The Capital Of Capitalism


Hoping to give their activities a decorum that would lure British money away from the more dignified Philadelphia exchange, the New Yorkers formalized their procedures, just before John Ward and Jacob Little arrived, with a set of rules for gentlemanly conduct. A member of the Stock and Exchange Board, as it was known, who used “indecorous language or conduct toward another member” could be suspended. As the president called out the name of each listed stock in turn, pausing for offers and bids from the brokers seated before him, he was not to be interrupted. Leaving the room without permission was punishable by fine.


Like many reformers the Board overdid it. Members were sworn to secrecy about the daily doings. And to demonstrate the exclusivity of the establishment each applicant for admission had to be voted on, with three adverse votes sufficient to keep him out. One year only seven new members got through in seventy-six ballotings. It took Jacob Little several tries to get in. On the eve of the Civil War Henry Clews, the broker who left the most detailed account of Wall Street affairs in the nineteenth century, found old-fogy ism triumphant: “The efforts of the young and enterprising men to gain an entrance to the Stock Exchange were regarded by the older members as an impertinent intrusion. … The old fellows were united together in a mutual admiration league. …”


There was one good thing about this exclusive private club, as its critics called it. The code of ethics between brokers was rigidly and successfully enforced by social pressure. This remained true even after the Exchange became less mannerly and seats could be transferred without a membership vote. When one broker offered a block of shares and another said he would take it, the deal was absolutely binding. To repudiate it would have brought disgrace as well as expulsion—much worse than bankruptcy.


The hustling businessmen who were blackballed in the early days did not stop trading in stocks. On the street near whatever rooms the official Board rented—it moved several times—there was energetic bargaining for shares the Board didn’t handle. New, risky companies, some little more than promoters’ dreams, were launched there. Sometimes the same men who behaved like gentlemen during Board sessions then repaired to the streets to elbow and shout because their customers demanded more volatile stocks or could not afford the $500 minimum sale that the Board required.


From time to time groups of excluded brokers, considering themselves a cut above the “guttersnipes,” set up regular exchanges indoors that anyonecould join for a small fee. They resorted to all sorts of devices to find out whattheir big rival, the Exchange, was doing. Once they moved in next door and dug a hole in the wall; at another time a hundred dollars was paid sub rosa for the privilege of listening at the keyhole. By 1869 a group called the Open Board was doing five to ten times as much business as the regular Board. At this point a truce was declared; the two groups merged. The old sequential auction gave way to the Open Board’s system of continuous trading, with each stock assigned a special location on the floor. But free-for-all trading outdoors on the curb persisted until 1921, when its participants moved inside and set up what became the American Stock Exchange.


Almost all the tricks of market trading that folklore attributes to the peculiar ingenuity of Americans had been invented long before New Yorkers got into the act. “Bulls,” trying to raise prices, and “bears,” trying to lower them, were known by those names in eighteenth-century London. So was short selling, the practice of contracting to sell shares at a fixed price for future delivery in the hope that meanwhile the price would go down so that the seller could buy and deliver at a profit. Another ancient maneuver, derived from commodities trading, was cornering the market. A group would buy up all the available stock of a certain company. Others who had sold short would then be forced to pay enormous sums to get the shares they had contracted to deliver.