56 THE WORK OF THE STOCK EXCHANGE
fact permits investors to hold securities only as long as they
involve little risk. Thus, the higher organization of securities
markets creates an ability to avoid or shift risks somewhat akin
to insurance. In an unorganized security market, on the other
hand, almost all the risks entailed by security ownership fall
squarely on the investor, for when he wishes to shift his risk
by selling his security, he often finds that the unorganized
market has practically suspended operations.
10. Barometer of Business.— Prices on the Stock Ex-
-hange have frequently been used as a barometer of future
husiness conditions.’® So eminent an authority as Professor
S. S. Huebner has stated, “Without an exception every business
depression in this country has been discounted in our security
markets from six months to two years before the depression
became a reality.”
Frequently, however, the omens provided by Stock Ex-
change prices have been disregarded by American business men
until the crash came, and were then cited as evidence that the
Stock Exchange must have caused it. In this way, the Stock
Exchange has seemed continually fated to fill the unhappy role
of the prophetess Cassandra, whose predictions before the
event brought upon her the charge of being both demented
and ill-natured, and after the event the inconsistent accusation
of having herself caused all the trouble.
This prophetic quality often possessed by Stock Exchange
prices has resulted not only from speculative intelligence in the
stock market, but also from the inevitable pressure of economic
forces. When this collective human intelligence goes astray,
as it sometimes does, naturally the barometric value of Ex-
change prices is lessened. But on the economic side, we have
seen that the market on the Stock Exchange is one for surplus
capital, and thus expands or contracts before other markets.
Normally this recurring process has rendered Stock Exchange
prices barometric of future business conditions, since the latter
™ Appendix IIf,
