CREDIT TRANSACTIONS IN SECURITIES 201
Similar English legislation later adopted to prevent short sell-
ing of bank stocks has also been more honored in the breach
than in the observance.
Such, too, has been the experience of France. Napoleon 1
was dissuaded from forbidding it only by his Finance Minister ;
later on, the French did legislate against the practice only to
repeal the law after its futility and harmfulness were clearly
shown. The state of New York has tried the same experiment
and with the same result; it prohibited short sales early in 1812,
only to remove the ban against them in 1858. Last but not
least is the example of Germany. In 1896 a stringent regula-
tion of the Berlin Boerse (or Stock Exchange) was under-
taken by the government and again short selling was forbidden,
to be reinstated by the repeal of this legislation in 190g. But
a famous American economist has stated 2
Finally, the effect of interference, increased cost, and legal un-
certainty (entailed by this restriction of stock transactions) was to
drive business to foreign exchanges and diminish the power of the
Berlin Exchange in the field of international finance. The number
of agencies of foreign houses increased four or fivefold, and much
German capital flowed to other centers, especially London, for invest-
ment and speculation. This in turn weakened the power of the Berlin
money market, so that even the Reichsbank has at times felt its serious
effects.
So long as optimists are more popular than pessimists, buy-
ing on margin will doubtless seem to many people a more bene-
ficial operation than short selling. So long as men think on
the money rather than the goods side of sales, short selling will
doubtless remain more mysterious to the public than margin
purchasing. So long as the fallacious benefits of inflation can
claim a popular following, whatever tends to lift prices above
values will continue to be generally judged preferable to what-
ever may depress them below values. And thus, while perhaps
human nature will always condemn the short sale, genuine
economic utility will invariably favor its employment.
# Emery in “Regulation of the Stock Exchange,” p. 828.
