45
can be carried on steadily and considerably only in organized
security markets. For this reason, the interurban, and par-
ticularly the international, traffic in securities, so necessary to
stability in the capital market and to the most economic direc-
tion of new capital, is particularly dependent upon the estab-
lishment and successful functioning of stock exchanges.
ORGANIZED SECURITY MARKETS
3. Fairest Price-Making.—The stock exchanges also per-
mit the fairest possible prices to be made for the securities
listed upon them. Concerning this aspect of organized mar-
kets, Judge Grosscup, of the United States Circuit Court,
once said:
The exchanges balance like the governor of an engine the otherwise
erratic course of prices. They focus intelligence from all lands and
the prospects for the whole year by bringing together minds trained to
weigh such intelligence and to forecast the prospects.
The truth of this remark becomes apparent when the con-
trast between selling an automobile and a listed security is
recalled. The car may possess an intrinsic value of $1,500,
and there may be hundreds of people in the United States who
would welcome the opportunity of purchasing it at that figure.
But this does the owner no good. He cannot locate them and
arrange a sale, because there is no organized market through
which he can readily be put in touch with them. He must
therefore accept whatever price the few buyers whom he is able
to interest may be willing to bid for his car, and the highest
bid he can obtain may not reflect its actual value. Very dif-
ferent is the situation in a nationally organized market like the
New York Stock Exchange, the leased wires of whose mem-
bers reach to all important centers in the nation (Figure 2).
Practically all the possible buying orders regularly compete to
raise prices, and simultaneously all the possible selling orders
compete to lower them. As a result of the balance struck
between these mutually opposing forces, the fairest price to
both buyers and sellers results.
