ORGANIZED SECURITY MARKETS 55
the stock market regularly acts as a ‘“shock-absorber” to all
business. In many cases, liquidation on the Stock Exchange
has released sufficient capital to prevent the shock of a scarcity
in working capital being felt practically at all in agriculture,
commerce or industry. But even when serious contractions in
credit do affect all enterprise, the shock is lessened because the
stock market acts as a buffer. A typical case of this sort
occurred in 1919—21.** In this connection, Governor Benjamin
Strong of the New York Reserve Bank stated:
. . the liquidation in the New York stock market started a year
earlier than the liquidation throughout the country; and the effect of it
was actually to release credit for purposes such as agricultural and
industrial and commercial uses.
On the other hand, the artificial injection of excess capital
into land or commodities, with the attendant rise of prices and
speculation with serious social consequences, has frequently
been prevented or minimized by the ability of the securities
market on the Exchange to absorb capital. For this reason,
proposals to artificially “stabilize” the stock market would
amount to tying down the escape valve of a steam engine.**
The claim is sometimes made that funds are attracted into
the stock market and thereby denied to commerce, agriculture,
and industry. In Chapter XI this question will be discussed
in more detail; it is enough here to state that this claim is
usually made on very doubtful and imperfect evidence, and at
the most involves only short periods of time.
9. Segregation of the Risks of Capital.—Owing to the
‘increased safety, stability, and publicity as to security prices
created on the Stock Exchange, there has evolved within it and
around it specialized dealers in speculative securities, of whom
some are members of the Exchange and some are not. These
so-called “professionals,” being almost always ready to buy or
sell, thus collectively provide a ready means whereby the invest-
ing public can shift risks to these regular dealers at will. This
1 See Chapter XI, p. 303.
