ever to grow unmindful of the public character of its functions and of its national duty, if throughIs the Exchange merely a private institution? inefficiency or for any other reason it should ever become inadequate or untrustworthy to render to the country the services with constitute its raison d'être, it would not only be the right, but the duty of the authorities, State or Federal, to step in.

But thus far, I fail to know of any valid reasons to make such action called for.

Short Selling—‌Is it Justifiable?

Question:

You have commenced your first answer with the words, "I need not point out to your Commission." That is a complimentary assumption, but I don't mind telling you that we here are very little acquainted with the working of the Stock Exchange or the affairs of you Wall Street men in general. What about short selling?

Answer:

I do not mean to take a "holier than thou" attitude, but personally, I have never sold a share of stock short in my life.

Short sellers are born, not made. But if there were not people born who sell short, they would almost have to be invented.

Short selling has a legitimate place in the scheme of things economic. It acts as a check on undue optimism, it tends to counteract the danger of an upward runaway market, it supplies a sustaining force in a heavily declining market at times of unexpected shock or panic. It is a valuable element in preventing extremes of advance and decline.

The short seller contracts to deliver at a certain price a certainShort selling Is it justifiable? quantity of stocks which he does not own at the time, but which he expects the course of the market to permit him to buy at a profit.

In its essence that is not very different from what every contractor and merchant does when in the usual course of business he undertakes to complete a job or to deliver goods without having first secured all of the materials entering into the work or the merchandise.

The practice of short selling has been sanctioned by economists from the first Napoleon's Minister of Finance to Horace White in our day. While laws have at various times been enacted to prohibit that operation, it is a noteworthy fact that in every instance I know of these laws have been repealed after a short experience of their effects.

I am informed on good authority—‌though I cannot personally vouch for the correctness of the information—‌that there is no short selling onShort selling Is it justifiable? one nowadays fairly important Stock Exchange,—‌that of Tokyo, Japan. You will have seen in the papers that when President Wilson's peace message (or was it the German Chancellor's peace speech?) became known in Tokyo, the Stock Exchange there was thrown into a panic of such violence that it had to close its doors. It attempted to reopen a couple of days later, but after a short while of trading was again compelled to suspend.

Assuming my information to be correct, you have here an illuminating instance of cause and effect.

Short selling does become a wrong when and to the extent that the methods and intent of the short seller are wrong.

The short seller who goes about like a raging lion [or bear] seeking whom he may devour; he who deliberately smashes values by dint of manipulation or artificially intensified selling amounting in effect to manipulation, or by spreading alarm through untrue reports or even through merely unverified rumors, does wrong and ought to be punished.

Perhaps the Stock Exchange authorities are not always alert enough and thorough enough in running down and punishing deliberate wreckers of values and spreaders of evil omen; perhaps there is altogether not enough energy and determination in dealing with the grave and dangerousShort selling Is it justifiable? evil of rumor mongering on the