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The Expansion of the New York Securities Market at the Turn of the Century*

Published online by Cambridge University Press:  11 June 2012

Gene Smiley
Gene Smiley
Affiliation:
Professor of Economics, Marquette University
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Abstract

Since the landmark article of Thomas Navin and Marian Sears on the rise of the market for industrial securities in the Business History Review (XXIX, June 1955), there has been an active interest in the causal relationship between the remarkable upsurge in corporate mergers of industrial companies early in this century, and the greater activity of the securities markets. Professor Smiley adds to this literature with a study of interest rates and the growth of activity in what contemporaries called “financial banking” (lending money for transactions in securities) as opposed to commercial banking. There are limits to the inference of cause and effect relations from financial activity, however, and historians must continue to study these phenomena merger by merger in order to draw conclusions as to the reasons for them.

Type
Research Article
Information
Business History Review , Volume 55 , Issue 1 , Spring 1981 , pp. 75 - 85
Copyright
Copyright © The President and Fellows of Harvard College 1981

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References

1 See Navin, Thomas and Sears, Marian, ‘The Rise of a Market for Industrial Securities, 1887–1902,” Business History Review, 29 (June, 1955), 105–138CrossRefGoogle Scholar; and, Andreano, Ralph, “Four Recent Studies in American Economic History: Some Conceptual Implications,” in Andreano, Ralph, ed., New Views on American Economic Development (Cambridge, Mass., 1965), 13–26.Google Scholar

2 See Nelson, Ralph, Merger Movements in American Industry, 1895–1956 (Princeton, 1959)Google Scholar; Bunting, David, “Organized Markets and the Development of Big Business,” presented at the Western Economic Association meetings, San Francisco, California, June 26, 1976Google Scholar; Neal, Larry, “Trust Companies and Financial Innovation, 1897–1913,” Business History Review, 45 (Spring, 1971), 35–51CrossRefGoogle Scholar; Markham, Jesse, “Survey of the Evidence and Findings on Mergers,” in Business Concentration and Price Policy (New York, 1955), 141–182Google Scholar; and, Reid, Samuel, Mergers, Managers, and the Economy (New York, 1968).Google Scholar

3 Markham, “Survey,” 167.

4 Reid, Mergers, 49–50.

5 If the demand curve is shifting more rapidly than the supply curve, then price and quantity will move in the same direction. Using quarterly data on the stock price index and the number of shares exchanged from 1897 through 1900 the simple coefficient of correlation between the stock price index and quantity of shares exchanged is + 0.72, and from 1895 through 1905 it is + 0.77.

6 Markham, “Survey,” 163. It should be noted that this, as well as other activity of the merger promoters, had the effect of increasing the supply of securities as well as the demand for industrial securities.

7 Ibid., 165.

8 Ibid., 166.

9 Neal, “Trust Companies,” 41.

10 Youngman, Anna, “The Growth of Financial Banking,” Journal of Political Economy, 14 (July, 1906), 440–441.CrossRefGoogle Scholar

11 Hollander, Jacob, “The Security Holdings of National Banks,” American Economic Review, 3 (December, 1913), 811–813.Google Scholar

12 The tables giving absolute and relative shares of these assets for each set of financial institutions are available from the author.

13 Edelstein and James have used this model in analyzing late-nineteenth-century British and American capital markets. See Edelstein, Michael, “Rigidity and Bias in the British Capital Market, 1870–1913,” in McCloskey, Donald, ed., Essays on a Mature Economy: Britain After 1840 (Princeton, 1971), 83–111Google Scholar; and, James, John, “Banking Market Structure, Risk and the Pattern of Local Interest Rates in the United States, 1893–1911,” The Review of Economics and Statistics, 58 (November, 1976), 453–462.CrossRefGoogle Scholar

14 See James, John, “A Note on Interest Paid on New York Bankers' Balances in the Postbellum Period,” Business History Review, 50 (Summer, 1976), 198–202CrossRefGoogle Scholar; and, Gene Smiley, “Revised Estimates of Short Term Interest Rates of National Banks For States and Reserve Cities, 1888–1913,” Working Paper, Marquette University Economics Department, Milwaukee, WI, October, 1976.

15 Navin and Sears, “The Rise of a Market.”

16 Ibid., 126–127.

17 Ibid., 128.

18 Bunting, “Organized Markets,” 8.