198 THE WORK OF THE STOCK EXCHANGE 
crease the supply of it. Conversely, every seller tends to lower 
prices by increasing supply and decreasing demand. These 
laws operate in the establishing of prices utterly irrespective of 
whether purchases or sales are made outright or on credit. The 
outright purchaser of 100 shares of Reading tends to raise the 
price of this stock just as much as a margin purchaser of the 
same amount, and an outright seller tends to depress its price 
just as much as a short seller, if they sell the same amount of 
stock. 
But there is this difference, as regards their effect upon 
prices, between purchases and sales made outright and those 
made on credit. The outright purchaser tends more perma- 
nently to increase the price of the stock he purchases, since he 
usually withdraws for a long period a number of shares from 
the supply. Also, the outright seller tends more permanently to 
depress stock prices, since in most cases he does not soon buy 
back his stock. Credit transactions in stocks, however, almost 
always involve both a purchase and a sale. The buyer on 
margin must ultimately prove a seller before he can obtain his 
profit, and for the same reason the short seller in the end must 
buy stock. Moreover, both margin purchases and short sales 
must usually be terminated within a reasonably short period, 
lest interest charges and dividends eat up all hope of profits. 
In consequence, it is obviofis that the buyer on margin at first 
tends to raise prices and later to lower them; and that similarly, 
the short seller for the time being tends to lower prices, but 
later to raise them again. Thus a double check is created 
against the undue inflation of the price above, or the undue 
depression of prices below, the actual value of any security in 
which active speculation occurs on the Stock Exchange. 
Automatic Checks Against Inaccurate Prices.—Let us 
suppose that the actual inherent value of 1 share of U. S. Steel 
common stock is really $150. Should the price of this stock 
rise to 175—or higher than its value warranted—the margin 
18 See Chapter II. po. 47.