Financial History Issue 129 (Spring 2019) | Page 20
supported their businesses directly. New
investors were investing in businesses they
knew because they were customers of
those businesses.
By the mid-1920s, it was possible to sit in
one’s home, place a phone call to the local
brokerage office and have a trade executed
on Wall Street. Finally, in 1928, the NYSE
embarked on an aggressive public relations
campaign aimed at popularizing the “peo-
ple’s market.” As the market was reaching
its peak, the Big Board embarked on a
media campaign to attract new investors,
otherwise known as novices.
What is fascinating about this period
was that investors were flocking to the
markets even though they remained
exceptionally opaque institutions. Insider
trading and price manipulation were not
illegal. The list of ploys that were permit-
ted is astonishing: for example, one com-
mon practice was to send simultaneous
buy and sell trades to the same broker to
create a fictitious price. As the demand for
and success of industrials increased, and
interest in investing spread to more and
more parts of the population, the resulting
squeeze of investors by insiders proved to
be politically unsustainable.
In the 1910s, a series of securities regula-
tions were enacted that sought to protect
minority shareholders in almost every US
state. The pressure caused the NYSE to
act to preempt government intervention.
But the exchange moved unevenly, initially
banning only the most egregious practices.
In 1913, the practice of buying and sell-
ing simultaneously was banned, although
using customers’ funds to manipulate prices
to members’ advantage was only “con-
demned.” Only in 1917 did the NYSE enjoin
its members from buying tomorrow’s head-
lines from hungry newspaper reporters,
and it took another year after that for the
exchange to forbid the deliberate circulation
of rumors intended to move prices.
Given the range of predatory prac-
tices to which the unsuspecting investor
could be subjected, it is hardly surpris-
ing that many potential novice market
players opted not to participate. There is
little evidence that these protections were
enforced, and the legal obligations of cor-
porations toward their shareholders were
being undermined by a race to the bottom
in the laws of general incorporation.
Despite the questionable market
reforms and remaining opaqueness,
FIGURE 1: Margin Loans by Lender, 1919–1930
Source: Board of Governors of the Federal Reserve System (US), Banking and Monetary Statistics,
1914–1943 (Board of Governors of the Federal Reserve System, Washington, DC, 1943), 494, table 139.
the conditions had been set and market
capitalism exploded. Regional exchanges
opened in Detroit, Cleveland, San Fran-
cisco, Chicago and Los Angeles. Besides
the aforementioned New York Curb
Exchange, similar exchanges emerged
near other regional exchanges.
O’Sullivan reports that the number of
traded securities increased significantly
from 1880 through 1930. The number of
stocks traded across all US exchanges
increased from 916 in 1900 to 1,340 in 1915
and 2,659 in 1930.
These changes were met with increases
in investors. Gardiner C. Means’s esti-
mates from 1900 were based on the total
number of “book stockholders,” or the
sum of the number of people holding
each individual stock. This overcounts the
total number of individual owners because
the same person might hold positions in
more than one company, in which case
that person would be counted twice. But
this method is good for examining trends,
18 FINANCIAL HISTORY | Spring 2019 | www.MoAF.org
as the total number of individual inves-
tors must be highly correlated with the
number of book stockholders, a number
that quadrupled between 1900 and 1930.
Specifically, the number of reported book
owners increased from 4.4 million in 1900
to 7.5 million in 1913, and then to 12 mil-
lion in 1920 and 18 million in 1928. Means
estimated the total number of individuals
by dividing book owners by four and tri-
angulated with income tax records.
Between four million and six million
individuals owned shares in corporations
in 1927, perhaps three million to five mil-
lion of them in public corporations. And
based on income tax records, there are
reasons to believe that the “few hundred
men” controlling the market in 1900 were
being diluted. From 1916 to 1921, the top
25,000 highest-earning Americans saw
their ownership share of corporate Amer-
ica decrease from 57% to 37%.
During the same period, individuals
who didn’t make the top 100,000 highest