The Stock Exchange from Within

Say you want a piano. There is one dealer in town, so you either pay his price or spend days hunting for another dealer who may be no cheaper. You buy, and you walk home suspecting you overpaid.

Van Antwerp’s point is that the suspicion is correct, and the fix is not a nicer dealer. Put twenty dealers in one room bidding against each other and you get a better price. Fifty is better still. The more competition there is, close together and bound by rules, the nearer you get to a perfect price.

Nor is this a Wall Street invention. He points to periodic fairs, to Billingsgate and Covent Garden before daybreak, to the great food halls of Paris. People everywhere gather sellers in one place, because that is how a fair price gets made.

Every market has two crowds pulling in opposite directions. Buyers want the largest market they can find, because more sellers means lower prices. Sellers want the largest market for the opposite reason. The old answer to both was to gather as many dealers in a commodity as possible under one roof, which also spares everyone the time and labour of searching.

But a crowd alone is not the idea. Van Antwerp insists the arrangement works best when it is held to rigid rules of business morality that give everyone, “great and small, rich and poor, an absolutely square deal.”

That second half is the one people forget. A crowded room without rules is a scramble won by the loudest or the best connected. Competition plus enforced rules is what he means by an exchange, and he never separates the two.

In Van Antwerp’s piano example, what would have given the buyer a better bargain?

• A fixed price for pianos set by a public authority
• A long relationship with one trusted local dealer
• More time spent visiting dealers in distant towns
• Many dealers competing in one room under rules✓Correct answer

He wants twenty, fifty, two hundred dealers bidding in close contact and bound by rules. Touring distant towns costs time and still gives you no open competition, and an official fixed price removes the very bidding that makes a price fair.

Then comes a story about a friend with a thousand-acre farm in the Shenandoah Valley and 10,000 baskets of peaches. He found a single buyer, a Baltimore canner, who contracted for the crop at $1 a basket for firsts.

Peaches from Georgia then flooded the market. The canner backed out by claiming a “first” had to be three inches across, a size that almost never grows, which dropped the whole crop into the lowest grade. Every commission house the grower tried said the same thing: we won’t buy, but we’ll handle it for 10 per cent.

He shipped by express and hoped for honest dealing. The first shipment netted him 5½ cents a basket, the second 15 cents, before picking and packing. A friend of his bought some of that same fruit for $1.25. Van Antwerp leaves the gap between 15 cents and $1.25 for the reader to think about.

What went wrong was not bad luck. It was the absence of a market. A handful of middlemen set the price, nobody was openly bidding against anybody, and the grower had almost no information; it is the buying dealer’s business, Van Antwerp says, to make sure he gets none. There was no standard and no rules.

Now take the Western wheat farmer who sells through a grain exchange. Whenever he sells, he gets a price “fixed as clearly as matters are fixed in law,” made by skilled traders bidding by cable from Chicago, Liverpool, Berlin, Odessa and Argentina.

Van Antwerp admits there can be no exchange for perishable farm goods, and calls that a pity. Both men grow food. What separates them is whether an organised, rule-bound market stands behind the sale, or only a middleman.

According to Van Antwerp, a Western farmer who deals through a grain exchange can sell his crop before it has even been planted.

True✓Correct answer

He says exactly that. Because the exchange makes an authoritative price through worldwide bidding, the grain farmer can sell ahead with confidence, which is the certainty the peach grower never had.