502 THE WORK OF THE STOCK EXCHANGE
single great markets. These immemorial tendencies of trade
specifically exert themselves through arbitrage between mar-
kets. Arbitrage may be defined as a special species of specula-
tion based on intervals of space rather than intervals of time,
and involving purchases and sales in different markets at the
same time rather than in the same market at different times.
If, for example, a given security is selling at go in one market
and at 91 in another, there will always exist an opportunity
simultaneously to buy in the former, sell in the latter, and
profit by the difference in prices. Two factors are, of course,
necessary in such arbitrage dealings—dependable markets and
ready communications. The effect of arbitrage is naturally to
keep prices on two different markets in close accord.
The technique of arbitrage between the old stock exchanges
of Europe had been highly developed long before the nine-
teenth century. Also, the establishment of stock exchanges in
New York, Philadelphia, Boston, and other American cities
occurred early in the nineteenth century, and soon led to domes-
tic arbitrage here. At first arbitrage was everywhere risky
and intermittent, since it had to depend upon communication by
stage coaches and carrier pigeons. The invention of the tele-
graph, by shortening the practical time interval between mar-
kets, increased and refined arbitrage here and abroad. Within
the United States, therefore, arbitrage of one sort or another
in securities listed on different American stock exchanges has
long occurred, although domestic arbitrage based upon con-
tinuous quotations from the floor of the New York Stock Ex-
change is now forbidden. More and more, however, there
has been a tendency in America for the principal market in our
leading securities to gravitate to New York, and owing to the
particularly efficient wire and quotation systems of the New
York Stock Exchange, its market has been placed effectually
at the service of people in practically all parts of this country.
But arbitrage across the Atlantic Ocean, involving as it did
more serious delays in communication, was naturally slower in
TT 1 See Chapter II, p. 39.
