CREDIT TRANSACTIONS IN SECURITIES 193
prices by encouraging margin purchasers, the chances are that
Corn Products will rise rather than decline in price.
Stock Prices and the Money Rate.—So many factors enter
vitally into the establishing of stock prices that the influence of
the call rate upon them is frequently offset by some counter-
force. In some of the duller periods in stock market history,
although call funds were ruling as low as 2%, nevertheless
dividends on stocks had been proportionally reduced, with the
consequence that stock prices also remained very low despite
the prevalence of “cheap money.” Yet, other factors being
equal, the result of changes in the call rate on stock prices will
be as stated above, and thus forcibly demonstrate that every
margin purchase of stock presupposes a short sale of money,
and that every short sale of stock presupposes a margin pur-
chase of money.
As methods of purchase and sale, the margin purchase and
the short sale are, therefore, inseparably and reciprocally con-
nected, like the two sides of a coin, owing to the fundamental
fact that every sale is and must be a twofold operation involv-
ing both money and goods. The illogic of attempting to restrict
short selling, and at the same time to permit margin purchasing
or any use of credit in dealings, is thus apparent.
Shortages of Money.—Since every margin purchaser of
stock assumes a debt of money and every short seller a debt of
stock, it is obvious that a shortage of money may seriously
hinder the former from making his deferred payment, while a
shortage of stock may similarly embarrass the latter in making
his deferred delivery. These shortages of money and stock
are risks inevitably involved by credit transactions in the stock
market.
While an examination of the “call loan” system employed
to finance margin purchasers of stock must be deferred to a
later chapter,’ some few of its features deserve comment here.
The Stock Exchange has no control over the shortages which
"J See Appendix VII,
