Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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Editor/Trans.
First Pub. Date
1881
Publisher/Edition
New York: Maynard, Merrill, and Co.
Pub. Date
1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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AGIOTAGE

I.26.1

AGIOTAGE. Commercial speculation is useful to society. Agiotage (stock-jobbing) is harmful to it. Besides, it is always contrary to good morals. Speculation takes its natural course and develops in free and peaceful countries; stock-jobbing is never so active as in times of calamity and national trouble. Speculation is a regular operation; stock-jobbing is a game in which the players cherish the purpose of cheating, if need be. Speculation is an investment of capital intelligently made by the purchase of commodities, etc., at a low price, with the intention of selling them afterward when the price rises; the difference in the prices covers the expense of keeping the goods, the interest on the capital employed, and the profit of the speculator. By the first operation speculation prevents the fall of prices to a degree which would be fatal to producers; by the second it stops an excessive rise which would be disadvantageous to consumers. In stock-jobbing, on the contrary, the purchase is made with the intent of selling as soon as possible. Most frequently a bargain is made on time in order not to-employ capital. There is not the least intention of receiving the thing bought. Again, a sale is made with a promise to deliver a thing not possessed and which the seller has no idea of acquiring. It is calculated in the interval to effect payment by a contrary operation at prices whose difference would be a profit. Fortuitous circumstances are depended on to bring about this result; also the chances of the harvest, the effect of good or bad news which is invented and spread abroad as needed. The stock-jobber, in a word, bases his profit only on a loss which he causes others. When his operation is over, no service is rendered, no value produced. What is produced is a simple transfer of wealth, while a heavy blow is struck at public morality.

I.26.2

—As the passion for play is one of the infirmities natural to man, stock-jobbing does not fail to increase whenever circumstances produce great or rapid changes in the prices of things. Men do not fail at such times to gamble in bonds, stocks and merchandise. According to the times, stock-jobbing has been directed to the shares of the India company, Mississippi lands, the assignats, French national property, building lots in cities, shares in industrial enterprises of every kind, the working of mines, the draining of swamps, canal or railroad enterprises, Marseilles soap, oil, coffee, sugar, bread, etc.

I.26.3

—If it were desired to write the history of stock-jobbing, the year 1719 would occupy a large place in it. Law's system reached its highest point of development at that time; intoxication was at its height; everyone thought to make a fortune by what was called in France dealing in paper (le commerce des papiers.) For those who were skillful enough and realized on the paper in time, it became positive wealth; but disenchantment and ruin overtook all others; and in the month of December, of the same year, a rapid fall of values set in.

I.26.4

—In view of the deficit and financial embarrassments of every kind left by Louis XIV., the regent, after having had recourse to the ordinary expedients of loans, the selling of favors and adulterating money, listened to the suggestions of Law. Educated, skillful, enthusiastic, Law, who had not been able to succeed in Scotland, his native country, was none the less convinced himself of the soundness and practicability of all his financial views. According to him, wealth is greater in proportion as the chief instrument of exchange becomes more abundant, and the banknote above all is useful, in this, that it lends itself to as rapid an increase as possible of the representative sign. But as the sovereign power of the state alone gives value to money, the bank note, in order to keep its value, should rest on the state. To gain this support, a bank should accept the obligations of the state, as capable of forming an important part of its capital. On the other hand, it was necessary that the bank should be a joint stock institution, and in order to attract shareholders, it was necessary to offer them the bait of commercial profits, by obtaining the concession of certain great privileges. The system had thus as its essential elements bank notes and shares of stock.

I.26.5

—Law obtained, May 2, 1716, the privilege of founding a private bank, for which the capital might be subscribed, three-fourths payable in state paper. The following year he obtained a decision that the notes issued by the bank should be received as cash by the State. Nevertheless the success of the scheme was far from remarkable; the shares were below par, and it became necessary to lend them some new attraction. Commerce with distant countries was carried on in those days by privileged companies, and there was in a monopoly of this kind to be found all the chances fitted to awaken hope in the minds of men. Law was permitted to succeed Crozat in the right of developing the commerce of Louisiana and the beaver trade of Canada. Consequently his bank founded the Occidental Company. When we to-day see the degree of wealth of the vast country drained by the Mississippi, and the present splendor of New Orleans, we can easily understand what were the illusions of the people who were promised that the development of this part of the globe would be carried on for their benefit.

I.26.6

—The director of these enterprises governed at the same time the finances of the state. The general bank soon became a royal bank. To the monopoly of the commerce of the west was added the monopoly of the commerce of China and the Indies. The Occidental Company, which besides had acquired the lease of the fermes générales, and also the monopoly of commerce with Senegal, finally assumed the title of the India Company. Every transformation was followed by the issue of new stock. The wish to use the state notes, which were depreciated, attracted shareholders at first, then the habit of trading in stock commenced to take root. Stock-jobbing did the rest. Law excited it by every means in his power, and at the beginning of 1719 he inaugurated the margin market, by buying at par 200 shares of the Occidental Company, paying 40,000 livres on account of 100,000 livres which represented their value, and consenting to lose the earnest money thus given, should he not fulfill his engagement within a fixed time.

I.26.7

—The centre of operations was in Rue Quincampoix, occupied then by bankers and money changers. The report of sudden fortunes made in this place attracted the crowd to it. Operations soon reached dimensions which would appear fabulous even to-day. The gutter of this street was called the Mississippi, and anecdotes abound concerning the strange incidents which happened in those places. It is related that a hunchback made a fortune by letting out his hump to serve as a desk on which to sign contracts.

I.26.8

—The first shares had for a long time failed to reach par, 500 livres. The new ones, with the same nominal value, were issued at 5,000 livres. At the end of November, 1719, they were sold at forty times their nominal value. During this time, paper money was increased imprudently, and the moment of the crash drew near. The most adroit stock-jobbers commenced to retire first. They kept up prices as long as they could, in order to have time to change the fictitious values which they held for real values; but the bulk of the public, composed of simple people and bungling speculators, supported the whole weight of the bankruptcy.

I.26.9

—Since that time stock-jobbing has not again appeared with that ensemble of characteristics which lent it, for a time, an effect truly dramatic. Operations have been more varied; stock gambling has become in some degree regulated, by division and by spending itself on objects of different kinds. State paper has furnished it its most constant and most regular food. Representative governments have been obliged to keep their accounts in public and to give up the precarious resource, left to absolute monarchies, of adulterating money. It was easy to make it a principle that the national honor is bound to the punctual payment of debts contracted in the name of the country. In this way, public credit has been developed; but, with this system, expenses have increased in gigantic proportions, loan has succeeded loan, and the public debt of every state has saddled the future with a heavy burden of interest.

I.26.10

—In order to facilitate the circulation of loans, they established the non-distinction of origin of debts in entering them in the state ledger. State bonds were exempt from seizure by attachment against the owner. Markets were opened at which daily sales were made at auction and for cash; but, above all, the passion for gambling was excited by special privileges reserved to the brokers. Real operations served as a cloak to a much greater number of fictitious ones, and the confusion of transactions of different kinds was so great, that in sales on time, some of which, no doubt, were very legitimate, it was difficult to discover which were the mere result of stock-jobbing. The number and nature of transactions were therefore multiplied.

I.26.11

—At different times, especially in 1827 and 1828, there was veritable stock-jobbing in building lots in Paris. Peace, and commercial prosperity which resulted from it, increased the population With greater prosperity every one sought to obtain better lodgings, cleaner, better situated, better ventilated: whence the necessity of new buildings. Speculation sought the best investments, and when a happy choice had been made, the sale was attended by a large profit. Hence large pieces of land were sought for, in spaces where new wards could be opened, or new streets laid out. So far the transaction was quite legitimate. It was not always so, however, with the means employed to obtain purchasers for the land and raise the price of the lots. For this the ordinary tricks of jobbing were put in play. One of the means employed, with disastrous consequences to many people, was to build houses in many parts of the new ward without spending a cent. For this purpose the speculator, who had bought all the land, selected a lot desirably situated for a residence for himself. He had plans made by an architect. Then he called in contractors of masonry and carpentry, blacksmiths, joiners, roofers, glaziers and painters. He asked each contractor to undertake his part of the building in consideration of pay in land in the same ward, worth more than the work to be done, and at prices which stock-jobbing had raised greatly. Many sub-contractors allowed themselves to be taken by the bait, proud of thus becoming land owners. They commenced to build houses on their own lots, giving their own services for the lots. One returned in carpentry the value which he received in masonry, another in roofing what he received in lock-smithing, and so on to the end of the chapter. But the speculation did not always succeed. The ground was sold at too high a price; the apartments were rarely rented, and the houses still more rarely sold. All this work was accomplished only by delivery of materials by dealers in timber, iron, plaster, stone, paints, materials of every kind. These dealers prosecuted the sub-contractors, and the latter demanded the sale of the houses constructed by them. A settlement was generally effected at a low price. The original speculator became the purchaser, and thus found himself possessor of lots covered with houses, without other expense to himself than the original payment for the bare ground on which he had conceived the ingenious idea of laying out streets. Let this suffice as an example.

I.26.12

—The chances of gambling will, doubtless, have at all times a great attraction for many people; and it will be difficult to abolish stock-jobbing altogether; but it is beyond doubt that the principal remedy for the evil is found, in this as in many other things, in complete liberty. What is needed after this is a repressive law, clearly defining all kinds of fraud, and competent to reach them. There is still another remedy of real efficacy, but which, it appears, our modern legislators will not give us so soon. It is necessary to stop the enormous public expenses, annual deficits, loans which alienate the future, and consume the savings of the present. Then there would be no further need of the aid of those who subscribe to, and negotiate public loans, and there would no longer be any interest in protecting stock-jobbery. (See PRODUCTS ON PAPER, CHAMBER OF COMMERCE). Consult, upon this subject, J. B. Say, Cours complet, 2e ed., t. II., ch. 16, de l'agiotage. (Collect, des princip. Econom.)

HORACE SAY.

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