176 



COMMERCE, INTERNATIONAL. 



every shilling which they possessed, for the 

 outside liabilities of the bank, amounting to 

 5,190,983. The reckless manner in which 

 credit was extended by the directors, often on 

 purely personal or family grounds, was re- 

 vealed by the fact that they had loaned over 

 5f millions, the greater part of it to only three 

 persons, on securities which were not worth 

 more than a million and a half. Besides the 

 failure of the City of Glasgow Bank, several 

 other failures in the banking business occurred 

 in Great Britain during the years 1878 and 1879, 

 which affected trade very injuriously. The 

 most formidable of these was the stoppage of 

 the West of England and South "Wales Bank- 

 ing Company on the 9th of December, 1878. 

 This large concern had forty or fifty branches ; 

 the liabilities were five million pounds and the 

 deficit between one and two millions. In the 

 coal-mining trade numerous bankruptcies oc- 

 curred; nearly all of the companies started 

 during the period of high prices from 1871 to 

 1873 have gone into liquidation. 



In consequence of the numerous speculative, 

 impracticable, or fraudulent schemes for which 

 joint-stock companies were formed, whose 

 shares were floated without difficulty on the 

 London market prior to the crisis of 1873, a 

 Parliamentary Commission was appointed to 

 inquire into the constitution and usages of the 

 London Stock Exchange, and report on the 

 necessity of legislative interference or super- 

 vision. The London Stock Exchange has been 

 in existence over seventy-five years, and counts 

 more than 2,000 members. The Commission 

 exonerated the board of management, which 

 is called the Committee for General Purposes, 

 from all knowledge of or participation in the 

 reckless and fraudulent transactions which gave 

 occasion for the investigation. The premises, 

 business management, and emoluments of the 

 Exchange belong to a body of shareholders, 

 who may or may not be members, and who 

 elect a board of trustees to look after the 

 financial management of the corporation. The 

 yearly dividends amount to 20 or 21 per cent, 

 on the original investment. Among the glar- 

 ing swindles and disastrous bubble companies 

 which have been launched on the London 

 Stock Exchange of late years, are the Oriental 

 and Australian Navigation Company, the di- 

 rectors of which bought the shares short be- 

 fore the day of issue until they had the sellers 

 at their mercy; the Eupion Gas Company 

 swindle of 1874; Charles Laffitte & Co.; the 

 Marseilles Land Company ; the Moscow Gas 

 Company ; and the Peruvian Railway Com- 

 pany. The Stock Exchange, before quoting 

 the stock of a new company, subjects it to a 

 certain sort of examination and scrutiny in the 

 interests of the general public, enough to in- 

 spire confidence in the public, but not enough 

 to insure it against fraud. The investors can 

 not usually judge of the merits and prospects 

 of a new company, but are guided in their 

 purchases by the quotations of the Stock Ex- 



change. When they read in the papers that 

 the stock of a company is quoted at a premium 

 on the Exchange, they conclude that it is in 

 request among the business men best versed 

 in such enterprises. But the premium on the 

 stock before the issue of the shares is of a 

 fictitious character, and is produced purposely 

 to mislead the public. Swindling promoters 

 are thus enabled to dispose of worthless shares 

 at or above par, by first bidding up the price 

 on 'Change before the issue, and after the issue 

 unloading as soon as possible, while the demand 

 thus fraudulently created continues among the 

 gulled and ignorant public. Another com- 

 mon method of fraud is practiced by the found- 

 ers and directors of new companies on the 

 dealers within the Exchange. The dishonest 

 promoters, through their agents, will buy stock 

 for future delivery at a premium of the specu- 

 lators, who rely on procuring it in the open 

 market at or about par on the day of issue. 

 But the promoters, who control the issue of 

 the stock, will have put so many shares in the 

 names of themselves, their friends, and abet- 

 tors, that the dealers can not obtain the stocks 

 to fulfill their contracts except at exorbitant 

 rates. The quotation of shares before the day 

 of issue is a practice which the Commission 

 condemns unqualifiedly, regarding the jobbing 

 in stocks and bonds before the delivery of the 

 shares to subscribers as the means oftenest 

 employed to place fraudulent loans and to float 

 the stock of swindling corporations. They 

 recommend a penal enactment of Parliament 

 against this variety of stock- jobbing. The 

 operations on the Exchange are under the 

 control of the members through their admin- 

 istrative council, the Committee for General 

 Purposes, which is elected annually. A move- 

 ment, is on foot, which is approved of by the 

 Parliamentary Commission, to fuse the two sep- 

 arate societies of shareholders and members into 

 one corporation. Both brokers and dealers are 

 admitted as members on the same footing ; but 

 a regulation has recently been adopted forbid- 

 ding members to act as speculators on their 

 own account and as agents for outsiders at the 

 same time. As the Committee for General 

 Purposes, which consists of seven members, is 

 frequently called upon to decide on questions 

 which affect the interests both of the members 

 of the Stock Exchange and of outside parties, 

 it would be well to insist that each member of 

 the Committee before voting should have lis- 

 tened to the whole of the deliberations, and 

 that he should be compelled to declare that he 

 has no financial interest in the question under 

 consideration. 



A comparison of the wholesale prices in 

 London of the leading articles on the 1st of 

 January, 1879, with those of the same date in 

 the years named below, showed the following 

 variations (the sign + signifying the excess over 

 the prices of 1879; , the increase in 1879 

 over the prices of the former year; and =, 

 that the prices were the same as those of 1879) : 



