The Security Markets
by the Twentieth Century Fund, Inc.
[New York, $5.00]
IT is of particular interest at this time to have available a thorough study of the securities markets. The importance of the latter in the public mind, following the enactment of so much legislation affecting market activities, has naturally caused considerable discussion of stock-trading practices. Much of this discussion bordered on pure fancy; some of it, however, rested upon an extremely solid foundation.
The Security Markets, of the Twentieth Century Fund, Inc., explodes a good many myths previously existent, and it provides a basis for serious consideration of measures which may be used to remedy defects still apparent. Consequently the book is of interest to the investor, Stock Exchange personnel, and the student of finance. It is written so lucidly as to be of value to the layman, in addition.
Pointing out that although ’capital is supplied to industry chiefly through the sale of new securities through bankers, the exchanges play no direct part, the study goes on to state that the exchanges nevertheless ‘perform a very important service by providing facilities for the secondary distribution of listed securities, after their original sale as new issues.‘
Having thus determined the function of the Security Exchange, the relationship between the security markets and banking and credit is explored. It is shown that the security markets and the banking system interact upon each other so that neither can operate without influencing the other. ‘From the record of the past few years it is evident that the influence of the security markets on the banks has been far from salutary for the banks,’comments the study.
The effect of brokers’ loans on the total amount of credit available is a question which has absorbed much attention. Did the speculative market in 1929 drain funds from the interior of the country? The Twentieth Century Fund concludes that it did not — a conclusion at variance with popular belief.
Is speculation justified? A careful clarification of the function of speculation in our economic security is made and the writers explain at length ’short selling,’so confusing to all but the initiate. They recommend that no general prohibition be placed upon the practice of short selling, but infer that short selling should be ‘indirectly regulated in so far as it is a part of any harmful practices in the manipulation oi security prices,’
There are interesting chapters describing the relationship between the security markets and business, an analysis of the security markets of the United States, and an outline of foreign exchanges. A chapter on corporate accounting and reports shows the pitfalls facing the investor and analyst when attempting to gauge the worth of information published by the various businesses of the nation.
EDWARD STONE