THE DISTRIBUTION OF SECURITIES 115 
securities out of the speculative floating supply, and this is the 
real foundation of the whole process. Hence, it is quite correct 
to attribute mainly to the Stock Exchange the present continu- 
ous flow of large capital into industry,* even if manufacturers 
and investors are often unconscious of the fact and although 
a detailed explanation of the process such as the above is 
maddeningly reminiscent of “the house that Jack built.” 
The Stock Exchange as a Capital Market.—This function 
performed by the Stock Exchange in distributing capital to 
industry has been described by Charles A. Conant, the eminent 
banker and economist,*® with the following suggestive simile: 
The stock market acts as a reservoir and distributor of capital with 
something of the same efficiency with which a series of well-regulated 
locks and dams operates to equalize the irregular current of a river. 
The hand of man is being stretched out in the valley of the Nile to 
build great storage basins and locks, and the waters which flow down 
the great river may be husbanded until they are needed, when they are 
released in small but sufficient quantities to fertilize the country and 
tide over the periods of drought. Something of the same service is 
performed for accumulations of capital by the delicate series of reser- 
voirs, sluice gates, and locks provided by the mechanism of the stock 
market. The rate of interest measures the rise and fall of the supply 
of capital, as the locks determine the ebb and flow of the life-giving 
water. The existence of negotiable securities is in the nature of a 
great reservoir, obviating the disastrous effects of demands which 
might drain away the supply of actual coin, and prevent the panic and 
disaster which, without such a safeguard, would frequently occur in 
the market for capital. 
Pre-War Importation of Investment Funds.—Before the 
war it was generally recognized that the growth of security 
investing in the United States had not kept pace with the tre- 
mendously swift and enormous growth of corporate industrial 
enterprises here. In consequence, although even then we prob- 
ably possessed more wealth and certainly were accumulating 
wealth more swiftly than any other nation in the world, we 
2 See Chapter II, p. 52. 
® The Uses of Speculation, Forum, August, 1901.