our exchanges vastly different from those of the exchanges in other countries. Primarily they sprang into existence in response to the urgent demand for central clearing-houses for securities or commodities in which the public was vitally interested. Our New York Stock Exchange is closely patterned after the London Stock Exchange. Our grain and cotton exchanges have for their models the leading exchanges on the other side dealing in similar commodities.

Politically the center of a nation's power is at its capital. Commercially it is at the money center of the country, and it is here that the most powerful and influential exchanges will be found. In the United States New York City is the money capital of the country; in Canada, Montreal; in England, London; in Germany, Berlin; in France, Paris; in Austria, Vienna; and in Holland, Amsterdam.

Membership In Exchanges

A seat on the New York Stock Exchange has sold close to $100,000. It has been some years since the value of a seat has been as low as $35,000, This gives some idea of its importance. It shows that a membership is an exceedingly valuable privilege, and as the country grows older and wealthier it is likely to increase in value.

The popular impression is that what makes the seats on the exchange so valuable is the limited membership. This is more or less a fallacy. There are other exchanges in New York City, a smaller stock exchange and a produce exchange; the membership of each of these exchanges also is limited. Yet the privilege of entree to their floors can be had for a nominal sum - a bagatelle compared to the price of a stock exchange seat. The vast amount of business transacted every year on the stock exchange alone is responsible for the high price the seats bring.

Membership in the London Stock Exchange costs more than a seat on our exchange, for the London Exchange does a much larger business even than ours. In France, where the Government controls the bourse and limits the membership to a select few, the privilege is exceedingly valuable, a recent estimate making a membership worth as high as one million dollars.

Volume Of Business Transacted

Still it is not to be wondered at that men are to be found willing to pay such large sums of money to exercise these privileges. Often in single active sessions on our stock exchange as many as 2,000,000 shares of stock are dealt in and there have been sessions when the totals have reached as high as 3,000,000 shares, and this does not include at all the transactions in bonds, which also reach large proportions.

What this means in dollars and cents may best be illustrated by a short example in figures. The unit of trading on the stock exchange is $100, so that, if a stock has a par value of only $50 a share, 100 shares reported in the transaction really stands for 200 shares of stock. Examples are such stocks as Reading, Lehigh Valley, Pennsylvania, and Westinghouse Electric. Although traded in on the basis of a $100 par value, these stocks are issued only at $50 par value and are called on the stock exchange half-shares. If a person were to purchase 100 shares of any one of these stocks on the stock exchange unit, he would really be buying 200 shares. Recently the stock exchange has ruled to trade in all shares of stock on a dollar basis, doing away with the 100 share unit of trading.

Now, were we to strike an average of $50 as the price realized for all stocks sold on the stock exchange in a single active session, the total business would represent a turn-over in wealth of $150,000,000 for 3,000,000 shares; $100,000,000 for 2,000,000 shares and $50,000,000 for 1,000,000 shares. The average I have taken is a reasonable one, for there are many securities listed on the New York Stock Exchange commanding prices considerably above their par value of $100 and a small number under $50 a share.

It is the aggregate wealth which the stock exchange is instrumental in swinging back and forth which causes astonishment and reflects the great power of the exchange. The average daily transaction in a year on the New York Stock Exchange is approximately 500,000 shares. These represent the enormous total value of $15,000,000,000 a year. The value of the bonds exchanged amounts to more than $800,000,000. These figures, of course, vary somewhat from year to year.

It is true that a great many of the active securities change ownership many times during an active season. Mr. Sereno S. Pratt, Secretary of the New York Chamber of Commerce, has shown that enough Chicago, Milwaukee & St. Paul Railroad stock has been sold in a single year to equal twenty-three and three-fourth times the total outstanding issue of the company. His investigations showed surprisingly large turn-overs in the shares of other companies. These figures enter into the enormous total of securities which are exchanged in a single year upon the exchange.

It is a fact that a great bulk of the securities are bought and sold by speculators with no intention to hold them for more than a short time and to dispose of them as soon as there is a profit, or when the holders are compelled to let go on account of exhausted margins. But this can in no way overshadow the real function of the exchange, which is, as already stated, that of a central market. In like measure id the statement true of the cotton and grain exchanges, where, instead of shares, commodities are bought and sold.