Stock and Commodity Exchanges ["Die Börse" (1894)]Author(s): Max WeberReviewed work(s):Source: Theory and Society, Vol. 29, No. 3 (Jun., 2000), pp. 305-338Published by: SpringerStable URL: http://www.jstor.org/stable/3108485 .Accessed: 02/06/2012 19:24

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Stock and Commodity Exchanges [Die Borse (1894)]

MAX WEBER Translated by Steven Lestition, Princeton University

From Max Weber, Gesammelte Aufsdtze zur Soziologie und Sozialpolitik Tiibingen: Verlag von J. C. B. Mohr [Paul Siebeck], 1924), pp. 256-288. Except where otherwise noted, all endnotes and emphases in the text (indicated by italics) are Weber's own. Occasional paragraph breaks that are not present in the original are also indicated in the notes.

The purpose and outward organization of the exchanges'

The following sketch is intended solely as an initial orientation for those who in their daily lives are relatively distant from the things described here; it therefore, at the outset, tries to take nothing as known about those matters. A second pamphlet, which will describe structures and relationships within the exchanges and the business transacted by the exchanges, follows. For me it is only a question of whether these two pamphlets meet this particular goal. Therefore they intentionally refrain from passing a judgment [on the matter being discussed]. They do so because the practical ineffectiveness of the criticism that the broad mass of the populace levels at the existing conditions that reign on the stock-and-commodity exchanges stems from that criticism's tremendous superficiality: namely, its seeing failings in places where only ignorance, or the contradictions caused by the diverging interests of observers, can find them. This same superficiality has, however, led to the highly dangerous notion that, wherever one encounters a social institution that is not strictly "socialist" (as the exchanges are not), then one is dealing with an wholly dispensable organization - one that must be judged by its very nature to be a sort of "conspirators' club," aimed at lying and deception at the expense of honest laboring people; [an institution], therefore, which best ought to be - and can be - destroyed in some way. Nothing is more thoroughly

Theory and Society 29: 305-338, 2000. ? 2000 Kluwer Academic Publishers. Printed in the Netherlands.

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dangerous to a workers' movement than such impractical goals - just mentioned - erected in ignorance of actual existing relationships.

The stock and commodity exchange is an institution created by modern large-scale commerce. For modern business, its indispensability in general arises from the same reasons and from the same bases upon which the modern form of commerce itself has grown. It has for a long time been just as necessary - or in fact just as possible - as has modern large-scale commerce itself. And why? If we trace the work- practices of mankind back to the earliest ages, we discover that the first and most natural viewpoint from which man produced those goods was the goal of meeting its own needs. Man sought to acquire, by his own hands, the work of nature that he needed for his nourishment, clothing, and protection against the cold and the weather. But, relying only upon himself, the individual was never able to defy nature. For the maintenance of bare existence alone, he was already - and always - dependent upon social relationships with others, just as the child is dependent upon the mother's breast. And he just so little chose, by a free act, the society that he needed as the child choses his mother. Society was given to him on life's path; he was born into his society - into the firm union of his family (which did, to be sure, look different than does today's family), standing under the unrestricted domination of a patriarch. For the economy of the household included brothers, cousins, sisters-in-law to the furthest degree, and unfree household servants; they were all subjected to a military-like power; or else, those whom cold and the death of livestock robbed of their possessions wished to live by [even] the oldest of all legal principles, namely having to become the slaves of the physically triumphant and of the owners of property. The family of this sort is the oldest economic community. They produced goods through common work and consumed them in common. And they consumed above all only what they had produced, for they had nothing else to consume; and they only produced what they wished to consume, because they had no use for the surplus that went beyond that.

If we compare that with the character of the economic patterns of today, the tremendous difference, and contradiction, is immediately apparent. The opposite statement is now true: the individual does not produce the goods that he himself will use, but rather those that, according to his expectation, others will need; and thus each individual consumes the product of others' labor, not of his own. It goes without saying that this, in some cases, does not hold: it does not, for example,

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apply to those who dwell in still undeveloped forest regions, or to the subsistence farmer in the depths of wholly uncultivated regions; and it applies to our own [German] small farmers only to a limited degree, for they live in the first instance largely from harvests from their own land - and they only sell the surplus. But it does hold for those economic organizations that modern times have created above and beyond those earliest ones. The viewpoint from which the modern entrepreneur produces goods, and must produce goods, is not whether he himself will be able to use them, but rather the question of whether he will find a "consumer"; that is, the question of whether others will genuinely use those goods.

The historical development that has taken place over the course of the last millennia, and that has dissolved the old communities, arises from these two sharply contradicting patterns. That historical process em- bedded the economic practices undertaken by the individual into a community of exchange that encompasses within it an increasing number of other economic actors and activities; it is a circle that, in the modern era, seeks to expand to include the totality of all civilized peoples. And that process increases, on the other hand, that very portion of goods, which each individual actor's activities have produced, which that individual does not himself need, but rather gives over to others. It is here that trade becomes active.

Alongside the simple manual production of goods, it is necessary that, in order for the needs to be met that these goods aim to satisfy, another [activity] emerges: they must be transported to those who will use them, and at the moment in time when that use will occur. Under our present social arrangements, the means to that end is the exchange of goods for sale; and the activity that conveys it is trade. The oldest patriarchally-led communities of families did not need this, since they principally only consumed that which they produced, and vice versa. Only with the growth of needs for "articles of luxury" did a business of exchange begin. Metal tools or instruments, gems, precious metals, and materials of high value are the oldest objects of trade. Such trade lay in the hands of the itinerant merchant. As a foreigner, he was literally without rights and viewed with superstitious reserve; such an indispensable man, while hated, stood under the protection of the gods (analogous to the way there was a custom of praying to poisonous snakes in the ancient orient). In time, the relationships became more regularized and alongside the wandering merchant came the great periodical "fairs" or "markets," even as we still find them in central

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Asia. Here one could find those who came from different communities trading with each other. "Internationality" thus stood at the cradle of commercial capital. Within [existing] communities of "those related by blood and heritage," and between such communities, "trade" per se was as little known as was the charging of interest. As still happens today in tradition-bound villages far from the city, one loaned seed-grain and farm tools without charging money and "between brothers" [so to speak] there was no fixing of the price of lands according to consider- ations of supply and demand. This sharp contrast continued even as, with a regularized cultivation of rural plots, an independent economy emerged between peasants who lived and worked side by side in villages and on estates, replacing the large-scale family-directed economy of clans and lineages.2

But all that changed with the emergence of cities. These meant that a pure "business interaction" was inserted into the old communities themselves, as the first step toward their disintegration. Alongside the international markets, in which the luxury articles from abroad were traded, there emerged the regular town markets, in which the native producers of food products and the urban producers of handicraft products met and exchanged their goods. This mode of economic interaction thus recognized and needed a process of "bartering" as one of its regularized elements. But the fraction of the goods that the individual produced and brought to market was still a small one; for those working at trades in the city were, simultaneously, still largely also farmers; and the peasant consumed the greater portion of his own produce himself, with only the surplus coming to market. But, along- side the crafts and trades that supplied the city and the few miles of its hinterland, another element soon appeared in the towns. The foreign and wandering merchant was replaced and pushed out by the locally- resident, native group of merchants that supplied goods from abroad through the mechanism of regularized trading relationships, goods that local or domestic trades and enterprises did not themselves produce. There emerged [on the one side] a professional commerce in imports and, on the other side, great handicraft enterprises that carried on a business externally, as exporters, in the surplus that existed of local or domestic products. This required a knowledge of foreign markets and of the important means by which to serve them. Both were lacking to handworkers. A capitalist presented himself to their service as a merchant capitalist;3 he took their products and traded them; they were dependent upon him, and since he also knew how to obtain bulk quantities of raw materials more cheaply, he also supplied them with

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such things - and, stipulated thereby that they also work for him in the future. From the master craftsman there now emerged a dependent worker of the cottage industries [Hausindustrieller]: it was the first step toward the modern factory. With that, all the seeds of modern develop- ments were in place. - But, only as "seeds," to be sure.4

For, in the arena of trade, the bulk of commercial exchanges still concerned themselves with objects of high value. If we were to make a present-day comparison, we would need to imagine for ourselves con- temporary commerce lying primarily in champagne, silk goods, and similar items serving the needs of the wealthy classes. In truth, however, an overview of the foreign trade of each major state [today] shows that it is now otherwise: "mass-articles" make up the greatest volume. [For example], grain - England would have no bread at all if foreign lands did not yearly ship it billions [of bushels] of grains. Coal and iron - Italy would, by its own resources, neither have coal for its ovens nor iron-tools. Cotton - not a single article of the clothing that a modern European worker wears can be finished without either yarn or raw cotton. But no cotton threads will be spun or woven within the regional economy in which it was harvested; no iron ore will be smelted by the mine owners who first took it from the earth; only a miniscule portion of coal will be used by the coal-mining company itself; and even with grain, one estimates that more then half of the world's tremendous production is consumed by people other than those cultivating that land; and that more than a fifth of it is exchanged between nations. It is stock and commodity exchanges that serve this gigantic process of exchange. It is at a modern market that the business of selling transpires, as a set of regular gatherings - or, at stock-and-commodity exchanges, daily gatherings - occurring at a particular place.5

What differentiates these "exchanges" from what people usually call "markets"? Let us take the sharpest difference possible: i.e., comparing it with the local market offering meat and produce in a small rural town. At such a market, the peasant or farmer usually trades what he himself has produced, and offers the goods themselves, directly at that place, to a buyer; the latter, who intends to use the items himself, pays for the items right then and there. [By contrast], on the exchanges, a deal is struck over a set of goods that are not present, and often "in transit" somewhere, or often yet-to-be-produced; and it takes place between a buyer who usually does not himself wish to "own" those goods (in any regular fashion) but who wishes - if possible before he receives them and pays for them - to pass them along for a profit, and

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a seller, who usually does not yet have those goods, usually has not produced them, but wishes to furnish them for some earnings of his own. The grain that is traded on a given day on the exchange lies in large part still in the grain elevators of North America, or it is swim- ming across the ocean; and it is sent along to the mills, and then on to the bakers, by the purchaser himself. At the smaller markets, it is almost always only producers and users who trade directly with each other. On the exchanges, it is almost always only merchants who engage in the trading. Despite this difference, however, stock exchanges and markets are the same in essence, especially through the analogous purposes they serve. For, they are locations where the "supply" and the "demand" for a set of goods ought to meet. If we return to the example of the small market: on the one side are the small farmers, who have produce to sell (the supply) and wish to buy the articles of the urban craftsmen (demand) and, on the other side, there are the urban con- sumers who purchase food (demand) and the craftsmen who wish to sell, and must sell, their own products (supply). These outstretched hands must be able to meet and, to that end, the market is indispen- sable. The stock- and commodity exchanges have the same purpose and goal. Except that their scope is infinitely more enormous. They are the market for modern mass-consumption articles, of which there exists a continuously enormous supply, and thereby also an equally enormous demand. Upon this difference rests the difference in the procedures of the exchanges compared with the local markets. If I wish to buy a house, I will not buy a "house in general," but a very specific, given house; and I would want to receive no other one, even if that other is "worth" just as much as the first. If I purchase a fish that I wish to eat, I will at least want to see it beforehand, to see that it is worth the price. And for that reason, I go to the market. By contrast, if a whole- sale grain company wishes to sell a specific type of grain, for which it believes there is a specific use, in a quantity of 1,000 metric tons, a process analogous [to the ones just described] is usually neither possible, nor even necessary. In general it is usually only a matter of receiving a particular quantity of grain of a particular, agreed-upon type and quality - whether that be after an initial sample is displayed, or whether that be simply because it is continually being offered, and thus appears to be of a specific quality. Types and their quality are thus united; the seller does not first bring the goods to the place and then sell them, but usually the reverse: first he sells them ("carte blanche" ["in blanco"], as one says), and then he seeks to furnish those goods within the period of time that is required to fulfill the contract. He supplies them at the agreed-upon time; if they meet the agreed-upon

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quality, the buyer - or the person to whom the latter has subsequently sold them - takes possession of them. If that is not the case [i.e., the quality or the agreed-upon delivery time are inadequate], then the purchaser sends them back as not meeting the agreement ("not deliv- erable"). This is the way it is with all articles that are traded on the exchanges. If a German trading firm needs a quantity of Russian paper money, in order to pay off a debt in Russia, it becomes not a matter of obtaining a particular item - such as is the case with someone buying a house or a specific riding horse; but rather any ruble-note, if it is genuine, performs the same service - for, as the expression goes, one normally deals with "negotiable" items on the exchanges; that is, such things where it is not a matter of supplying particular individual objects, but rather a contractually-stipulated quantity of the contrac- tually-stipulated type and quality.

Let us first look more closely at the sorts of goods that usually form the objects of trade on the exchanges. People usually divide them into two main groups: on the one hand, "products," or goods in the usual sense of the term; and on the other hand, types of money, as well as notes of exchange, stocks and bonds - that is, "securities" of various sorts. One thus distinguishes the "commodity exchange" ["Produktenbirse"] from the "stock exchange" ["Effektenborse"]. The difference has the same meaning as if one distinguished a fishmarket from a meat market, or from a fruit-and-vegetable market. Both kinds of exchanges can exist at one and the same location, and be organized together in some fashion - as, for example in Berlin and Hamburg. Or, they can exist at different locations - as is the case in Paris and London. Each major type can itself be further divided: for example, the stock exchange into an exchange for commercial notes of exchange as well as one for other sorts of securities (as in London); and the commodities market can be divided into specialized markets for grain, sugar, iron, fats and oils, etc. - as is often the case in America. Finally, in general not all, or even many, of the types of goods and securities that are "able to be traded" are in fact traded on each exchange; naturally, it is often only those - or, predominantly those - that are produced in a particular area, or that are shipped in or out of a particular port [that are traded]. For example, in seacoast cities, [the trade often centers on] the fishmarket; or, in Essen, in western Germany's coal-area, [there exists] an exchange on which only coal and holdings in mines are traded; or, in Magdeburg, in the midst of the sugar-beet growing area of Saxony, one finds an exchange for sugar. Only in the great central exchanges is commerce in all major trading commodities concentrated.

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On the commodities exhanges we first find grain and vegetables of all sorts [being traded], together with the products immediately derived from them, especially flour. The largest market for that in Germany is, alongside the Berlin exchange, that of Mannheim, through which trav- els all overseas grain being shipped down to Rhine River. In addition: sugar - where the greatest markets along with Berlin are (as already mentioned) Magdeburg and then Hamburg (as an exporting site). For alcohol - Berlin and Hamburg (an export-site) divide the market; for petroleum - Bremen (as an import-site) divides preeminence with Berlin; for cotton - the same two; for wool yarn, especially ready- combed yarn - Leipzig plays a major role, as a place of production; for coffee - the greatest import-site, and thus trading-site, is Hamburg; for coal and iron - the markets in the western regions [of Germany] that produce those products are of major importance. And to this list could be added other articles of less importance, but that would lead too far from the topic. Trading in stocks naturally concentrates in those places that are the sites of large banking houses: in Germany, only Frankfurt am Main and Hamburg have any great importance along- side Berlin.

We must look at the objects that are bought and sold on the "securities exchanges" a little more closely.

A trade takes place there in: (1) types of money and paper with a monetary value, which our industrial entrepreneurs and merchants both receive as payment from abroad and use in turn to make payments abroad. In this group naturally belongs coins and the paper-money of foreign states (for example, the paper money of Russia); but there also belongs the oldest of all objects of commerce on "exchanges," commer- cial notes of exchange. What are these?

One does not grasp the form they have [economically] from looking at their legal meaning. The most important form of the note of exchange, the so-called "drawn bill of exchange" ["Tratte"] or the "draft" ["gezogene" Wechsel], presents itself as the instruction, for example, of a merchant named Schulze (in Berlin), to, again for example, a merchant named Smith (in London), to pay a certain sum on a certain day to a third party, Mr. Miiller in Berlin, or to his "order" - that is, to someone to whom the note is to be given over, at Muller's legally-valid instruction.6 In legal terms, however, this simply means: Schulze promises to Miiller and his order to be legally liable for Smith paying a particular sum at a particular time; and its far more important prac-

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tical purpose - and, one for which it had already been used 700 years before this - is the following. Schulze in Berlin is an exporter; he had sold German goods to the English importer, Smith, in London, and now had to ask for payment of the sale price (let us say, 100?). Miiller in Berlin is an importer. He had purchased English goods from an English exporter, Jones, in London, and imported them, and thus incurred a debt to the latter amounting to the purchase price (for convenience sake, let us say the same, 100?). The mutual commerce between Germany and England amounts to hundreds of millions of marks in value per year; and there are thousands of the four sorts of people whom we've described as Schulze, Smith, Miiller, and Jones. If the purchase prices were all paid in cash, unbelievable amounts of money, weighing many thousand (metric) hundredweight in gold, would have to be sent back and forth, which would make for nonsensical expenses and place the money in danger on the seas, while also keeping it from use for the duration of the voyage. For this reason, one operates in the following way: Schulze in Berlin, who is to receive money from Smith in England, "draws" a bill of exchange of 100? "on" Smith; that is, he instructs him to pay Miiller for his order. He gives this bill [Wechsel] to Miiller in Berlin, who has money to pay to Jones in London, and he [Schulze] makes himself liable to Miiller for Smith paying either Miiller or whoever his order might be. Miiller pays him for the 100?7 and sends the draft to his creditor, Jones, in London, by designating him on the draft as his "order" - a notation on the draft that one calls an "endorsement" ["Giro" oder "Indossament"]. Jones in London receives the sum of the draft from Smith in London and, through this payment, obtains his money. Schulze gets his money from Miiller as the sale price for handling the bill of exchange; the business is "settled."8 All of the Schulzes in our example (creditors of English debtors, that is sellers of bills of exchange "drawn on" London) and all of the Miillers (debtors of English creditors, thus purchasers of bills of exchange "drawn on" London) now meet each other on the large market where such big sums "on London" are able to be sold and purchased - namely, on the exchange for commercial bills. Only there can they be assured of finding each other. Business with other countries with whom we exchange goods transpires in just such a manner. A trade in commercial bills of exchange occurs continuously in London, in Paris, in St. Petersburg, and in New York in enormous sums - and, this trade is indispensable. Compared with the approximately 3 billion DM of coined money and paper money that is in circulation in Ger- many each year, there are approximately 13 billion DM worth of trans- actions in "commercial notes of exchange."

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(2) The second-oldest object of trade on the securities exchanges are the "bonds," in the narrower sense of the word: the governmental paper and the debt-certificates of communities and other public corporations that are related to it.

That today the state and local communities, almost without exception, create debts, is known: the [German] Empire and the various German states together are around 8.5 billion in debt, England (without includ- ing its colonies) 15 billion, France 20 billion of state-debts; and all these debts must be serviced with interest paid to the states' creditors. The indebtedness of a state is today not some sort of misfortune, a straightforward sign of "bad administration" or of insufficent wealth. If a state wishes to build a great railroad for, let us say, 50 billion DM, it would be neither just nor understandable if it sought to raise this through a tax - for example, in Germany of 1 mark per person. It is not simply the present generation that is alive that uses the railroad; and, it is not simply the present Minister for Finance who will collect the income from it. Therefore, it is right that we also act on behalf of our heirs, and that occurs when we borrow the money, pay interest, and gradually pay the whole sum back out of taxes over a longer term. The burden of the tax is thereby divided up between the present and the future. For example, Prussia would otherwise have had to cover the cost of the 5 billion [DM] which it expended for the purchase of rail- roads over a period of 10 years through something like 500 million in special yearly taxes - and that would have been a foolish and impos- sible undertaking. It is something wholly different, and a matter of poor financial management, when a state has to borrow money for needs that continually recur; for example, paying the costs of its bureaucrats and its army. In that case, the generation that is living shifts the burdens to the succeeding generation, which must then bear it; the state would thereby be managing its budget with a deficit, which the next generation is expected to pay.9

Borrowing money for the first-mentioned needs is accomplished by the state - and by administrative "circles" [Kreisel],'? town communities, etc. - through the sale of bonds, in which the state promises to pay, to everyone who at a particular time announces and proves that they are holders of such debts,11 a specific rate of interest (i.e., 3, 3.5, 4 percent, etc. of a sum of the debt) at a specific payment date (for example, January 1 or July 1). Whoever acquires possession of the bond legally (through purchase, etc.) thus becomes a creditor of the state. The debtor (state, community, etc.) promises to pay back the debt either according

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to a specific timetable, so that a certain number of the debt-coupons will be redeemed each year and repaid ("amortized"), or it reserves for itself simply the right to announce [when and how the debt will be repaid] but takes on itself no corresponding duty [to do it on a partic- ular schedule]; the latter is the case with our Imperial and Prussian state loans (the so-called "consols" [Konsols"]12). The state (or, urban community, etc.) can do that because, for the holders of the state bonds, it is not a matter of getting their money back; far more, they wish to receive the interest [on the bond-note]; they are members of the propertied classes, who in this way "invest their money." That means, they wish to secure for themselves the right to the receipt of a tribute from those who are burdened by these interest-payments; in this case, the taxpayers of the state or of the urban community, who raise money for the interest payments on state and community debts through taxes. And the same holds for the "obligations" issued by railroads or industrial entrepreneurs. For example, Krupp recently gave out 24 million [DM] of bonds, in order to purchase a competing factory; and the obligations issued by railroads and joint-stock companies are enor- mous. The interest [on the bonds] in this last case is raised by the users of the railroad: through the freight, by the purchasers of those goods; through prices; and finally, in the way that a portion of what the enter- prise takes in does not flow to the entrepreneur as earnings or to the worker as wages, but must flow back to those who are entitled to the interest-"tribute." All of the named groups are "taxed" in order to cover the interest on the capital [that was raised].

These modern interest obligations are the product of a long develop- ment. At one time interest itself was the sign of unfreedom. One did not charge interest "among brothers." The foreign conqueror levied it as a head-tax on an individual's person, in the form of a fee13 levied on land; alternatively, it was exacted by the lord of the land from those who were landless, and therefore not fully-free, to whom the land was lent. Ownership of landed property is the oldest source of the rights to interest. Today it is, to be sure, still the same - the ground-rents in cities especially shows that; but that other type of command of tribute [i.e., interest on what has been loaned out] is now even more powerful. Its characteristic is to be "impersonal." The peasant14 paid rent to the lord of his land, who ruled him personally and whom he knew. But today, the possessor of interest-bearing papers does not know those whose income is taxed for his sake; and the estate-owner who receives money in return for a mortgage placed on his property does not know those who have loaned to this bank the money that was given out; and

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[these same unknown creditors] receive in return "mortgage papers" - that is, interest-bearing documents, for which the totality of the properties mortgaged by the bank and paying interest stand as interest-bearing securities. The impersonality of the relationship be- tween the one who commands interest and the one owing interest payments is the most characteristic aspect of these contemporary tribute-duties. For this reason one speaks of the rule of "capital" and not of that of the capitalists. Who, now, are the owners of these papers, to which is linked the right to the interest-tribute? That is a matter of the social structure and the division of wealth within individual peoples and one must beware of believing that it is necessarily tied to a thin layer of "coupon-cutting idlers." In France, for example, the ownership of state treasury bonds and similar papers reaches way down to the lower levels of the people, in whose hands one never sees such papers in our country. The reason for that lies in part in the existence there of a far broader group of still-prosperous peasantry than we find among us [in Germany]; but undeniably it also lies in the usual limitation, among the French, of the number of children ("two- child system," which hinders the crumbling of wealth through the division of inheritance - but that doubtless, on the other side, carries with it the danger of serious negative social repercussions [schwerer sittlicher Schdden].15 One can calculate that, in Germany, with about 50 million persons (comprising 11 million families), about 10 million of them possess passbooks for savings accounts, about 2.5 to 4 million receive interest from capital in some form, and of these about 1.5 to 2 million receive that interest in the form of interest paid on securities or "dividends."

We have already referred to this second major form in which tribute is paid to "capital": the "dividend." We must look at it somewhat more closely. Stock certificates and the certificates of value similar to them (i.e., shares in mining companies - the so-called "Kuxe"; shares in shipping firms - the so-called "Schiffsparten," etc.) have a different character than the previously-mentioned "obligations," which represent the rights held by creditors. [Stock and other certificates] represent share-rights in an enterprise (a railroad, a factory, etc.). Historically, what occurred first was, for example, that the "company" 16 that jointly owned a mine itself also took charge of excavating the mineral ore through collective work; or that the shipowners, to whom a ship belonged, all (or at least in part) personally made the ship voyage. Later, as ownership of a large vessel or the systematic working of a mine came to require significant additional "resources" for that end,

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the property-owning group gradually separated off from the working group (today: hired wage-workers). Today, decisions about the affairs of a firm are made by the band of those who possess shares; each [share- holding] individual receives from them, proportionately according to his shares, whatever is divided up as a "yield" after the firm's income has covered wages and the other needs of the mining company. And if income does not cover expenses, each [shareholder] must propor- tionally pay "supplementary payments"17 [associated with the Kuxen] or else give up their share in favor of someone else.18

The situation is different withjoint-stock companies, a form of associ- ation among capitalists that was first used to a large extent in Germany for the building and running of railroads; subsequently, it has been used for enterprises of all sorts. The associate, the "stock-holder" makes only a specific, determined contribution as his portion, usually in the form of cash; he is thus not required, in the case of losses, to make additional payments as is the case with companies [as discussed above]. The sum of these contributions is then used by the directorate of the company - itself normally elected by the "general meeting" of the stockholders - in order to, for example, build a railroad, or purchase a factory, etc. Such an entity is then run by the directorate on behalf of the account of the stockholders. An alternative is for one of the associates of a newly-founded company, and who has heretofore been running the factory [or railroad, etc.], to have it transferred over to him, after a monetary estimate has been agreed upon as an "invest- ment." And this person [who purchases the offshoot enterprise] receives a specific portion of stock-shares as part of the agreement, while the others invest money for their stock-shares [in the new company]. If the new company needs still more money, and if it does not wish to draw in additional new stockholders - and thus give out "new issues" [of stock] - then it must take on debts. It can do so, if it gives out interest-bearing "obligations": bonds of debt. An inexperienced person can easily con- fuse the stock-shares with these latter, the bonds. And, outwardly, the "stock shares" also seem like a debt bond, for the former do speak of a monetary contribution (for example, of 1,000 DM). But that does not mean, as it does with the obligations, that the stockholder has to demand this 1,000 marks from anyone, as their creditor; rather, it means far more that he has contributed just so much in money, or in other "investments," for the company; or that he has paid in that much in cash; or that, for example, the factory in which he has invested, is carried in his account for that amount. All he has to demand, so long as the company continues to exist, is only his portion of its earnings,

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the "dividend" - and this, naturally, only if the company makes a profit (that is, after the drawing up of its final financial account, its "balance," its wealth has increased. For the rest, he has a proportional share in its wealth and thus receives this share, if the company is dissolved - or "liquidated" - which can bring more or less than this 1,000 marks [in the above example], or nothing at all, depending upon whether the company had losses or gains up until then or whether it had nothing left (after payment of the debts it had incurred), or a lesser sum remain- ing than the unpaid debts. For, just as with the individual businessman when he gives up his business, wealth only remains left over after the business owner has paid off his creditors; so in a similar fashion, the society of stockholders must first satisfy their creditors before they retain anything for themselves. One therefore also calls the debt bonds of joint-stock companies "preferences" - that is, rights that precede others - because it is understood that the rights of creditors (naturally) come first, followed by those of the stockholders. In order that some- thing remain left for the creditors, joint-stock companies are forbidden by law from decreasing a [company's] wealth, by a process of dividing up presumed earnings among the existing stockholders, beneath the sum of the "founding capital" - that is, the sum of [the company's] value - that it had attained by the payments and investments of the stockholders. If 100 stock-shares are each given out for 1,000 DM, that means that at least a value of 1,000 DM in money or in other invest- ments was collected for each stock-share, and all together at least 100,000 DM. When one therefore draws up the "balance-statement"- when one calculates together the monetary value of the property of the company, for example, the land on which the factory is built, and the machines, etc.; the finished goods on hand, the orders [for goods], amounts of ready cash the company has, etc. - making up the "assets" - and then deducts the "liabilities," there must be a sum total of assets over liabilities of at least 100,000 DM; otherwise, the company has suffered losses. And it is only when there is a [company] wealth of more than 100,000 DM, that this surplus can be divided up as a "dividend." 19

In a company's financial statements ("balance-sheet"), it is easy to act against the prescriptions of the law through too high an evaluation of [a company's] wealth and to arouse the deceptive appearance of dis- guising the [actual quantity of] "founding capital" in order that a dividend be distributed illegally, even when no profit was made; the stocks would then appear to be of high value and purchasers would be paying an overly-high price for them.20 It more often occurred twenty

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years ago, in the "Founding Era" [i.e., "Griinderzeit" of the German Empire, 1871 and after], that the "founders" - that is, the first stock- holders - if these were shaky banking firms who gladly wished their stocks to be grabbed up by the public at more than their value, paid too much for the factories, etc. that their company was purchasing, be- cause they conspired "under the table" with the previous owners. The "impersonal" character of capital - which was operating even here -

mitigated against all of this, however. The individual stockholder could [to be sure] not have a voice in the management of the business; if a factory, a mine, etc. was being operated by a joint-stock company, he had no contact with the workers, and they knew him just as little as he knew them. He did not get to see the company's books, but only heard reports by the company management at the general meeting of stock- holders. The majority of stockholders remained at ease and did not even appear at the general meetings.

The shares in the company are (normally) handed over by a simple transfer of papers (the stock certificate) and thus pass from hand to hand. The stockholders do not know each other. And yet they are co-owners of the same enterprise, and it is on behalf of these changing stockholders that thousands of workers (whom the owners will never encounter in their lives) are under normal circumstances employed. And these individuals, the actual entrepreneurs - and whose represen- tative is only the "director of the board" - have as good as no influence over the worker's condition; and without being in any way especially conscienceless men, they scarcely feel responsible for these workers in any case. The number of enterprises of this form is still continually growing and, for large-scale firms that need large resources, they are as a rule wholly indispensable; for the concentration of wealth in a single pair of hands, as in the case of [the firms of] Krupp and Stumm, is a rare exception. The resources for enterprises of such a magnitude must normally be raised from the investments of a great number of people - and, from people who are not at all in a situation where they dedicate their personal participation to the enterprise, and would in fact under- stand nothing at all of it. These individuals only have an interest in receiving a "tribute" in the form of dividends. And once again one must here refrain from believing that the owners of stock shares are perhaps necessarily to be found among the group of "great capitalists." In England, workers also own stock shares; among us, and with our far lesser situation of wealth, the danger precisely arises that too many stocks shares will fall into the hands of people who do not have too much to lose, but who are attracted by the occasional high dividends

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that they read, heard about, or saw advertised - and who think that because there is, for example, "1,000 DM" written on the stock share that that amount will at some point come back to them, and that they will receive it from someone, somewhere.

Those are the major forms of the special wares that form the object of the market-commerce on the "securities exchanges." One sees that they are securitized claims,21 and the modern organization of the economy leads to the fact that an increasing number of these are produced and "put into circulation." The engineer of an electricity plant, for example, helps by his very work to produce the dividend payment that a signing clerk22 at a paper mill receives, as a stockholder [in the electricity company]; and [that engineer] himself perhaps owns stockshares of this paper mill, so that (in return) the work of the latter [i.e., the clerk] is owed to him; and both perhaps own state debt certificates and therefore levy a tax upon the totality of taxpayers, including the "prop- ertyless" who do not, for their part, have any such payments [Tribute] coming into their hands. We also would find, under present economic conditions, just such a mutual owing-of-payments [Tributpflichtigkeit] in operation if we imagine to ourselves that all possess property in an equal fashion, or something approaching equal levels; then, everyone would be levying a tax on everyone else [dann steuerte alle an alle]; [by contrast], now all levy a tax on only a part [of society], on the proper- tied. In itself, a mutual owing-of-payments is not necessarily a sign that a few "lords of tributes" confront a mass of those bound to pay tributes. The existence of interest payments and of dividends in itself is far more only the further outgrowth of the modern "exchange econo- my" ["Verkehrswirtschaft"], erected upon the peculiar fact that each

person survives on the basis of the output [Ertrag] of the work done by others; and the individual works as well for the needs of others. The great estate owners of the age of Charlemagne [ca. 800 A.D.] who had everything they needed (and their subjects needed), without exception, produced on their estates by the craftsmen belonging to them - every- thing from spun yarn, to woven cloth, to iron tools, etc. - were still able to say, "We, the inhabitants of this estate, live from the output of our own work, gained from our own ground, and we live only from that and not from any other." Taken together with his workers, the modern owner of an estate - even the largest of them - can no longer assert the same thing: outsiders build barns and dwellings out of material brought from outside; the agricultural tools are purchased by them; and even the soil itself is no longer the naturally-developed earth, but enriched by imported, artificial types of dung, potash, phosphates,

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etc., all products of outside work. This work performed outside [the estate] must be paid for, and is paid for; and this occurs, under present conditions, in the form of a "capital-annuity," of the interest that the creditor of the mortgage (from whom the money was borrowed) receives. That is often, for example, the savings bank, which loans out the money of "smaller people" - money that it manages for them and for which it pays them interest - against the security of a piece of property; and thus the estate-owner pays interest to the proletarian. To be sure, he mostly pays interest to citizens resident in towns. He harvests more grain from his estate, but he no longer sits atop free sod; he is bound to and entangled with the economic community of the world outside. And the factory owner or industrialist is [bound and entangled] to a far greater extent; [for he] lets his workers process and work over raw materials that outsiders have worked upon, and for the purchase of which he has often had to borrow money. He is then dependent upon others being capable of needing [his products] and desiring to pay him a high enough price [for them]. It is only human for him to think that the product is his product, the earnings are his earnings, the factory is his factory - and, since he is a free man, no one, not even the state, has actually a right to tell him what to do. In truth, however, it is the community whose work he needs, for "his" product only contains a miniscule portion of the value "created" by him. And, once again, it is the community, whose need for the goods of the sort that he brings to market is the directive, that assigns him the location in the production process that he takes up, [a directive] to which he must listen if he wants to "earn" something.

A socialist organization would bind all individuals by a single thread and direct these threads into the hands of a central management, which would then, according to its degree of knowledge, direct each individual to the location where it believed that that individual could most purpose- fully be employed. Today's [economic] structure binds each individual to countless others via uncountable threads. Each person tugs on the network of threads, in order to arrive at a position where he wishes to be and where he believes his place to be, but even if he were a giant, and had many threads in his own hand, he would far more be tugged by others over to a place that is actually open for him.

But let us return to our theme.

Needs continually arise anew for states, communities, landed property holders, industrial- or railroad corporations to be able to "accept"

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money from the sale of interest-bearing or dividend-dispensing papers. On the other hand, numerous persons are, on an ongoing basis, in a position to be able to "invest" their money in such papers. An ever- greater portion of [a country's] national wealth is brought into such "tributary instruments,"23 placing it into circulation. Germany's na- tional wealth - that is, the sum of the properties in Germany that yield any monetary return - is calculated at around 180 billion DM, and the foregoing estimations [i.e., laid out in this article] make it probable that three-sevenths (3/7) of it consists of interest-bearing or dividend- dispensing rights, mortgages, stocks, or obligations of all sorts. Each year about 1 billion (1,000 million) marks are saved anew and made available for "investment." For more than one-half of this giant con- tribution - namely, all of those who have purchased some form of the value-bearing paper described above - the securities exchange consti- tutes the market in which they are offered and sold, just as foodstuffs are sold at food markets. One can see at once the absolute indispens- ability of this market and its enormous size.

How, however, is this market - [comprising] the exchanges for products, for commercial bills of exchange, for securities - organized, at least in its outward form? The oldest of exchanges, in the Netherlands in the fifteenth century, were simply international gatherings of merchants who had travelled there and sold their goods. Gradually, however, the journeys of merchants ceased, because they constituted a wasteful expenditure of time. Instead, one sent one's selling or purchase orders to the location of the exchanges by mail, as is still done today, and there developed a class of merchants who made a profession out of handling these "orders." And, to aid their own process of calculating and reckoning up of accounts, these merchants also traded on the exchange. This was a corporation or estate [Stand] of professional exchange-traders. In fact, these persons united in their hands the various business activities taking place on the exchange. This occurred simply because they alone knew "the market," daily having to deal with, year in and year out and know - or, at least be presumed to know - what goods and value-bearing papers were likely to be especially in demand, or available at a cheap price. This occurred not because the laws [of that region] conferred on them special privileges, but they had a position that was analogous to a monopoly because any other persons who came to the exchange, and who were allowed to participate in the trade taking place there (for example, in Paris and Hamburg, the exchange is in fact open to all persons, without exception), were [none- theless] only able, with the greatest of difficulty, to derive any benefit

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from taking part - or even to become informed (from the outside as it were) - of the sort of business decisions taking place there. Far more often, such [outsiders] felt themselves to be "abandoned by God" [as the saying went]. For such a gigantic market is, understandably, just that much more complicated than a typical "weekend farmers' market" as it is larger than one. In general, anyone who is not professionally an exchange-trader is all the more forced to turn to an exchange-trader when he wishes to sell or purchase - in order that such a person act as a "commissioner" for a fee to transact the business. There are various ways in which the exchange-trader can let himself be paid - and we will discuss that matter in the second of these pamphlets.

The oldest of the exchanges were gatherings on an open, occasionally enclosed, plaza. Later most, and now probably all, of these gatherings take place in great closed halls. From early on, it was naturally necessary that there be a body or instrument that could exercise a "policing" over the market. It is just the same now, for everywhere there are "commissioners" appointed who uphold the basic order of the place. In addition, however, the older market- and exchange-organizations also had a member - and the overwhelming majority of exchanges, including the German ones, still have it - whose special purpose it was to facilitate the absolutely most expeditious conclusion of business: the "broker." The difference between them and the "commissioners" con- sisted - and we will discuss in the following pamphlet, how that has changed - is the following: the commissioner concluded a piece of business as an agent for himself, and then balanced his account with the person who had originally "commisioned" him - to whom he turned over the goods, in exchange for the expenditure plus a "com- mission" ["Provision"] (that, for example, amounted to 1, or 0.5, or 0.16 of the amount). Such a one is the person through whose mediation those outside the exchanges could participate in the trade that took place therein. The broker, by contrast, is simply a mediator, a middle- man - and normally one who operates, at the location of the exchange itself, only between those who are already present on the exchange. He received from the exchange-traders - whether they were acting for themselves, or as commissioners for someone outside wishing to transact some business - the task of locating for him someone who (for example) wished to acquire 100 shares of a specific company or 100 metric tons of wheat, and to pay at least "X" marks for that. His task was to find such a person and, when he had found them, to carry to that person the offer (i.e., what "was offered") and to take back the agreement that it was accepted. He gave to each of the parties a similarly-worded

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receipt (the so-called "deal-note"24) about the business that had just taken place25 - and which he had at first entered into a notebook. And he then received - normally one-half from each party - the usual "carrying-charge" ["Courtage"] for his exertions: for example, 1 or 1/2 etc. of a thousandth of the amount paid. According to the conception lying behind the creation of such a position, the broker is the "instru- ment" that brings together the outstretched hands of the supplier and the purchaser so they can grasp each other. His indispensability rests upon the fact that, without him, and given the large number of persons literally at the exchange - and, at the largest exchanges, more than a thousand are there - the probability that a prospective buyer and seller would meet each other is very small, or at least would be tremendously time-consuming. And the monetary value of time, for commercial transactions, has grown enormously over the centuries. The individual broker mostly carries out - and we will see this in detail shortly - transactions in a single, or several specific, entities (for example, in stocks of the Discount Company of Berlin [Berliner Diskonto26- Gesellschaft]); so that, when one wishes to do some business in this item, one knows which broker one has to turn to for that. It is in the hands of a person in that position, so that everything relating to supply and demand comes together "in the marketplace."

In this way the exchanges, like the "market," see to it that buyers and sellers are able to find each other. But that is not the sole basis of their meaning or significance. The farmer also travels to the market with the products he brings to the small rural town nearby; but he does not, however, take them directly to the doors of the individual houses that could possibly use them. And he doesn't do that for more reasons than simply the tremendous loss of time that would be involved. He above all brings them to the market because he wishes to obtain there the highest-possible price. It is there that the seller encounters all, or at least most, buyers, and they meet together and both sides can equally get an overall sense of whether any other of the individuals present can offer more favorable terms than the ones the person he was dealing with initially was offering. In general, as a result of the "competition" of the prospective buyers [Reflektanten] with each other, goods of the same sort and quality will, with only minor discrepancies, be bought and sold for approximately the same price. The exchanges serve the same function, except that there, for an entity of a specific type and quality, the price that results at any given moment - the "rate-on-the- exchange" 27 for the day or for the hour - has an incomparably greater significance and impact. Dealers and agricultural managers from the

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whole of eastern Germany look at those pages of the newspapers that publish each day the prices that are being paid on the Berlin commodities exchanges for grain, alcohol, etc. The grain dealer calcu- lates in the following manner: the price of grain per ton (1,000 kgm.) is "X" marks; I can therefore expect to be able to sell grain for approx- imately that much. Transportation [of grain] to Berlin costs "Y" marks; if I wish to earn "Z" marks per ton, I can accordingly expect to pay my suppliers at most X minus Y minus Z marks. He therefore says to the agricultural manager who offers grain to him: I am prepared to pay "so-and-so many marks (namely, at least Y + Z) at today's rate for grain on the Berlin exchange." It is in this manner that the greatest portion of eastern-German grain harvests are sold, as well as that almost all the alcohol distilled there is purchased from its producers. For them all, this "rate-on-the-exchange" and its level is a matter of life and death. If the exchanges did not exist, they would have no possibility at all of controlling, even approximately, how much profit the grain dealers would be making off the grain they take from the managers; they would be wholly left to the whims of the former.28

[In similar fashion], the holders of valuable "paper" look at the pages of the newspapers that contain the rates for state-backed securities, for stocks, etc. to ascertain how high a value is being set on the exchanges for what they own. Such a person prefers to purchase papers that are "able-to-be-traded" on the exchanges and largely only loans his money indirectly [and not directly] to any economically-sound businessman or agricultural manager who needs it and then collects interest on that money. In part this is due to the fact that it is wholly chance whether such [an investor] will actually find such [a recipient of an investment]. But the investor does so, above all else, because he would not be able to obtain that investment back at any given moment, but must wait until the debt actually falls due. (It is of course possible that the investor can "cede over" that debt-note to someone else who is willing to pay him money for it - but it is questionable if he can find such a person, and what the person would be willing to pay for the debt.) With valuable paper that is regularly traded on the exchange, however, he is secure in [being able] to find, at each moment when he would need money, a purchaser at the exchange, willing to pay approximately the price that he can see listed in the newspaper. The numbers of the exchange listings are for him a thermometer by which he can see at what level he can peg the wealth he owns.

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The tremendous importance that the exchanges have acquired for the national economy - having begun to become, and continuing to be so even more, its regulators and organizers - rests upon the above circum- stances. And if the present-day social order is to continue to exist in any form roughly similar to the one we now know, it is an importance that they must continue to have in the future. But at the same time, we can also see how tremendously important it is that the creating and determining of prices (of "rates") take place in a secure and correct manner. All exchanges have set up institutions or mechanisms to communicate the prices that have been paid for the goods and valuable papers that were traded on them on individual days. Almost all -

especially the largest German exchange, the Berlin exchange - publish an official "rate-newsletter"29 with the uniform assistance, everywhere, of the brokers who have actually reported the business that has been concluded; the content of this newsletter is what is then printed in the newspapers. In the second part to this article, we will see in more detail how these "rates" ["Kurse"] come to exist, in what way this plays out on the exchanges, and through which persons the commercial trans- actions (whose final result is the "rates") occur.

The long series of numbers at the back of newspapers, which even readers who are neither capitalists nor businessmem cannot fail to notice, are not only of importance for the capitalists and businessmen. Rather, the manner in which the dry numbers listed there change in the course of a year signifies the flourishing and decline of whole branches of production, upon whose situation hangs the happiness or misery of thousands.

We have seen: in the main, the essential foundations and the institutions of the exchanges must be the same, because the purpose of the ex- changes is everywhere the same.

Despite this fundamental similarity in essential purposes, however, the organization of the exchanges in different lands exhibit very noticeable differences, the major forms of which we now wish to review briefly.

The largest English and American exchanges - not all, but precisely the most important ones - have the character of closed clubs of professional exchange-traders. Exchanges for bonds and for commodities are, as a rule, separated, and these types themselves are often divided into further specialized exchanges. Each forms itself as a society that administers itself, and which as a rule decides itself whom it will accept

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as a member. The individual seats on the exchanges are - as was general, and in part still is, in the churches in Germany - inheritable and cost very large sums; only those who have acquired a seat and who are accepted into the society can take part directly in the exchange's commerce. All others who wish to transact business there must make use of those who were admitted [to the exchange] as a "commissioner" - [which, in English, is termed] a broker.30

In order to join such a society of exchange-traders, one must (however) not only have acquired a seat; as a rule, the society also requires a significant "security-deposit" (a "caution" [Kaution]), in order that whoever does business with those entering into the society is also assured that he will be able to receive payment on the debts owed to him.31 The exchange is thus clearly and openly organized as a monopoly of the rich; the professional traders have empowered themselves alone, in the fashion of a guild, to fix the business practices that are followed - that is, the conditions under which, in all cases, any item of business is considered as "closed" or "sealed" on the exchange. Neither the state, nor anyone else (outside the exchange) for that matter, has any say in that matter. They form a sort of "aristocracy of money" in the matter of commerce on the exchanges.

Seemingly, the greatest French bonds-exchange, the Parisian, appears to present the sharpest contrast to the above organization. [At Paris] there exists no closed society of exchange-traders; each and everyone has access to it, as to an open market - if someone gives him credit! - and can take part in commercial transactions. Occasionally one sees workers in their blue shirts re-selling, at the exchange, the titles to the state treasury notes they have accumulated. Like the [French] state, commerce on the exchange is outwardly organized in a democratic fashion. But, that has its limits. For the French bonds-exchange has been for a long time now a political institution, which the state uses for its political goals - and into whose organization it, accordingly, involves itself at will. Thus, we find on the seven greatest French bonds- exchanges, and especially the Parisian, an institution called the "par- quet" [parquet - literally, floor of the exchange]; that is, a society of "brokers," called "transaction agents" ["Agents de change"], who are allowed by the French governmental ministry to enter into that privileged "society." According to French law, these brokers alone have the right to transact business on the exchange for the usual fee (the "Courtage"). Anyone who needs a broker, must use one of them and - as already noted above - in nine out of ten cases, when anyone wants

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to do business and find someone quickly to do it with, must make use of a broker. They therefore have the monopoly on transacting business, and are thus certain of having an income of very large proportions. For the entire, tremendous commerce of the Parisian exchange, there are only sixty such "commissioned brokers." And since such a broker has the right, when he retires, to recommend his own replacement - and thereby, to hand over his concession (just as apothecaries do in Ger- many) - these positions are in fact able to be sold. At present, one has to pay about 2 million francs for such a post. Each broker must, in addition, deposit a "caution" of 250,000 francs. These brokers-by- monopoly are thus millionaires.32 It is therefore through their hands that a massive portion - about a half - of all business of the bonds- exchange flows. Their site is within a room, surrounded by barriers, and the great difference between them and the great English and American exchanges is that here [in Paris] it is not the whole commerce of the exchange, but to a certain degree only its innermost core, the final link tying together buyer and seller, that is the monopoly of a privileged group of persons.

The German exchanges appear quite different from each other. If we take the largest of them - namely, the Berlin, the Hamburg, and the Frankfurt exchanges - we will first find that they are exchanges for all types of business - from securities to products - concentrated and assembled in the same place; this is something that is not usually the case in France and England. Within the exchange building, naturally, the individual "markets" set themselves apart from one another. Thus, in Berlin, commerce in products is to be found in the furthest back of the three great rooms of the exchange-hall; and, within the exchange for bonds, each of the great types of "valued-paper" - namely, Russian banknotes, "Diskonto-Kommandit"-stocks, etc. - each have their own particular place where their trading is usually completed. When viewed more closely, the Hamburg exchange seems very different from the Prussian [i.e., Berlin] exchange. [In essence], the Hamburg exchange is a market with a roof over it. "The whole of the honorable male public"33 can attend it; and anyone who simply comes across it on their way [through Hamburg] can in fact walk through it, as a passage- way to their destination. Seamen and foreign merchants travelling through [the city] visit it and settle shipping or other business there. Alongside the professional exchange-traders who carry on business either for themselves or as commissioners for others, we also find, as regular visitors, the brokers. But there does not exist the sort of privileged middleman as are the Parisian "agents." [At the Hamburg

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exchange], it is open to everyone to practice the trade of a broker: he only has to hold himself to the general duties of such a position (i.e., keeping certain kinds of records, in which he notes the business that he has transacted, issuing final "deal-notes," as mentioned above, etc.). Thus here the principle of a "free market" is put into practice with thoroughgoing consistency. The Chamber of Commerce, a representa- tive group of the city's merchants set up by the state, only controls the outward supervision [of the exchange].

Now the Prussian exchanges - especially the Berlin exchange - consti- tute a unique sort of "hybrid" standing somewhere between the closed exchange-corporations of England and America on the one hand, and the condition in Hamburg, on the other. The Prussian exchanges are given a concession by the state and stand under the overall supervision of the Chambers of Commerce. [The mechanism is through] those who are elected by the larger merchants to be their representatives; in Berlin, it is the so-called "senior commissioners of the merchants" ["Aeltesten der Kaufmannschaft"], who are similar [to these large mer- chant representatives]. These groups make the final judgment about the practices that are decisive for carrying out business and (in the main) they appoint the "organs" of the exchange - the commissioners and the deputies - whose responsibility it is to maintain overall outward order on the exchanges, together with courts of adjudication34 to decide such disputes as are voluntarily brought before them. (In certain contro- versial matters, that are not of further interest to us here, the parties in the dispute are bound, according to the conditions established for doing business on the exchange, to submit themselves to the decisions of just such a court of adjudication.) The exchange is not a closed society, but on the other hand, not everyone has admittance to it; rather, to gain that admittance, one needs an "entry-ticket." But, such cards are issued for a small fee to any native [Einheimischen, i.e., Prussian-by-birth] who legitimately shows that he wishes to visit the exchange for the purpose of trading, and who is recommended for acceptance by a member of the exchange - an invitation that in no way burdens the person who gives it with any responsibilities, and which is therefore obtainable by anyone, without exception. From time to time, people who cause a disturbance, insult exchange members, spread false rumors, or are incapable of paying debts are excluded. Thus, a discipline as strict and harsh as the English one does not exist on German exchanges. Even those who have at one point been bank- rupt are, after a time, given readmittance. The representatives govern- ing the exchange have few instruments of authority in their hands.

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Apart from temporary exclusion [from the exchange], there are no other penalties available against traders.35

We also find on the Prussian exchanges, alongside the professional traders, representatives of the banking houses and "commissioned traders," the brokers. In relation to them, the Berlin exchange also occupies a middle-position, in this case between that of the "agents granted concessions" (in Paris) and the total deregulation36 of the brokers' trade (in Hamburg). Each and everyone can carry on the business of being a broker and there exist [in Berlin] numerous "free" brokers, whose business stands under just as little control as it does in Hamburg. But a special position is occupied by the brokers who are "sworn in" by the state government, after nomination by the author- ities of the exchange. These have no sort of privilege and are specifi- cally not - as in Paris - allowed to have exclusive right to transacting business. One can choose [as a customer] to turn to either a "sworn-in" broker or to one who is not. Setting aside some relatively unimportant privileges in the matter of compulsory sales, etc., a privileged position on the securities exchange only exists for the sworn-in-broker - and only insofar as, in the process of determining the [published] trading rates for the day in individual securities, they alone may be consulted. In principle - although not always in practice - only the trading agreements that they have handled will be taken into account in listing and publishing the prices that were offered, asked, and paid [for secur- ities that day]. We will see further on [i.e., in part two of this article] that someone concluding a piece of business [on the exchange] will in many cases have an interest in that set of deals being noted when the prices on the exchange are determined. That is especially the case, for example, for the "commissioned traders," whose clients decide, from the outside and by means of the newspapers, whether the trader has calculated the correct price-cost; that is, whether it accords with the price noted and published by the exchange itself. Such prospective buyers are, as a rule (although as we will see later, not in all types of business), more or less required to rely upon the brokers who are "sworn-in." In addition, the latter also have some duties toward the other brokers: they are not supposed to transact any business deals of their own, nor to authenticate any business [for any clients of their own].37

In Germany, therefore, the sort of wealth that a French "agent" must have is not required for practicing a broker's trade. On the contrary, not frequently merchants who have become bankrupt are appointed as

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brokers, in order to "work themselves back up" through that position. In much the same way, one must stop short of thinking that with us the group of professional exchange-traders is generally an estate [Stand] composed of rich people. One can actually say, by contrast, that the differences in wealth among the exchange traders are some of the greatest that there can be in any single estate. On this particular point, it is a highly "mixed" society - extending from representatives of the greatest banks, who have capital resources of 50 million or more marks behind them, to the most deplorably petty dealer38 who ekes out his existence from the smallest swings in prices of the things on which he speculates. Great wealth is, from time to time, "earned" on the exchange; most of that, to be sure, occuring in already large possessions that gradually grow, [although] under nerve-wracking tension that shapes the lives of speculators in ways that are far more unenviable than many may dream to themselves. But one should not believe that the exchange- trader somehow carries in his satchel the "magic wand" that leads to wealth. As a consequence, the estate [Stand] of exchange-traders in Germany does not, because of the tremendous differences noted above, in any way constitute the sort of (relatively) unified class [Klasse] that members of the great English exchange corporations do. In more than one respect, that very fact is a real detriment for us.

Someone standing outside the exchange [and looking in] is readily inclined, in judging [what goes on there] to place the greatest emphasis on the observation that, not infrequently, "winnings" seem to be sought almost in the fashion of a lottery - and thus, that such winnings seem (relatively speaking) to be "effortless." Together with that, the observa- tion [is also made] that, on the other hand, savings from long years of hard work are lost in "playing the exchange," to which people are seduced by "agents" and advertisements of disreputable people in the commission-houses (people who have not the least competence to participate, professionally, in the exchange's transaction themselves). Quite justifiably, the recommendations that the Commission (The Exchange Investigation Commission) has gathered together over the last two years in its investigation of conditions at the exchanges aims to subject misleading behavior - leading to economically irrational and dangerous "gambling on the exchanges," in the manner of a profiteer - to legal punishments, and to declare such business deals to be invalid. Insofar as one can, through such regulations, effectively prevent the exploitation of private individuals in the general public and prevent the participation of unprofessional individuals who are ignorant of what goes on in exchange trading, then these means must be utilized - and

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we will discuss some of the specific regulations in the following part of this article. To be sure, however, one must be careful not to take the person shouting the loudest as always being the most trustworthy critic; all the less so because certain political circles that join in at the front of any campaign against the exchanges know only too well what is going on and do not hesitate to profit from the "winnings" being gained [on the exchange], even as they themselves drag their feet at making good on their losses. And, unfortunately, one ought not to be too optimistic about the prospect that the public as a whole will itself resist taking part in speculations.

But it must above all be remembered that it is impossible that the essential viewpoint from which one views the exchanges, and the damage done by the exchanges politically and socio-politically, be that of those [customers] who want their possessions to be guaranteed to them under all circumstances, who do not wish "to be big shots" and [yet] who [nonetheless] wish to gamble all of their wealth on the exchange. Rather, given the wholly indispensable function that the exchanges play in economic life, the following questions are far more important: (1) Despite all their excesses, do the exchanges today in general fulfill the economic functions that fall to them in the national economy? (We will consider this question more closely in part two of this article, to follow.) Here we will consider the prior question, namely: (2) Whether the groups of persons, in whose hands these functions have been laid according to our present way of organizing the exchanges, are, given the character of those groups, capable of giving such guarantees? This question is far more important than lamentations over individual deceitful practitioners. We will see (in Part Two) that there are no forms of business, or manipulations on the exchange that - by their form alone - would be in themselves "real" or "unreal," but [that there are] only real or unreal businessmen. It is all a matter of the persons involved. Therefore, there is no more decisive regulation to be used against such abuses than the introduction of a tribunal [Ehrengerichtes - literally, a "court of honor"], composed of members of the professional group [aus Standesgenossen] itself, as the Exchange-Investigation Commission has suggested. [The tribunal] would examine the business practices of those members of the group, when complaints are lodged, and be empowered to exact penalties for violating a code of conduct [Ehrenstrafen] - and, eventually, exclusion from the exchange itself. But: an effective tribunal presumes that there is already present a common and analogous conception of honor within the estate [Stand] itself. Without a doubt, that is not the situation with us [i.e., in Germany]

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and cannot be, given the structure of our exchanges, which open their doors to everyone without distinction. Above all, there is not even a rough similarity between persons who come to the exchanges, given their [unequal] financial situations and their wholly different outlooks on things.39

The London exchange is organized "plutocratically" in that, as we saw, a significant amount of wealth and security deposits are required as preconditions for admittance to business on the exchange. But one should not think that, because our [German] exchanges permit those who are approaching pennilessness entrance into our exchanges, the dominance of large-scale capital on our exchanges is somehow dimin- ished. That is the farthest possible from being the case. Quite to the contrary, that [dominance] simply exercises itself among us in a concealed form - and, thereby with a far lesser pressure for a feeling of responsibility. The big capitalist, when criticized, points to the "dis- reputable elements" who take part in trading on the exchanges. Now [one may say that] these "elements" are certainly not only found among the less-wealthy segments of the exchange-traders, for nothing goes less hand-in-hand with an honorable attitude than the size of one's purse. One thing is certain: today only "strong hands" - that is, the large-scale capital-holders - are able to perceive the functions that commerce on the exchanges serves. The much-criticized concentration of large capital sums in the hands of the banks is, within certain limits, absolutely indispensable for the present-day structure of our national economy. The small speculator who seeks to make earnings out of small differences in prices, and who makes the exchange into a place where for the first time he goes chasing after the sort of wealth that he does not possess, is not fulfilling any aim of the national economy as a whole. Whatever might fall to him as earnings, the national economy [also] pays, in wholly unnecessary fashion, to a superfluous parasite as well. We will see [i.e., in part two] to what great dangers large capitalists operating on the exchanges can at times subject the wealth or posses- sions of the populace, and [we will also discuss] whether something can perhaps be done to limit that danger, and what that might be. But while the participation [of the large-scale capital owner] is wholly indispen- sable and while any national economy that possesses no concentrated forces of capital simply falls into dependency upon foreign capitalists, the small speculator on the exchanges is a person who would be better served by directing his work toward virtually any other useful activity. He above all hinders the formation of a class of exchange traders who would be more homogeneous in their preparatory training, their prac-

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tical education, and their position [on the exchanges] - a class that would be in a position to form a [self-instituted] "tribunal" that could have the energy to educate effectively [the traders] and have its judg- ments respected. The pronouncements of a tribunal that is composed out of the mishmash that now constitutes our "public" on the exchanges will never have its pronouncements respected; the precondition for that, a unified "concept of honor," is lacking. My own personal opinion,40 that I state with full reservations (because I think people can rightly question it), is therefore that honorableness and honesty is the strength of any social organization. On our, and all other, exchanges, the dominant force is in fact the greater quantity of money [to be gained], and it cannot be otherwise. Therefore, one may wish to give the playing field over to it, simply in terms of formal organization, and make entrance into the exchanges more difficult by requiring stronger mone- tary guarantees; one would not strengthen the position of the large capitalists thereby, but simply make possible for the first time a control over and the emergence of a unified view of what are or are not "honorable business practices" on the exchanges. Those who take the exchange traders to be a club of conspirators, [plotting to take away] the fruits of other people's labor, will shake their heads in disbelief at this idea. One must say to those people: you do not know them [i.e., the traders]. It is a matter of creating the possibility of bringing the elements of undoubted honesty or honorableness that this estate, like every other, has in itself more into play; and it can be debated whether an organiza- tion of the exchanges more along the lines of the English is a suitable means to that end. I am at this time inclined to answer in the affirmative. The exchange is the monopoly of the rich, and nothing is more foolish than to disguise this fact by admitting propertyless, and therefore powerless, speculators and in that way to allow large capital holders to shift responsibility away from themselves and onto those others.41

One can hope that, through an energetic supervision by the state, one can arrive at similar ends. The possibility of a seemingly unlimited intervention by the Minister for Commerce is now made available, in Prussia, by law. It is therefore all a matter of how the supervision ought to be exercised. In Austria there exists a state commissar42 who, up until now, has achieved virtually nothing. If an exchange-tribunal is established, it would be preferable that it have a state commissar appointed as a public prosecutor after the fashion of a state prosecutor. To place the jurisdiction itself in the hands of the members of the estate [Stand - i.e., the group of exchange traders] itself would, by contrast, probably be a mistake. If one cannot expect the highest possible con-

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ception of business honesty within the estate itself, then the whole institution becomes a comedy and would better remain non-existent. It has furthermore been suggested that the various leading organs of the exchanges - the "Elders" [4eltesten], the "commissioners of the exchange," etc. - all have state commissioners appointed to supervise their dealings. In this case, it would be less a matter of imposing state controls than of placing state requests [directly before the exchanges] and being able to negotiate with the merchant groups about them. In Germany, such a procedure has not yet been closed off, or been made impossible. But even with all of the above suggestions, a really decisive step has not been taken [i.e., toward resolving the exchanges' problems]; and even less so do they amount to a control of commercial business. [Such control] is considered by some people to be easier than it in fact is. [For example], one can station some guards around a food and produce market in order to protect against deceptive labelling or weighing of food, etc. It is difficult to say, however, what one wants to achieve by sending more numerous or more intelligent state commis- sioners to the exchanges to be on the alert against "junk securities"43 being displayed at trading hours there. One must be clear about one thing: a general, overall supervision of the exchanges remains an empty word. It is [really] a question of which specific procedures one can and will control - or, regulate through legislative intervention - and, for example, which sorts of business, or which business between which people, one wants to prevent and can actually prevent.44

Acknowledgments

The translator would like to thank Professor Richard Tilly (Universitat Miinster) for his helpful suggestions for translations of several of the technical terms in Weber's article. The shortcomings that remain are the responsibility of the translator.

Notes

1. First published in the Gottinger Arbeiter-Bibliothek ["The Gottingen Library for Workers"], edited by Friedrich Naumann in 1894. The edition published by Ma- rianne Weber in 1924 designated it by the Roman numeral "I," suggesting that this was the initial part of a two-part article. As the historical introduction makes clear, however, the two articles Weber published in the Gottinger Arbeiter-Bibliothek appeared a significant distance apart (two years) and Weber had reconfigured his plan for the second article considerably by that time. (Translator's note.)

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2. Weber's text does not have a paragraph break here, but rather a dash [-], indicating a shift to a new stage of the topic. (Translator's note.)

3. The German term here is Verleger. (Translator's note.) 4. Weber's text does not have a paragraph break at this point, but again only a dash.

(Translator's note.) 5. Weber's text does not have a paragraph break at this point. (Translator's note.) 6. For example, "To Mr. Smith in London. Against this draft [Wechsel] pay, on July 1,

1895, to Mr. Miiller in Berlin or to order the sum of 100 pounds sterling. Dated, Berlin, April 1, 1895. Schulze."

7. We will deal with the deduction Abziige] ("Diskont") that it is customary to make, and the shifts in the rate of notes of exchange, in the second part [of this article].

8. It can happen that Smith, for whatever reason, does not pay the draft bill [den Wechsel] to Jones, in which case Jones has "recourse" ["Regress"... nimmt] against Miiller, as the latter does against Schulze. Schulze would then be required to pay the expenses and original payment [Kostenersatz und Zahlung] to Miiller, together with interest, and retains, for his part, the money owed to him by his debtor, Smith - who, without sufficient reason, has not paid. In such a case, the effort to settle the business transactions through a commercial bill of exchange has failed; but, this is of course, a rare exception.

9. Weber's text does not have a paragraph break at this point, simply a dash [-]. (Translator's note.)

10. The "circles" were formal administrative units, originating in the early-modern [i.e., 14th-15th century] period of German history, which were largely staffed by the local and regional nobility. In size, they approximated the post-1945 German "lands" [Ldnder] - that is, larger than English or American countries, but smaller than the larger princely territorial states of 18th-19th century Germany (i.e., Prussia, Bavaria, Saxony, etc.). (Translator's note.)

11. To facilitate this, so-called coupons [Kupons] - that is, small-cut paper segments [abschnitte] - are mostly given out, from which someone detaches a portion at each payment period and exchanges it for the interest payment - so that one does not have to produce the bond certificate itself each time.

12. Webster's New World Dictionary notes that the term "consols" was first applied to the British government stock, established in 1751, through the consolidation of various government securities - and hence an abbreviated phrase for "consolidated annuities." The German term was apparently a borrowing from the English. (Translator's note.)

13. Als Bodenzins. (Translator's note.) 14. Zinsbauer. (Translator's note.) 15. In England as well, workers possess interest-bearing papers not infrequently. There

it is the great industrial organizations of the Trade Unions, in combination with the favorable conditions of production found in English industry, and especially the status of the state as a world-dominating sea power, which secure wages for the workers which, under the circumstances, allow the accumulation of wealth.

16. "Gewerken." (Translator's note.) 17. "Zubusse." (Translator's note.) 18. The possession of a share [Kuxes] - which is transferable - is just as risky a matter

for the purse of the shareholder as working underground is for the life of a worker: great yields alternate with the requirement to "pay back."

19. Weber's text does not have a paragraph break at this point, simply a dash [-]. (Translator's note.)

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20. It is therefore an error to believe that the stockholders would at least normally have a significant interest in a correct statement of the company's balance account. Only a part of the stockholders do: those who wish to retain the stocksharesfor the long term as a "capital investment." For others, a dividend falsely set at too high a level brings a double benefit: on the one hand, such a person receives more as an initial part of the company's earnings than he would otherwise receive; and then he still finds buyers who, because of the high dividends paid on the stockshares, purchase them from him at more cost than they would otherwise do.

21. Verbriefte Tributberechtigungen. (Translator's note.) 22. The German term is Prokurist. It refers to an officer of a company authorized to

sign in the company's name - we might today say an "executive secretary" or higher-level clerk who has the power to sign documents. Weber is clearly seeking an example of the sort of emerging new "white collar" middle class who would shortly be studied by Siegfried Kracauer and others as an important new compo- nent of the early 20th century society and economy. (Translator's note.)

23. Tributrechten. (Translator's note.) 24. "Schlussnote." (Translator's note.) 25. Incidentally, it is nonetheless worth mentioning - given the numerous criticisms

that are levelled, with some justification, at speculation on the exchanges - that all the innumerable business deals that are completed are concluded through verbal agreements [miindlich ... vollziehen], and without any regular requirement that a witness be involved. And it almost never occurs that anyone, even the most dubious of speculators, disputes that an agreement occurred, even when that deal meant a considerable loss for him. Anyone who did do so would henceforth be incapable of transacting business on the exchange [v6llig unmiglich aufder Borse], for the foun- dation of its existence is the absolute trustworthiness of an individual's word.

26. "Discounted" bills of exchange are those for which interest is not paid, because it is a bill that does not yet require payment to be made; or, it can be the purchase of a bill of exchange that is not yet due (so, the interest on the bill is also omitted). The Diskonto- (or Disconto-) Gesellschaft was one of the early joint-stock banks that emerged to compete with privately-owned banks. It later merged with the Deutsche Bank in 1929. See Fritz Stern, Gold and Iron: Bismarck, Bleichrider and the Building of the German Empire (NY: Random House; Vintage, 1979), p. 10. (Translator's note.)

27. "Borsenkurs." (Translator's note.) 28. Weber's text does not have a paragraph breat at this point. (Translator's note.) 29. "Kursblatt." (Translator's note.) 30. In New York everyone can, to be sure, enter into the exchange-halls; but, within

those, there is a steep, ampitheater-like arena surrounded by barriers and, within it, only authorized exchange-traders congregate and transact business there. One can approach these individuals and, if one enjoys the credit of one of the exchange- traders, can give him the commission [Auftrag] for a piece of business. No one can enter the rooms of the London bonds-exchange, except the brokers, commissioners, or dealers (i.e., exchange-traders) who have been officially accepted as such.

31. Either wealthy individuals must stand credit for him - as in London, the require- ment is two persons who each have 500 pounds sterling (10,000 marks) - or [he himself] must make a deposit in money or valuable paper. Whoever is unable to fulfill their payment requirements mostly remains excluded from exchange business for the duration; and there seemingly is also stern discipline meted out to those who are guilty of dishonest practices.

32. Although the commerce transacted at Paris is so huge that the 60 commissioned

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brokers cannot handle it alone, and thus either willingly or unwillingly must tolerate non-concessioned brokers - the so-called Coulisse.* Yet the commissioned brokers so control things that French law does not officially permit the Coulisse; each non-concessioned broker is subject to a financial penalty and is supposed to be "driven from the temple." The concessioned brokers can, in any case, make sure that all the larger and more lucrative portions of commercial transactions remain in their own hands, insofar as they are able to handle that business. [*Coulisse literally means "wings," or the "dressing room" backstage in a theater. Translator's note.]

33. By putting this phrase in quotes, it is unclear whether Weber means to indicate that this is the actual phrase used by the exchange, or the average Hamburg citizen, to describe their operation. The phrase, in German, does in fact stipulate explicitly that only male citizens are allowed. (Translator's note.)

34. Scheidegerichte. (Translator's note.) 35. Through a purely private agreement - for example with a large numer of firms -

the "senior commissioners" [Aeltesten] have recently begun to set a "reprimand" ["Riige"] upon a particularly defamatory action - for example, concluding a piece of business, on commission, without notifying the principals [i.e., buyer and seller] involved - (whereby some of the above-named firms were misled by embezzlements) [Untreue ... verleitet werden]. If someone so accused ("reprimanded") simply denies and rejects it, the whole business is finished - for there exists no written law that empowers [the exchanges to issue such penalties].

36. Freigabe. (Translator's note.) 37. At a later point, we will see that this prescription - as well as the reasons why this

prescription - is circumvented on a daily basis, despite the oath that the brokers have taken. [Weber's text does not have a paragraph break at this point, only a dash [-]. Translator's note.]

38. Schacher. (Translator's note.) 39. Weber's text does not have a paragraph break at this point, but only a dash [-].

(Translator's note.) 40. This opinion coincides with that of the most important specialists on this topic. 41. Cases that run contrary to this are no reason to erect barriers around the exchanges

and not to make them, as is the Hamburg exchange, into a market that is open to all. The character of the Hamburg merchants, which, as a group, have had a strong and positive tradition stretching back several centuries, has seen to it that the wholly free exchange that operates there does not belong to the most troubled or shakey [unsolidesten], but to one of the relatively best exchanges of its type.

42. Staatskommissar. (Translator's note.) 43. The German word literally means "garbage" [Unrat]. (Translator's note.) 44. The goal of the foregoing statements was to show that, [in the case of such

proposals] it in fact came to such matters; it was thus a matter of somehow penetrating into the inner workings [das Innere] of commercial business. In the second part of this article, we will concern ourselves with the way in which exchange transactions are brought to a conclusion [i.e., literally, "wound up"], the forms that that takes, and with the way the "exchange rates" and prices are set and with the functions of the great banks in the commerce of the exchanges. [The goal is] to get an approx- imate idea of what can be achieved here, and what goals can be, and ought to be set for reforms in the area of stock- and commodity-exchanges.