CHAPTER XII. "CORNERS" AND THEIR EFFECT ON VALUES. THE SENATE COMMITTEE ON "CORNERS" AND "FUTURES." SPECULATION BENEFICIAL TO THE COUNTRY AT LARGE.- TH HE New York Stock Exchange is organized after the same manner as a social club, such as the Union League, the Union or the Manhattan, and not under a special charter from the Legislature. Hence it is protected from the interference of that honorable body. Although various attempts have been made, from time to time, at Albany, to levy taxes upon the transactions of the Exchange, and to interfere with the business of speculation and investment in many other ways, these legislative designs have hitherto been happily frustrated. Shortly after the memorable "corner" in Hannibal & St. Jo., in 1881, another attempt was made by the Legislature to force Wall Street matters under the jurisdiction of Albany lobbyists and "scalpers.' The newspaper articles on the subject of the "corner" had attracted the attention of the Legislature then in session, and naturally suggested to some of the wiseacres of that dignified and incorruptible body that the "corner" afforded an excellent opportunity, when the public mind was excited on the subject, to raise an outcry against the shocking im morality of such huge speculations. A Senate Committee on "corners" and "futures" was therefore appointed, and various Wall Street men were summoned to appear before it, and give their testimony on this interesting subject. I had the honor of being one of the witnesses cited. I promptly obeyed the subpœna in preference to taking the risk of being hauled up for contempt and sent to durance vile I appeared before the Committee at the Metropolitan Hotel, and not only answered all questions put to me, without any fashionable lapses of memory, after the manner of certain other financiers, but I regaled the Committee with a little dissertation on the subject of investigation I had letters from members of the Legislature afterwards complimenting me for having made the points very clear. So I can say, "Praise from Sir Hubert is praise indeed," and therefore I am encouraged to reproduce that effort in this volume, not so much from an intense desire to go down to posterity as a successful orator, as from a disposition to record my approval, in more permanent from, of the soundness of the legislative judgment on my explanation of "corners." When the applause had subsided, I spoke as follows: "Gentlemen of the Committee ou Corners and Futures: Speculation is a method now adopted for adjusting differences of opinion as to future values, whether of products or securities This is more common now than in former years because the facilities for procuring information have increased with the greater intelligence and celerity with which all business is now conducted, and also from the greater rapidity with which such information can be transmitted by telegraph and cable. "In former years the results of a crop were known only when it came to the market. Now almost everything affecting its future value is known with a fair degree of accuracy before the crop is harvested. This advance l information naturally becomes the subject of speculative transactions which could not have existed in former times. A. T. STEWART A CHAMPION CORNERER." 97 "Speculation brings into play the best intelligence as to the future of values. It has always two sides. The one that is based principally on the facts and conditions of the situation wins in the end, and the result of the conflict is the nearest possible approach to correct values. The consequences of speculation are thus financially beneficial to the country at large. "Speculation for a fall in prices is based upon the presumption of an over-supply. If it succeeds, the production of the particular product is checked until prices recover, and in the meantime production is diverted to articles less abundant. Thus speculation proves a regulator both of values and production. Speculation for a rise in prices is based upon a presumption of scarcity or short supply, and its direct effect is to quicken production and restore the equilibrium of prices. ""Corners' usually come from running speculation to an excessive length, by which the seller becomes responsible for deliveries beyond what he can possibly make. He thereby places himself at the mercy of those with whom he has made the contracts. These exigencies chiefly affect the speculators themselves, and the community at large but little. "Extreme prices usually grow out of them, but they are only momentary, and have small effect upon regular or cash transactions, which sympathize very remotely with these temporary and artificial quotations. "Speculation is not to be judged by its occasional excesses, but by the general effects which the foregoing considerations show to be beneficial. It regulates production by instantaneously advancing prices when there is a scarcity, thereby stimulating production, and by depressing prices when there is over-production. It thus becomes one of the most beneficial agents in the business world for the prevention. of panics. "Speculation, moreover, makes a market for securities that otherwise would not exist. It enables railroads to be built through the ready sale of their bonds, thus adding mater ially to the wealth of the whole country, and opening a more profitable market to labor. In this it becomes the forerunner of enterprise and material prosperity in business. "There are 'corners' in all kinds of business as well as in Wall Street speculation. Mr. A. T. Stewart, the great dry goods merchant, made more 'corners' during the latter part of his life than half the rest of the business community put together. He did this mainly by contracting for the entire and exclusive production of certain classes of goods, and as such goods could only be bought at his establishment he had a close corner' in them, and accordingly put on his own prices. "The greater portion of all the large mercantile firms do business in the same way. And all the importing firms deal in futures. They sell goods by sample, agreeing to deliver them at a future stated period, varying from thirty days to twelve months. In the meantime the goods have to be manufactured, and in many instances purchasers have to wait until they are grown, and imported thousands of miles. "If it were not for the support which comes from the 'short' interest in grain and the general activity created thereby in times of depression, which come periodically in this country, it would be in the power of the large speculative grain dealers in Europe to manipulate prices downward, and purchase our products every year, on raids, at prices much under the cost of production. "When we sell to Europe we must do so at a profit, or our transactions don't help to enrich the country. "Another curious thing about 'corners' is that the people who organize and manipulate them generally get most hurt in the enterprise. This was the case with the corner' referred to in Hannibal and St. Joseph. Mr. John Duff, of Boston, was the man in whose prolific brain that corner' originated, and the result to him was financial ruin. The stock ran up to 250, though the short account amounted to |