54 THE WORK OF THE STOCK EXCHANGE
largely avoided, and great economies in the use of capital are
this produced.*®
Very often, the prices of securities on a stock exchange
reflect future probabilities rather than present values, and this
fact only increases the ability of the market more efficiently to
direct capital into industry. Very often, however, this sensi-
tiveness of the market to future probabilities is not sufficiently
grasped by the public, and causes losses to inexperienced specu-
lators and investors who, being human, are only too ready to
hlame the Stock Exchange, the Federal Reserve system, the
“international bankers’—or anyone, in short, except them-
selves.
8. Greater Stability of Capital.—The organization of
security markets into stock exchanges greatly furthers the
stabilization of capital. For one thing, the yields on similar
securities tend to become standardized and uniform on a stock
exchange, and a general average yield on bonds, and to a lesser
extent on stocks, can be more readily determined. This aver-
age yield on long-term investments, rough as it sometimes 1s,
nevertheless is-an important factor in the whole rate-structure
of the money market, and it acts and reacts upon short-term
money rates with a general tendency to approximate a uniform
level with them. In this way, the organized security markets
play a vital part in facilitating the establishment of consistent
prices for capital and credit.
The securities on the Stock Exchange, as well as the loans
contracted on their collateral, regularly provide a mechanism
into which idle and unproductive capital can practically always
be poured, and from which liquid working capital can almost
always be readily obtained for industry, agriculture or trade.
Since capital is in a sense a common denominator of all busi-
ness, this function of the market for capital on the Stock
Exchange possesses a very great economic significance which
is only too frequently overlooked. During credit stringencies,
12 Cf. Appendix IId.
