hS5'82 
 
Cornell University Library 
 HG 4582.P32 
 
 The Paris Bourse and French finance, with 
 
 3 1924 013 865 823 
 
 8061 U NVr 'I»d 
 
 •sojg pioi^Bg 
 
 pJB0qSS9Jd>V 
 

 STUDIES IN HISTORY, ECONOMICS AND PUBLIC LAW 
 
 ,4 EDITED BY THE FACULTY OF POLITICAL SCIENCE 
 OF COLUMBIA UNIVERSITY 
 
 Volume LXXXIX] [Number 3 
 
 Whole Nnmber 204 
 
 THE PARIS BOURSE AND 
 FRENCH FINANCE 
 
 WITH REFERENCE TO ORGANIZED 
 SPECULATION IN NEW YORK 
 
 BT 
 
 WILLIAM PARKER, Ph.D. 
 
 COLUMBIA UNIVERSITY 
 
 LONGMANS, GREEN & CO., AGENTS 
 
 London : P. S. King & Son, Ltd. 
 
 1920 
 
HQ 
 
 Cc^i 
 
 IP "« o 
 
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 FACULTY OF POLITICAL SCIENCE 
 
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3 
 
 THE PARIS BOURSE AND FRENCH FINANCE 
 With Reference to Organized Specolation in New York 
 
Hate OJoUcgc of Agrtculturc 
 
 M ajornell IniuerattH 
 atljata, K. ?. 
 
 ICihratg 
 
STUDIES IN HISTORY, ECONOMICS AND PUBLIC LAW 
 
 EDITED BY THE FACULTY OF POLITICAL SCIENCE 
 OF COLUMBIA UNIVERSITY 
 
 Vdume LXXXIX] [Number 3 
 
 Whole Number 204 
 
 THE PARIS BOURSE AND 
 FRENCH FINANCE 
 
 WITH REFERENCE TO ORGANIZED 
 SPECULATION IN NEW YORK 
 
 BT 
 
 WILLIAM PARKEE, Ph.D. 
 
 COLUMBIA UNIVERSITY 
 
 LONGMANS, GREEN & CO., AGENTS 
 
 London : P. S. King & Son, Ltd. 
 
 1920 
 
<3 
 
 P3a 
 
 COPYKIGHT, 1920 
 BY 
 
 WILLIAM PARKER 
 
PREFACE 
 
 This study grew out of the difficulty of the writer in find- 
 ing anywhere in print or in the words of financial practi- 
 tioners a clear account either of the relations between the 
 banks and the stock exchanges, or of the somewhat compli- 
 cated methods employed by the latter in handling their 
 enormous and highly significant business of speculation. 
 Parts of four years' graduate study in Economics in the 
 Universities of Indiana, Illinois, Pennsylvania and Columbia 
 were devoted to this problem, and later, two years with an 
 international banking firm in New York gave an opportun- 
 ity for direct observation. 
 
 The author takes pleasure in acknowledging his indebted- 
 ness to the faculties of economics and philosophy of the 
 above schools and to those of Cornell where his undergradu- 
 ate work ended. Special acknowledgment is due to Pro- 
 fessor E. R. A. Seligman for helpful suggestions and to Mr. 
 S. F. Streit, Chairman of the Clearing House Committee 
 of the New York Exchange, for many constructive criti- 
 cisms and references drawn from his long and thorough 
 knowledge of the subject. 
 
 447] S 
 
'^^/ 
 
 Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013865823 
 
CONTENTS 
 
 Preface . . . 
 Introductory 
 
 CHAPTER II 
 Bourse Technic 
 
 CHAPTER IV 
 Credit Facilities of the Paris Bourse . 
 
 CHAPTER V 
 The Bourse and War Finance 
 
 CHAPTER VI 
 Conclusion 
 
 Bibliography 
 
 PA«K 
 5 
 
 CHAPTER I 
 Organization of the Paris Bourse 24 
 
 37 
 
 CHAPTER III 
 Bourse Technic (Continued) The Term Settlements 44 
 
 59 
 82 
 
 109 
 
 IIS 
 
 ERRATA 
 
 p. 66^ line 6, $82,000 should read $72,500. 
 p. 112, line 4, "has" should read "have". 
 
 p. 112, line 17, "are given as reasons" should read "is given as a 
 reason ". 
 
 Some typographical errors in reference to the accenting, spelling, and 
 capitalization of French and German words occur in the footnotes. 
 
CONTENTS 
 
 PA«E 
 
 Preface . , 5 
 
 Introductory 9 
 
 CHAPTER I 
 Organization of the Paris Bourse 24 
 
 CHAPTER II 
 Bourse Technic 37 
 
 CHAPTER HI 
 Bourse Technic (Continued) The Term Settlements 44 
 
 CHAPTER IV 
 Credit Facilities of the Paris Bourse . 59 
 
 CHAPTER V 
 The Bourse and War Finance 82 
 
 CHAPTER VI 
 
 Conclusion 109 
 
 Bibliography iiS 
 
 449] 7 
 
INTRODUCTORY 
 
 The author's original plan to cover in the following 
 dissertation the stock exchanges of Berlin, Vienna, Lon- 
 don and New York with the same degree of attention 
 given to the Paris Bourse, was interrupted by illnesses 
 and finally by the impact of the war which well nigh 
 put an end to deliberation on subjects unrelated to 
 it. It had long been a mystery to the writer why the great 
 stock market of New York employed a system of settling 
 its contracts so much at variance with the custom of all the 
 great European bourses. The difference, not a technical 
 one merely, as the actual methods are much the same both 
 in principle and practice, consists in the relations of the 
 exchanges to their respective money markets. New York 
 settling every day the transactions of the preceding day, 
 (Friday and Saturday morning sales lumped together in 
 Monday's clearance), while in Europe, a fortnightly and 
 monthly settlement is the rule. Such settlements in Europe, 
 however, do not include the strictly cash sales which are 
 settled there individually, as they occur, and with consider- 
 able latitude as to terms. In New York practically all trans- 
 actions as between broker and broker are made " regular 
 way ", that is, are settled by delivery of shares and payment 
 of cash on the following day. On the European bourses, 
 the customers of the brokers who buy and sell for the ac- 
 count must decide at the close of every fortnight or month, 
 as the case may be, whether they will take up, sell out, buy iH, 
 or carry over their securities. As the term market is a 
 device for the purpose of facilitating the carrying of securi- 
 451] 9 
 
lO THE PARIS BOURSE AND FRENCH FINANCE [452 
 
 ties until placed, and the fixing of their value by speculative 
 buying and selling, varying quantities, depending on the 
 season, the size of the market, etc. are always carried over. 
 In Europe, the holders secure funds for this purpose for the 
 definite period between settlements, making and settling their 
 loans en masse at the end of every such period, which is at 
 the same time the date of the settlement between brokers 
 and brokers, and between brokers and money lenders. In 
 New York, hundreds of millions of dollars of stocks and 
 bonds are also carried over on borrowed money, but entirely 
 through separate individual transactions between customers 
 and brokers, and between brokers and bankers. Conserva- 
 tive brokers borrow from the banks for this purpose, on the 
 average one-third in call loans and two-^thirds on time, for 
 from thirty to ninety days or more, and lend to customers 
 chiefly on call. In practice, however, these latter loans are 
 seldom called if margins are maintained, but run indefinitely, 
 sometimes for years. 
 
 In New York there thus exist two definite rates of inter- 
 est for security loans — the call rate, which is unlimited by 
 law (on sums over $5,000) and which has gone in panic 
 times over 100 per cent, and the time rate, limited, as are all 
 other legal rates in New York State, to six per cent. This 
 legal limitation has even been adduced as the reason for lack 
 of a term market in this country on the European plan.^ 
 
 Another legal prohibition based on popular suspicion has 
 forced the short sale contract into different forms in this 
 country and in Europe. Here, the short seller " borrows " 
 the stock that he anticipates buying in the indefinite future 
 in order to make delivery the following day, as required by 
 the rules. This arrangement is made by the short seller's 
 
 ^ Warburg, The Discount System in Europe; vide Natl. Monetary 
 Commission Pub. 
 
453] INTRODUCTORY 1 1 
 
 broker by means of " long " stock in his own office, or with 
 another broker whose customers are carrying securities on 
 margin, and such loans go through the clearing house lumped 
 together with sales without distinction. 
 
 In Europe, on the contrary, another method was adopted 
 to conform to the law. The " bull " carrying over stock on 
 settlement day sells his stock for cash to the capitalist who 
 wishes to make a fortnightly or monthly loan. This is of 
 course done through the broker, as in Wall Street. At the 
 same moment and as part of the loan transaction, he con- 
 tracts to repurchase it from the capitalist at the end of the 
 term designated at a price slightly higher, say by one-third or 
 one-fourth of one per cent, the difference being the amount 
 of interest charged by the lender. On the next settlement 
 day, if he still desires to carry his stock, the operation is re- 
 peated. The European short seller or " bear " having sold 
 so many shares is entitled to their price, and with it he buys 
 the shares for cash from the bull on settlement day, and 
 resells for the next settlement, appearing to the bull in the 
 guise of the capitalist. 
 
 The mystery of these important differences was solved 
 largely by the investigations of foreign banks conducted by 
 the United States Monetary Commission^ and the subsequent 
 enlightenment as to the overwhelming importance in Europe 
 of the central reserve system of banking, with its unlimited 
 power of note issue based on discounted bills. This obser- 
 vation applies especially to the continental countries of 
 Europe, as in England unlimited note issue was obviously 
 not contemplated by the framers of the Bank Act, and is 
 obtained only by suspension of the latter by Parliament. 
 Furthermore, some monetary difficulties of the present war 
 were met in altogether another way — by the issue of small 
 
 1 Vide publications U. S. Monetary Commission. 
 
12 THE PARIS BOURSE AND FRENCH FINANCE [454 
 
 denomination treasury notes. In ordinary times, however, 
 even in England instant resort to the central reserve of the 
 Bank of England by embarrassed banks or individuals with 
 proper security is always possible. This fact made it feasible 
 for banks and others to employ considerable funds in loans 
 on securities of fluctuating value for periods of as long as 
 two weeks, and on the more stable securities for one month. 
 On the continent, especially in France, where the use of 
 checks long remained underdeveloped, flexibility of credits 
 and security have been gained by the ease and safety of note 
 issue and general acquaintance therewith. In England, on 
 the other hand, the great use of checks economizes money 
 reserves while the extraordinary development of the discount 
 market with its international connections lessens the need 
 for a more efficient apparatus of note issue. But the Eng- 
 lish system must be adjudged a failure in that it admits of 
 comparatively frequent and violent fluctuations of the Bank 
 of England's discount rate. 
 
 Until recent years another factor of importance in the 
 making of these short term loans at a low rate has been the 
 possession of large amounts of time deposits by continental 
 banks, as contrasted with the demand checking accounts of 
 American banks. 
 
 When the significance of the lack of a central reserve 
 bank and of a discount market to which congested banks can 
 turn for relief is fully realized, it is not difficult to see why 
 American banks have been not only unwilling, but, indeed, 
 unable to finance the Stock Exchange on the basis of all-time 
 loans, even of so short a duration as one week, an experiment 
 which was tried both by the big exchange and by the Con- 
 solidated. The fact was, as has been so ably pointed out by 
 Mr. Warburg,^ that the American bankers used the stock 
 
 ^ Warburg, "The Discount System in Europe," "Defects and Needs 
 of our Banking System/'; vide Essays on Banking Reform in the U. 
 S., Proc. Acad. Pol. Sci., July 14. 
 
455] INTRODUCTORY I3 
 
 market much as European bankers used their central reserve 
 bank, as a primary source of ready cash in emergencies. It 
 was not at all adapted to this use, of course, and served it 
 only at the cost of periodic, more or less severe falls in prices, 
 sometimes of certain securities at the foot of the favored 
 list, sometimes of the whole market, with gradual recoveries 
 as the suddenly withdrawn money slowly returned. 
 
 Since the establishment of the Federal Reserve System 
 this antiquated arrangement has been done away with, but 
 only to the extent that rediscountable paper is held in the 
 banks' vaults, and drawn upon by them in time of need for 
 rediscount. An inspection of the course of prices of fifty 
 stocks,^ half railroads and half industrials, from 191 1 to 
 1 919 does not reveal any striking modifications for the period 
 since the inauguration of the new banking system. But the 
 latter part of this period which marked the introduction of 
 the new banking system was also the abnormal period of war. 
 The testimony of downtown brokers is to the effect that 
 bankers are now less inclined than formerly to make call loans 
 and are equally backward in calling them. Stock specula- 
 tions, however, have been discouraged in all countries 
 throughout the war and the period has provided a strain on 
 credit relations generally wherein stock market speculation 
 has played a minor part. The ability of the New York 
 money market, under the new dispensation, to support a pro- 
 longed speculative movement is still to be tested, though 
 there can be no question that it has been enormously 
 strengthened. 
 
 When discountable paper shall have attained such volume 
 in this country as to be available for the absorption of most of 
 the monetary shocks that come and go with the seasons, and 
 with world-wide events not so cataclysmic as war, it is safe 
 
 ' Times Annalist. 
 
14 THE PARIS BOURSE AND FRENCH FINANCE [456 
 
 to say that a term market in the European sense, with a col- 
 lective clearing of securities and money loans, can develop 
 in New York. 
 
 But the banking difficulty is not the sole one to be con- 
 sidered in anticipation of such a project. There is the highly 
 technical one of settling a whole fortnight's or even a week's 
 dealings in securities, cash, and loans in a market where the 
 weekly sales might easily amount to 10,000,000 shares, 
 worth, say, $800,000,000, and where the value of stocks 
 currently carried on borrowed funds could easily reach 
 $1,000,000,000. 
 
 For what particular reason, the collective settlement was 
 first instituted is obscure. It is obvious to every book- 
 keeper that the reduction of accounts to balances and 
 the settlement of the mere balances is a time and money 
 saving device. Manifestly, where a group of traders were 
 engaged daily in mutually balancing, interdependent pur- 
 chases and sales, we may suppose that they resorted to the 
 collective settlement, periodically for their mutual conveni- 
 ence, and that they made the settlement dates as far apart as 
 they could prevail upon capitalists and bankers to finance 
 them. Safety forbids the postponement of stock market 
 settlements beyond a certain period, while economy of oper- 
 ation requires a certain accumulation of accounts in order to 
 secure the full benefit of the extraordinarily small balances 
 that are obtainable, as little as $10,000 having been required 
 in one instance in New York to settle transactions involving 
 204,000 shares worth $12,500,000.^ Generally speaking, 
 however, deliveries are reduced to approximately thirty-five 
 per cent of sales, and cash payments to ten per cent or less 
 of the original contract obligations.^ 
 
 * Pratt, The Work of Wall Street, 1903, p. 123. 
 2 Cf. ibid., p. 120. 
 
457] INTRODUCTORY 15 
 
 Up to 1892, the New York Stock Exchange had no 
 stock clearing house at all. All deliveries of shares and 
 checks between brokers as well as between brokers and 
 the banks, where securities were hypothecated and certi- 
 fications made, were handled individually, every office 
 having a swarm of messengers who sometimes worked hard 
 all day, and at its close, left their office in exactly the same 
 position as regards securities and cash on hand as when 
 they had begun their day's work. Every afternoon, an 
 army of these messengers carrying valuable packets of se- 
 curities and checks would traverse the financial district, lin- 
 ing up, in long queues reaching to the street, at the wickets 
 of the various offices, and blocking traffic for hours. The 
 amount of certifications required of the banks had grown, 
 by 1892, with the increase of business, to enormous pro- 
 portions, and it was the threat of the bankers to shut down 
 on certifications that finally induced the Exchange to insti- 
 tute a system of reducing totals to balances before settling. 
 
 The practice of overcertification, though illegal, grew out 
 of the necessity of the brokers of financing purchases of 
 stocks for their customers during the short interval from the 
 time the broker received and paid for the stock and the time 
 he delivered it to the purchaser and received his check, or if 
 margin stock, from the time he deposited it with a bank and 
 thus secured the right to draw his check on the latter. On 
 a balance of say $50,000 left by the broker with his bank, 
 the latter allowed the broker to draw checks up to$i,ooo,ooo, 
 certifying them as requested, although the broker's deposit 
 was far from covering the sums certified. The broker, how- 
 ever, was required to cover his checks at the close of the day, 
 by deposit of checks received by him from his debtors, im- 
 mediately upon receipt. This practice is now modified to 
 the extent that the broker every morning contracts a daily 
 loan with the bank for approximately the amount he will 
 require for the day, giving his guaranteed note. 
 
1 6 THE PARIS BOURSE AND FRENCH FINANCE [458 
 
 The Stcxk Clearing House, established by the New York 
 Exchange in 1892, was and has remained to this date (March 
 1 919) a comparatively simple organization. It receives 
 " clearance " sheets and " tickets ", recording sales and pur- 
 chases of active securities, from the brokers every day except 
 Friday, balances, and verifies them and letums to the member 
 brokers statements indicating the balance of shares each has 
 to deliver and to receive, if any, and the names of the brokers 
 to whom deliveries of securities and checks are to be made, 
 or from whom they are to be received. These deliveries are 
 then made individually by the broker within a specified time. 
 As to the differences between actual prices and the nominal 
 settling prices, however, the Clearing House goes a step 
 further. It not only performs the bookkeeping work, which, 
 of course, is checked by each broker's office, but also re- 
 ceives the checks of the brokers who have debt differences, 
 and indorses the drafts of all other brokers who have credit 
 differences. As these debit and credit differences are al- 
 ways exactly equal, this is also in reality a bookkeeping credit 
 device; but it requires the intervention of a bank (Man- 
 hattan Bank) and of the Bank Clearing House, through 
 which the checks and drafts are in turn cleared.^ 
 
 As will be seen in the following chapters, the settlement 
 system of the Paris Bourse is much more complicated and 
 complete; and this is true also of the Berlin and Vienna 
 bourses, and of the London Stock Exchange from which " 
 eight hundred to one thousand firms (out of about four 
 thousand members) in good markets send in clearance sheets. 
 The methods of these central financial markets were all 
 adopted within ten years of their development in Frankfort, 
 Germany, where the first well-authenticated system of clear- 
 
 1 Pratt, op. cit., p. 116. 
 
 ' Hirst, The London Stock Exchange. 
 
459] INTRODUCTORY 1 7 
 
 ing intermediate contracts in securities was established in 
 1867, though there had been partial clearings in Glasgow, 
 Scotland, and Manchester, England, as early as 1848. The 
 adoption of these methods does not seem belated when we 
 remember that in 181 5, securities of stock companies listed 
 on the London Exchange numbered but 30, on the Paris 
 Bourse but 20 and in Berlin 11.'^ 
 
 It was from the stock clearing houses of the European 
 capitals that the New York Exchange obtained its data in 
 1892; but it could not adopt the term settlement under our 
 then antiquated banking system, and this fact necessitated a 
 series of modifications in details. Under the Federal Re- 
 serve System, established in 1914, with its consolidated 
 reserves and enormous power of note issue not rigidly 
 limited to a forty per cent gold reserve, and with the 
 gradually developing discount market, the time has come 
 when a more scientific and economical system of financing 
 the purchase and sale of securities may be instituted. Under 
 the system now in vogue, the banks and ether lenders of 
 money on call to the broker can, if the whole market is con- 
 sidered, demand on a day's notice the return of hundreds of 
 millions of dollars of their funds loaned on securities. Upon 
 receiving such a notice the broker endeavors to arrange an 
 equivalent loan with his own bank or elsewhere. As brokers' 
 loans are constantly being called as a result of their serv- 
 ing at least as a secondary banking reserve, or are being paid 
 up by the broker, there results a constant daily shifting of 
 loans from bank to bank, and as the securities deposited as 
 collateral are sold, and delivered and repurchased and resold, 
 there results an endless process of substitution of one hypo- 
 thecated stock or bond for another, several substitutions 
 frequently being made during a single day. In the panic 
 
 1 Handwdrterbuch der Staatswissenschaft. Article, " Borse." 
 
1 8 THE PARIS BOURSE AND FRENCH FINANCE [460 
 
 of May 9, 1901, for instance, eleven substitutions were made 
 in one loan/ All these transactions, with the contingent ac- 
 counting routine, are made individually and daily, with mes- 
 sengers hurrying to and from the banks, delivering, collect- 
 ing and exchanging packets of securities, clerks scanning 
 prices, and figuring interest, and brokers absorbed in arrang- 
 ing loans and in drawing and depositing checks. Every 
 morning, the " chain gangs " of the brokerage firms may be 
 seen moving to the vaults where the packets of securities on 
 hand have been carried the preceding evening and under 
 armed guards returning with the paper fortunes to their 
 offices; while in the loaning banks other hundreds of mil- 
 lions of hypothecated securities are stored nightly in huge 
 steel safety vaults. All this handling of securities and checks 
 is obviated under foreign clearing systems or reduced to a 
 fortnightly or monthly movement, except in the case of 
 cash transactions which however constitute a relatively small 
 part of the total. 
 
 Furthermore, in addition to the movement of securities 
 between the brokerage firms and the banks there are the daily 
 deliveries of the clearing-house balances of securities among 
 the brokers themselves, and of all securities as well on con- 
 tracts that do not pass through the clearing house. 
 
 In Berlin and Vienna, where the evolution of the process 
 of financing industry has proceeded furthest, the securities 
 themselves or receipts therefor are exchanged between 
 brokers, or between brokers and the banks at a central insti- 
 tution, of which both bankers and brokers are members — 
 in Berlin, Die Bank der Berliner Kassen Verein, and in 
 Vienna, Die Bank der Giro und Kassen Verein. Money 
 loans on securities are also put through the clearing process, 
 as shifts are made from bank to bank by the various brok- 
 
 ' Pratt, Work of Wall Street, p. 192. 
 
46lJ INTRODUCTORY 19 
 
 ers. At the end of the settlement period such loans appear 
 on checks of a special color and are available upon receipt of 
 notice by the bank from the Kassen Verein Bank of the 
 deposit or transfer on account of the securities previously 
 agreed upon as the pledge/ 
 
 In the words of Adam Smith, the capitalistic system of 
 individual competition flourishes through the pursuit by the 
 individual of his own profit, which works out on the whole 
 to the general good. The very crown and summit of this 
 system is represented notably in the functioning of the Lon- 
 don and New York stock exchanges, where the decisions of 
 the individual speculators and investors, swayed of course 
 by their confidence in the security-marketing firms and their 
 prior decisions, determine the direction and volume of the 
 flow of capital into the innumerable fields of economic pro- 
 duction. This unadulterated laissez-faire has seemed too 
 haphazard to the German mind. 
 
 In no other countries are the banks so closely connected 
 with the whole process of organizing, promoting and financ- 
 ing industrial enterprises of all kinds as they are in Germany 
 and Austria. They are the most important members of the 
 Stock Exchange. The Deutsche Bank, for instance, had at 
 one time fifty representatives (now many less) on the Berlin 
 Exchange, and the Dresdner Bank had from twenty to thirty 
 members. In Germany there are no brokerage houses as in 
 New York. Persons desiring to buy stocks or bonds go to 
 their bank for information, and purchase or sell securities 
 through it on such terms as may be agreed upon. These 
 range from no margin at all in the case of a well-known 
 customer, to fifty per cent or more in other cases, depending 
 
 1 S. F. Streit, Description of Methods of Centralisation of Receipt 
 and Delivery of Securities in Use in Paris, Berlin and Vienna. 
 Pamphlet. 
 
20 THE PARIS BOURSE AND FRENCH FINANCE [462 
 
 upon the man and the security. Usually a margin of from 
 twenty per cent to forty per cent is required. 
 
 The banks of Germany are practically the originators of 
 all kinds of enterprises, taking great pride in the success of 
 their operations, and having a good record, guided as they 
 are by the ablest minds available. Having gained the con- 
 fidence of investors to a high degree, they have found it 
 possible to use, for the development of enterprises, the 
 deposits of those to whom the shares are afterward sold. 
 These enterprises they control through contract stipulations 
 and representation on boards of directors enforced by votes 
 of thousands of proxies entrusted to them by their share- 
 holder-depositors. Also, of course, they have the custody of 
 securities, the Dresdner Bank in 1909 having $400,000,000 
 worth in its vaults. 
 
 This situation has long thrown into the hands of the Ger- 
 man bankers a tremendous power of discretion to shape 
 the course and flow of the surplus wealth annually pro- 
 duced by the German people and others whose accumulations 
 they could influence. In 1908, 8 large Berlin credit banks 
 controlled 74 per cent of the entire capital of the 42 1 credit 
 banks of Germany. These banks, together with the Reichs- 
 bank with its $58,000,000 capital and its immense prestige 
 virtually dominated and coordinated German financial, com- 
 mercial and industrial policy, and, with the aid of a few 
 " personages ", German political policy as well.^ 
 
 In 1893, an exhaustive investigation of the whole question 
 of stock and produce speculation in Germany ^ was made 
 by a distinguished body of German financiers, economists and 
 business men. As an outcome of their findings and as a result 
 
 1 Parker, " German Banks and Stock Exchange Speculations," Proc. 
 Academy of Political Science, Jan. 191 1. 
 ^ Bericht der Borsen Enquete Kommission. 
 
463] INTRODUCTORY 21 
 
 of violent agrarian agitation against speculation, a series of 
 restrictive regulations were passed in 1896, 1908, and 1910 
 by the Imperial Government and the Prussian State Govern- 
 ment, putting the Borse under the jurisdiction of the Berlin 
 Chamber of Commerce and officializing its activities in the 
 most approved Prussian style. These laws and regulations 
 greatly restricted public participation in speculation, elimi- 
 nating the smaller speculative element, and consolidating still 
 more the power and resources of the larger banks as re- 
 gards the marketing of securities and control of the Berlin 
 Bourse. 
 
 These developments in German finance, while not neces- 
 sarily synchronous with the adoption of a thorough-going 
 settlement of cash differences, stock balances, and money 
 loans and stock hypothecations between brokers and the 
 banks, have inevitably facilitated the full development of 
 the system, inasmuch as the struggle for accommodations in 
 Berlin centers not so much as in New York between the 
 bankers and the brokers, as between the banks and the 
 Reichsbank. 
 
 It remained for the Viennese, however, to bring the 
 technic of stock market operations to its full flower.^ 
 In Vienna, the bank of the Giro und Kassen Verein, as in 
 Berlin, comprises in its membership both bankers and brok- 
 ers. Like the Berlin Kassen Verein Bank, it goes further 
 than the Caisse Commun, the clearing house of the Paris 
 Bourse, in that it actually has the custody of the bulk of 
 active securities traded in currently, and transfers them on 
 its books only at every settlement from broker to broker to 
 banker and vice versa as indicated on the clearance sheets 
 and tickets, the percentage of such clearances of sales being- 
 much higher than in Berlin. Thus with the transfer of 
 
 ' V. S. F. Streit, op. cit. 
 
22 THE PARIS BOURSE AND FRENCH FINANCE [464 
 
 stocks, and cash reduced to the lowest balances, the making 
 of bank loans and the giving of security therefor have all 
 become mere bookkeeping credit transactions. In conse- 
 quence, the name of the messenger boy is not legion. His 
 work is done by a stroke of the pen. 
 
 Something of this nature is the plan now proposed for 
 adoption by the New York Stock Exchange, in so far as it 
 can be applied to its system of daily settlements. It neces- 
 sarily involves a more intimate organization if not a closer 
 relation between bankers and brokers than now exists, and 
 foreshadows the appearance in New York of the fortnightly 
 settlement which it must necessarily precede, and which the 
 banks are already demanding, because it provides a more 
 stable investment medium and eliminates the overcertifica- 
 tion evil. The following quotation from Mr. S. F. Streit, 
 Chairman of the Clearing House Committee of the Ex- 
 change, defines the immediate objective aimed at by the for- 
 mation of a stock clearing corporation. 
 
 1st. The clearing of loans, whereby the advances of banks 
 to brokers for the purpose of paying off loans is reduced to a 
 minimum. At the present time when a loan is called which ^ 
 broker desires to reborrow, it is necessary for him to secure 
 credit from his own bank for the purpose of paying off the 
 loan. It is proposed to have the banks send their securities to 
 the Clearing Corporation where they will meet the representa- 
 tive of the bank loaning the money, and while the securities 
 are in the physical possession of the Clearing Corporation the 
 old loan is paid off and the new loan made, with such changes 
 in securities as may be necessary by the brokerage house, thus 
 eliminating any credit advances by a third institution. 
 
 2nd. The clearing of stock balances. The advantages are 
 illustrated by taking the situation under the present clearing 
 system. If a member buys 1000 shares of Steel and sells 900 
 shares, the Clearing House furnishes him with an authorisation 
 
465] INTRODUCTORY 23 
 
 statement ^ of a balance of 100 shares of stock to receive and 
 pay for the next day. If, however, the member buys 100 shares 
 of Steel and sells 900 shares of Southern Pacific, the present 
 clearing system is of no assistance to him should there be no 
 other transactions in the same stocks. It is proposed to fur- 
 nish credit by the Clearing Corporation in such a manner that 
 the proceeds of the delivery of the 900 shares of Southern 
 Pacific will be used to reduce the debit caused by the purchase 
 of the 1000 shares of Steel, so that the net credit extension 
 required will be only that necessary for the payment of the 
 difference. 
 
 It is estimated that at least sixty-five per cent of the present 
 daily extension of credit by banks to brokers will be elimin- 
 ated by this plan. 
 
 1 Author's italics. 
 
CHAPTER I 
 
 Organization of the Paris Bourse 
 
 Next to the Bank of France, the Paris Bourse is prob- 
 ably the most important financial mechanism in France. 
 It is the third largest stock exchange in the world. Listed 
 on its different markets are some 2,000 varieties of stocks 
 and bonds ' whose nominal value before the war was esti- 
 mated roughly at $32,000,000,000.^ The comparison of this 
 vast total with the $1,000,000,000 of local securities listed 
 on the other exchanges of Lyons, Bordeaux, Toulouse, Lille 
 and Nantes reveals the overwhelming superiority of the 
 Paris Bourse among the stock exchanges of France. 
 Whether the national wealth of France in 1914 was roundly 
 $59,000,000,000, as reported by the National Geographic So- 
 ciety, or $83,000,000,000 as computed by Leroy Beaulieu 
 in 191 1, or $57,000,000,000 as estimated by Levy," the fact 
 that some $23,000,000,000 * of it was in the form of French- 
 owned, French-listed securities, not to mention French hold- 
 ings listed only on foreign exchanges, is a striking revelation 
 of the national importance to France of the institution where 
 alone these forms of property claims may be bought and 
 sold through an intermediary. 
 
 • Cotevidal and Cour de la Banque et de la Bourse, July, 1914. 
 
 2 Cf. Neymarck, Journal de la Societe de Statistigue de Paris, Jan., 
 1915- 
 
 'Cf. Julhiet, N. A. Review, May, 1916, p. 735 — "The War and French 
 Finance." Also vide Neymarck, Le Rentier, July 12, 1913. 
 
 ■* Journal of Economy, Nov. 1915. 
 
 24 [466 
 
467] ORGANIZATION OF THE PARIS BOURSE 25 
 
 Just as the Bank of France has possessed a monopoly of 
 note issue in that country/ the seventy members who since 
 1898 have constituted the Compagnie des Agents de Change," 
 as the official organization of brokers is called, has possessed 
 a legal monopoly of the business of buying and selling for 
 others public securities and securities susceptible of quotation 
 (valeurs mobilieres). This has been the case since 1720, 
 except for a period during the revolution when the members 
 numbered but sixty. It has long been a serious offense in 
 France for anyone but an authorized broker to mediate be- 
 tween a buyer and seller of securities, for a commission. 
 This somewhat medieval situation developed naturally in the 
 days when commerce and trade were struggling for recog- 
 nition against the noble and clerical land-holding interests.^ 
 It has continued, partly because of the enormous advantages 
 of a single central market, partly on account of the fact that 
 since the preponderance of its dealings has always been in 
 French government securities, the government was inter- 
 ested in maintaining so influential a credit instrument ef- 
 fectively under its control, and partly because such agencies 
 have always been a ready source of revenue. 
 
 The colloquial name of the Compagnie des Agents de 
 Change, taken from the raised platform in the center of the 
 Bourse on which the brokers stand, is the Parquet, and this 
 name is applied as well to the companies of authorized brok- 
 ers in the above-mentioned provincial cities, to whom is 
 also extended by a sort of legal fiction, as far as their own 
 locally listed securities are concerned, the monopolistic 
 prerogative of the Parquet at Paris. 
 
 The title to the brokerage monopoly in stocks and bonds 
 
 1 " The Paris Bourse," Cleveland Moffet, Century Magazine, March, 
 1904. 
 
 2 Alphonse Courtois, Operations de Bourse, p. 206. 
 
 ' E. Vidal, History and Methods of the Paris Bourse, pp. 194-276. 
 
26 THE PARIS BOURSE AND FRENCH FINANCE [468 
 
 has not, however, been either peacefully or wholly enjoyed 
 by the official Paris Parquet/ From the earliest days of 
 speculation, the poachers on its preserves have camped on 
 its very doorstep. In the big hall of the Bourse building, in 
 the shelter of its porticoes, on its broad flight of steps, and in 
 the streets roundabout, these ubiquitous outsiders have 
 traded with each other, with the outside public, and through 
 the official brokers, even in stocks and bonds listed on the 
 official market as well as in the always considerable though 
 fluctuating number not listed.^ Though constantly opposed 
 and prosecuted by the Parquet and the authorities, they 
 persisted in maintaining the " free market," as the dealings 
 outside the official market are called, until, by 1893, the 
 five hundred firms that then composed the unauthorized mar- 
 ket were doing three-fourths of the total business of the 
 Bourse." 
 
 This startling success at last kindled the long-smouldering 
 hostility of the Agents de Change into open war. They 
 brought great pressure to bear on the government, and peti- 
 tioned for a law abolishing altogether the outside brokers 
 (commonly called Coulissiers, from their habit of trading on 
 the outskirts of the Bourse crowd, the wings of a theatre in 
 French being named Coulisse),* and making it a penal 
 offence for any of them to carry on business. The Chamber, 
 however, in 1893, passed a law putting a tax on Bourse 
 transactions only, it being thought that this measure would 
 force into the light and thus check the illegal transactions. 
 It was found to have so little effect (from 1893 to 1897 the 
 
 ' Robert Milles, La Bourse de Paris, p. 178. 
 
 ^ fimile Guilmard, " Coulisse et Coulissier," Journal des &conomistes, 
 May, 1900. Le Marchi Libre. 
 
 ° I. B. Brandreth, " The French Stock Exchange," Bankers Home 
 Mag., Sept., 1910. 
 
 * M. Fremery, Des Operations de Bourse. 
 
469] ORGANIZATION OF THE PARIS BOURSE 27 
 
 tax on transactions paid by Coulissiers was twice that paid 
 by the Parquet) ^ that the Parquet members again took the 
 offensive and engineered a tremendous newspaper campaign 
 against the CouHsse. 
 
 The press pubHshed biting articles against the outside 
 brokers, many of whom from their methods of doing 
 business were easily open to attack. It was shown that a ma- 
 jority of them were Jews and foreigners — mostly Germans, 
 who were financed by Jewish and German capitalists. Ac- 
 cusations were made that they had conspired to depress the 
 price of Russian and French rentes and thus injure the credit 
 of the allies. Full advantage was taken of the Anti-Semitic 
 movement, product of the Dreyfus case.^ Under pressure 
 of the popular clamor the Government passed a law requiring 
 all persons dealing in officially quoted stocks to produce for 
 each deal an official stock-broker's memorandum (the fam- 
 ous bordereau), subject to a stamp tax, besides taking other 
 measures that will be referred to later, the whole being known 
 as the reorganization of the financial market of 1893.^ 
 
 In considering the remarkable institution thus described, 
 an institution which has no parallel in any country in the 
 world, two questions naturally arise in the mind of one not 
 familiar with the French system : first, as to the possibility 
 of an outside market attaining, under the very wing of the 
 official monopoly, such extraordinary proportions; and 
 second, as to the need felt by the powerful official 
 monopoly of protecting itself against this illegal competition 
 by an appeal to the National Government. The funda- 
 mental cause of this perpetual strife, a thing that exists on 
 no other exchange to such an extent, is to be found in the 
 peculiar character of the Parquet itself.* 
 
 '■ G. Boissiere, La Compagnie des Agents 4e Change, p. 147. 
 ' Vidal, op. cit., p. 241. 
 
 ^ Cf. E. Friends, " The Paris Bourse," Forum, Oct. 1901. 
 * Cf. Boissiere, op. cit., p. 140. 
 
28 THE PARIS BOURSE AND FRENCH FINANCE [470 
 
 The Compagnie des Agents de Change, though a monop- 
 oly, is a monopoly which operates under the strict and com- 
 prehensive control of the French Government/ All of its 
 most important customary practices have been enacted into 
 law. The rate of members' commissions is fixed by law. 
 Only French citizens may become official brokers, and then 
 only after acceptance by the Minister of Finance upon being 
 nominated by a retiring member, or by his estate. The num- 
 ber of Agents de Change may be increased or decreased 
 only by the Government. It is a misdemeanor for brokers 
 to reveal the name of a client. No foreign government se- 
 curity may be admitted to official quotation without the con- 
 sent of the French Government, which is not always given. 
 
 But the two most important provisions bearing on the 
 Parquet-Coulisse mystery are, first, the " solidarity " of the 
 Agents de Change, whereby all the members are held re- 
 sponsible for the liabilities of one toward both givers of 
 orders and lenders of money, a unique feature that will be 
 described later in connection with the credit facilities of the 
 Bourse; and second, the rigidly enforced rule that under no 
 circumstances may an official broker buy or sell securities 
 for his own account. He is a commission broker only, an 
 agent, and never a principal. If he should at any time 
 receive an order to buy and and an order to sell the same 
 amount of the same security at the same price, he could not, 
 under the rules, offset or " apply " the two opposite orders 
 in his office. He must verify in the market the impossibility 
 of obtaining a better price for either, with the aid of an 
 official acting under the supervision of the Syndical Cham- 
 ber, the name of the board of governors of the Compagnie. 
 
 This last rule, which is considered necessary in France 
 for the protection of the investor, entirely eliminates from 
 
 ' J. Combat, Manuel des Operations de Bourse, p. 160. 
 
47 1 j ORGANIZATION OP THE PARIS BOURSE 29 
 
 the official Bourse that important class of speculative brok- 
 ers, who under the name of jobbers form the backbone of the 
 London Stock Exchange, and as room traders are respon- 
 sible for the bulk of the dealings, at least on one side, in New 
 York. This energetic and venturesome class often possessed 
 of large capital, but debarred from the Parquet or unwilling 
 to do a commission business solely, has from the beginning 
 been the chief support of the outside, free market, the 
 Coulisse/ Here they could legally buy and sell any securi- 
 ties on their own account without the payment of a com- 
 mission, and here they also had from time immemorial man- 
 aged to deal for others in Parquet securities, collecting a 
 brokerage from both sides. For the Parquet had been con- 
 strained to concede to them, on account of their numerous 
 and irrepressible dealings, the right of the so-called 
 "Franco", i. e. a purchase and sale of the same security 
 in the same market on the same day, under an obligation to 
 pay a commission only upon the amount of the larger trans- 
 action, on whichever side it might be. 
 
 It might seem that the avoidance of the small commission 
 of 1/20 or 1/16 of I per cent which they would pay on 
 matched orders, or even double the amount due on single 
 orders, would scarcely be sufficient incentive tO' the forma- 
 tion of so great an outside market, but it must be remem- 
 bered that this small sum repeated many times on a multitude 
 of transactions grows through the course of a session to a 
 considerable amount. In all the large markets, such busi- 
 ness is often done on a very small margin, the profit emerg- 
 ing from the enormous turnover. In addition, the outside 
 brokers had always the profits of their speculative purchases 
 and sales. 
 
 Naturally enough, the growing pressure of competition 
 
 ' Cf. Boissiere, op. cit., p. 354. 
 
30 THE PARIS BOURSE AND FRENCH FINANCE [472 
 
 among the Coulisse firms, due to their constantly increasing 
 number, made them more and more reluctant to pay the 
 Agents de Change's commission, and impelled them to the 
 alarming encroachments of 1893 on the Parquet's commis- 
 sion business. This resulted in a certain advantage to the 
 public through a broadening and bettering of the market for 
 its securities, the spread between successive purchase and sale 
 prices being theoretically decreased by one-fourth to one- 
 half of the total commissions each way, but tending, of 
 course, toward a complete supersession of the carefully safe- 
 guarded official market (marche ofUciel).^ 
 
 This development of the outside market could have been 
 prevented by the Parquet by the admission of the Coulissiers 
 to their association, but they had neither the power nor the 
 desire to take such action. Only the French Government 
 could increase the number of official brokers, and only the 
 Government could alter the Commission rule and allow offi- 
 cial brokers to trade for their own account and profit, as was 
 the practice of the Coulissier, or, as they call themselves, Ban- 
 quiers. This change neither the French Government nor 
 the French people were inclined to make. It seems to have 
 long been a fixed idea in France that the integrity of the 
 quoted prices must be maintained solely through the agency 
 of the strictly commission broker, and this is one of the 
 strongest claims of the Parquet to support for the con- 
 tinuance of its monopoly. It entirely overlooks the fact that 
 the utility of a quotation as an index of current security 
 values depends quite as much upon the number and amount 
 of transactions at that figure as upon their genuineness. A 
 broad and active market, i. e. one made by a large number 
 of people trading in the same security, is the best guarantee 
 of price integrity, not only because successive prices are 
 
 ' Cf. Courtois, OpSrations de Bourse, p. 206. 
 
473] ORGANIZATION OF THE PARIS BOURSE 31 
 
 apt to be " close " to each other, but also because it is much 
 less susceptible of manipulation than a narrow market how- 
 ever safeguarded. In no other important country is there 
 the rigid separation of stock market men which obtains in 
 Paris, and it is safe to predict that permanent peace will not 
 settle upon the Parquet and Coulisse until dealers for their 
 own account are admitted to a fuller participation in the 
 official market. 
 
 The objections to this arrangement, however, do not pro- 
 ceed entirely from the French investor. The members of 
 the Compagnie des Agents de Change are clothed with great 
 financial and social prestige. There are many traders who 
 do not attract either the personal or official attention of 
 members of the Compagnie. Up to the early nineties, it 
 was necessary to deposit $20,000 with one in order to deal 
 for the account, i. e. to speculate, and although this sum has 
 since been greatly reduced, a good introduction is still ad- 
 vantageous to the prospective client. The fact that the 
 price of each seat on the Parquet was at that period some 
 $300,000 (in 1898 also) ^ explains in a measure the aloof- 
 ness of the official broker. 
 
 It must not be supposed, however, that the 70 Agents de 
 Change personally transact the great volume of business that 
 daily rolls through the official market. Each of the 70 
 brokers is permitted by the rules 6 clerks (conimis princi- 
 paux) authorized to negotiate purchases and sales. Thus 
 the actual intermediaries on the Parquet may total 490, 
 a number that compares favorably with the 500 to 600 brok- 
 ers who ordinarily appear on the floor of the New York 
 Stock Exchange. 
 
 It is rather the principle of " solidarite " which imposes 
 upon the members collectively responsibility for the derelic- 
 
 ;^ ^ Vidal, op. cit., 5. 170. 
 
32 THE PARIS BOURSE AND FRENCH FINANCE [474 
 
 tioiis of each that causes the official broker to be so careful 
 both as to his clients, who are often carried uncovered for 
 heavy amounts, and as to his associates, who have such 
 power to involve him in their downfall. For this reason 
 power is given to the Syndical Chamber to examine mem- 
 bers' books at any time and to bring pressure to bear on 
 those members who overextend their credit. Thus, the ex- 
 clusively broker organization of the Parquet, the small num- 
 ber of seats, and the principle of solidarity have all com- 
 bined to exclude the Coulissiers, financially or otherwise 
 personae non gratae, from the official market. 
 
 The character of the official organization has also given 
 rise to another class of stock-market men, distinct both from 
 the Agent de Change and the Banquier who deals solely on 
 his own account. They exist to some extent in every market, 
 but are especially numerous and important in Paris. These 
 are the " Rcniisiers", so called from the term applied to 
 their remuneration, the " remise " This is the rebate or 
 discount allowed them from the regular commission by the 
 Agent de Change on the business they bring. It was said 
 in 1892 that nine-tenths of the Parquet's business came 
 through the Remisiers. There are grades of middlemen 
 varying from the individual who brings in occasional small 
 transactions to those who have desks in the Agent's offices 
 or who have large suites of offices of their own, and who 
 stand high in the favor of the Agent de Change and the 
 " Haute Banque " Recently, the largest banks have come 
 to overshadow all others in this comparatively modest func- 
 tion, collecting all over France thousands of orders that 
 they send in a lump to the Parquet. 
 
 The Coulisse Banquiers have long acted as Remisiers, and 
 often have large sums due them at the close of each settle- 
 ment, the result of the business contributed to the various 
 Agents de Change during the preceding period inten^ening 
 
475] ORGANIZATION OF THE PARIS BOURSE 33 
 
 between settlements. This not undesirable activity on the 
 part of the outside brokers was one of the main reasons for 
 the tolerance extended to them by the official monopoly, but 
 there were two other no less potent reasons. The monop- 
 oly of the Parquet has been held in the Courts to apply 
 only to public securities of France and others susceptible of 
 quotation. This left a considerable field where the oper- 
 ations of the outside broker were entirely legitimate, and 
 where he could not be suppressed. These curb securities 
 that for one reason or another were not listed on the official 
 or main market exist everyTvhere, and are everywhere left 
 to the curb broker. 
 
 But we find in Paris that the premier security of France, 
 the Rente Frangaise, has for many years enjoyed its best 
 market not on the official Parquet, but on the Coulisse de la 
 Rente, or Curb Market in Rentes, a sort of official annex 
 market of the Parquet, tolerated in fact, but without standing 
 in law.^ When the tax on Bourse transactions was imposed, 
 the Agents de Change supplied this Coulisse market with the 
 blank forms required by the Government, but left them 
 still without recourse against welshing on the part of traders ; 
 for it is the French law that unauthorized brokers deal, 
 in officially quoted securities cannot make binding contracts. 
 The explanation of this seemingly anomalous policy on the 
 part of the Agents de Change lies in the growing democracy 
 of France. Through the force of impassioned appeals in the 
 Chamber of Deputies and elsewhere, that the interest of a pri- 
 vate monopoly must not transcend the needs of public credit, 
 and through universal recognition of the value of the extended 
 market for rentes on the Coulisse, public opinion has not only 
 sanctioned but has even enforced this modification of the 
 legal rights of the Parquet. Furthermore, there have been 
 
 ' Vidal, op. cit., p. 247. 
 
34 THE PARIS BOURSE AND FRENCH FINANCE [476 
 
 important attacks on the principle of the monopoly itself, 
 regardless of the securities to which it applies.^ The very 
 circumspectness of the Agents de Change, which prevents 
 them from giving tips on price movements, tends to alienate 
 them from the popular heart. The argument that the brok- 
 erage monopoly is medieval and unjustifiably oppressive 
 meets a ready sympathy in modernist quarters. The specific 
 political situation in the Chamber of Deputies had also to be 
 considered. This explains why the Parquet postponed so 
 long, and secured after only a stiff fight the enforcement, 
 in 1898, of its rights against the expanding Coulisse of the 
 early nineties to the results of which we now return. 
 
 The requirement of the production of a bordereau (pro- 
 curable only from an Agent de Change) for each transaction, 
 and the absorption of some of the most substantial outside 
 brokers through the raising of the nimiber of Agents de 
 Change from 60 to 70 dealt the Coulisse of that day a 
 crushing bIoA\'. Many Coulissiers emigrated to Brussels, 
 London or Berlin and continued their business from those 
 centers." The status of the Coulisse des Rentes or " Groupe 
 des Banquiers en rentes Frangaises " as they now call them- 
 selves, remained unchanged, owing, of course, to their close 
 alliance with the members of the Parquet. Those who re- 
 mained of the true Coulisse accepted the conditions imposed 
 by the Agents de Change upon delivery of the bordereaux. 
 and found themselves thereafter possessed of a semi-official 
 status (as recognized remisiers), with their contracts thus 
 legalized and made binding, and in addition their right to deal 
 in unquoted securities reaffirmed. They organized in two 
 associations corresponding to the cash market and term mar- 
 ket in which they had formerly been engaged, called re- 
 spectively, " Syndicat des Banquiers au Comptant " and 
 
 ' Vidal, op. cit., p. 215 et seq. 
 
 ^ Friend, " The Paris Bourse," Forum, Oct. 1901. 
 
477] ORGANIZATION OF THE PARIS BOURSE 35 
 
 " Syndicat des Banquiers a terme ". The first consists of 
 some 150 members, who must each show a working capital 
 of $20,000, and who negotiate cash transactions only. The 
 second comprises some no members who are required to 
 possess a capital of $200,000, and who deal only for the set- 
 tlement at the end of each month. There is no fortnightly 
 settlement on the Coulisse; in both Coulisse markets, they 
 have the power denied to the Agents de Change, of deal- 
 ing for their own account, constituting themselves a coimter- 
 party (contre-partie) to the prospective buyer or seller, pro- 
 vided they so state to him before completing the transaction. 
 For this sort of negotiation, they charge no commission, 
 and many buyers and sellers are not loath to avail them- 
 selves of it. 
 
 For some time after this official pugnacity of 1898, things 
 quieted down, but as the Coulisse slowly pulled itself to- 
 gether, misunderstandings and bickerings increased, until 
 in 1901,^ a voluntary agreement, the famous " modvis 
 vivendi" which is still in force, was arranged. The principal 
 points of this agreement naturally referred to the remise, or 
 rebate, which was to be allowed Banquiers by the Agents de 
 Change when the former applied for the official bordereau 
 to legalize their transactions in the officially quoted securities. 
 For transactions in the time market to be settled at the end 
 of the month, or on the 1 5th of each month, the two settle- 
 ment dates on the Parquet, the Banquier receives a remise 
 of 40 per cent of the commission, for continuation oper- 
 ations or carryovers {"reports" in French) 20 per cent, 
 and for cash transactions 10 per cent. For certain other 
 securities, largely Turkish, Serbian, etc. currently traded 
 in on the Coulisse before the modus vivendi, 8p per cent 
 is allowed. The Coulisse was also admitted to the Floor 
 of the Bourse building.^ 
 
 1 Friend, Forum, Oct. 1901. - E. Guilmard, Le Marche Libre, 
 
36 THE PARIS BOURSE AND FRENCH FINANCE [478 
 
 Listed on these two semi-official Coulisse markets/ 
 the formal organization of each of which closely parallels 
 that of the Parquet described hereafter, are some $1,- 
 000,000,000 par value of securities as compared with the 
 $33,000,000,000 of the official Hst. In addition to these, there 
 are still other securities not listed in any market and traded 
 in by those who have now become the sole " free " brokers, 
 those not connected with either Coulisse or Parquet, and con- 
 stantly watched by the latter for secret violations of their 
 official privilege. These however are of comparatively little 
 importance. The " Groupe des Banquiers en rentes Fran- 
 gaises ", having no legal standing, is not formally organized. 
 
 The Parquet like the Coulisse comprises two or, more 
 accurately perhaps, three markets : the cash, the fortnightly 
 term market, and the monthly term market for certain securi- 
 ties not dealt in for the middle month settlement. But the 
 members of each form one official organization, the general 
 powers of which reside in the General Assembly of all the 
 Agents de Change. The special administrative power is 
 delegated to a board, the Syndical Chamber, elected on the 
 rotative principle. The chief executive officer, the Syndic 
 is also elected by the general assembly. He makes annual 
 reports and is subject to an auditing Committee. 
 
 This in brief is the main structural organization of the 
 Paris Bourse. The 70 members of the Compagnie des 
 Agents de Change with their adjunct 75 members of the 
 Groupe des Banquiers en Rentes, the no members of the 
 Syndicat Fraii^aise des Banquiers a terme, and the 150 
 members of the Syndicat des Banquiers au Comptant, some 
 405 in all — 825 if the 420 negotiating clerks are added — 
 malce up {he mechanism, the functioning of which is de- 
 scribed in the following chapter on technique.^ 
 
 1 Boissiere, op. cit., p. 149. 
 
 - Ibid., p. 89. Also Buchere, Operations de la Bourse, p. 6. 
 
CHAPTER II 
 
 Bourse Technic 
 
 There is no financial district in Paris as there is in 
 London and in New York. The various banks, main 
 offices and railroads, industrial and financial institutions, are 
 scattered throughout the city, connected with the Bourse only 
 by some recently installed telephones and a troop of messen- 
 ger boys. On the floor of the Bourse (the name applied to 
 both market and building) which can accommodate some 
 two thousand persons, are gathered in more or less distinctly 
 marked groups the eight hundred and twenty-five Parquet 
 and Coulisse intermediaries, the messengers, clerks, re- 
 misiers, and a sight strange to English-American eyes, the 
 general public. For in France, the Bourse is a national 
 market, in fact as well as in name, and every Frenchman 
 may personally appear on the floor and overhear his order 
 executed by his broker, a thing unheard of in the Holy of 
 Holies of the " City " or Wall Street. There is no ticker 
 service, but recent news of importance is posted on the 
 bulletin boards, or hawked about by seedy vendors. Some 
 twenty firms do the arbitrage business with foreign markets. 
 These firms are said to make profits of up to $200,000 
 annually. The market is open from twelve to three o'clock, 
 the morning being devoted to the reception and preparation 
 of orders. 
 
 Any amount may be negotiated in the cash market, especi- 
 ally very small fractions of rentes, though the law of 1904 
 forbids the listing of shares of less than $20.00 par value. 
 It is generally said that nine-tenths of the business in terms 
 of capital is done in the term market, while nine-tenths of 
 479] 37 
 
J 
 
 8 THE PARIS BOURSE AND FRENCH FINANCE [480 
 
 transactions in " lots " changing hands occurs in the cash 
 market/ Here there are many small transactions in a great 
 variety of securities, made chiefly by people in moderate 
 circumstances, France being a country of few millionaires 
 and widespread thrift. Owing to this characteristic of the 
 transactions it would be uneconomical, as will be seen here- 
 after, to institute a collective clearing, such as obtains in the 
 time market. Negotiations for cash are usually at the 
 average price, {cours moyen) a price equally distant from 
 the highest and lowest of the session. Orders are also given 
 " at the market " {au mieux), at a fixed price, and at the 
 opening and closing quotations. Orders may also be given 
 to be executed in the first quarter hour of trading {a I'ouver- 
 fure) and at the last quarter hour (a cloture).' 
 
 To insure the integrity of prices of securities quoted in 
 the cash market, they are entered officially throughout the 
 session, as fixed, upon a certain number of sheets kept by 
 employes of the Syndical Chamber {service d' opposition). 
 These registers constitute the record of sales. Each record, 
 containing a certain number of securities, is divided into 
 three columns, the first two for bids and ofifers, the third for 
 actual prices. 
 
 The quotations {cote) for the time market, on the con- 
 trary, are established after the Bourse session. The brokers 
 meet; an aid of the Syndic (executive chief) calls in turn the 
 names of the comparatively small number of securities nego- 
 tiated therein. Each broker announces the prices at which 
 he has traded. For " firm " deals four prices are quoted : 
 first, high, low, last; for " option" deals, the high and low 
 onl}'. Finally the quotation service fixes the average price, 
 upon which all inheritance transfers, commissions, taxes, etc. 
 are based. 
 
 No record of the total daily, monthly or yearly trans- 
 
 ' Cf. Buchere, p. 213. ^ Vida!, op. cit., passim. 
 
48 1 ] BOURSE TECH NIC ^g 
 
 actions is available for publication, for either the Paris or 
 the London markets. Financial opinion in those centers for 
 certain alleged reasons is heavily prejudiced against this 
 feature of publicity, so much a matter of course in Wall 
 Street. It is particularly paradoxical in France, the land 
 of democratic finance, that public knowledge of these im- 
 portant figures, which must be approximately known to a 
 few, is not insisted upon. It is a matter of no small moment 
 whether a price quoted refers to one share or to five hundred. 
 The information given to favored clients, by Agents de 
 Change, or others also in a position to estimate total sales, may 
 at times be of inestimable advantage to such clients, in propor- 
 tion as ignorance of the situation may be disadvantageous to 
 the mass of holders. The excuse sometimes given that such 
 publicity would tend to promote panics, scarcely bears 
 analysis. Clients become accustomed to every recurring set 
 of facts, and discount them eventually according to their own 
 good judgment. While now and then observation of large 
 movements of shares may induce the public tO' participate, 
 the primary effect, as in New York, would be to produce an 
 active speculation and exploration as to its origin. If a sell- 
 ing movement was well founded, for instance, publication of 
 sales might simply hasten a readjustment operation, which 
 would occur in any event, and thus permit all holders a more 
 equal share in whatever market there might be. Publication 
 of amounts of sales also tends to prevent unloading by those 
 having inside information which should have been furnished 
 impartially to all stockholders. It is difficult to see how such 
 secrecy can be other, in the long run, than a cloak for market 
 rigging and manipulation, rather than an aid to genuine price 
 fixing, which is proclaimed to be the great service of the 
 official Bourse. 
 
 It must not be supposed that the Paris cash market,^ which 
 
 1 The following account of the cash and, in the next chapter, of the 
 
40 THE PARIS BOURSE AND FRENCH FINANCE [482 
 
 is of considerable size, is analogous to the so-called New 
 York, or American cash market. The latter is in reality a 
 time market strictly comparable to the European time mar- 
 kets, except that the time between the compulsory collective 
 settlements is one day rather than a fortnight or a month. 
 In the cash market of Paris, each transaction is settled in- 
 dividually, within certain wide time limits, and settled or- 
 dinarily by cash and stock deliveries. Transactions are not 
 by any means settled at once, or even within the following 
 two or three days. For bearer securities a delay of 5 days in 
 delivery is allowable; 10 days is often taken. For regis- 
 tered securities, a delay of 1 5 days is possible, and in the case 
 of certain insurance companies, etc. where the consent of the 
 board of directors to the new stockholder is required, 8 days 
 more. So packages of securities are constantly being re- 
 ceived and prepared in brokers' offices for delivery on pre- 
 vious cash transactions within the above mentioned limits 
 of delay. To facilitate these deliveries between brokers, 
 which of course occur daily, an institution called the 
 Chambre de Compensation (settlement service) has been 
 organized. Every morning from 9:45 to 11 :i5, the brok- 
 ers send to the Salle de Compensation (settling room) the 
 securities they have on hand to deliver, accompanied by a 
 memorandum (bordereau). This memorandum is subject 
 to a tax, collected by means of a stamp which must be affixed 
 to the memorandum for the benefit of the Parquet fund, or 
 bank (Caisse Commune), which will be described in the 
 Chapter on Credit Facilities. This tax or due is estimated 
 to be about 5 per cent of commissions received. The memo- 
 randum itself states the nature, amount and due date of the 
 
 cerm settlements, follows closely the excellent and unique exposition of 
 M. Boissiere, La Compagnie des Agents de Change (1908), pp. 177-304, 
 Cf. J. Combat, Manuel des Operations de Bourse (1913), pp. 193-274. 
 See also Manuel des Agents de Change, Banque, Finance et Commerce 
 {^^3)> and also SuppUment du Manuel (1902). 
 
483] BOURSE TECHNIC 41 
 
 securities, and must agree with the one given by the seller 
 broker to the buyer broker the day after the sale. 
 
 The Salle de Compensation is specially furnished with 
 cashiers' desks (cabines), one for each Agent de Change, 
 and each with a wicket at which sits a clerk (commis) dur- 
 ing the entire time. He receives deliveries, and after veri- 
 fying the bill (engagement) with the attached memorandum 
 (bordereau) and counting and verifying the securities, he 
 makes payment. E^ch office likewise sends a clerk (garqon 
 de recette) to deliver the bundles of shares and receive 
 payment. 
 
 The payments, in order to do away with unnecessary 
 cash movements, are in the form of tripartite, perforated 
 green checks, obtained in standard blank form through the 
 S3mdical Chamber's agency. The paying broker's clerk re- 
 tains the stub (souche) of the check as a control. The sell- 
 ing broker's clerk keeps the voucher duplicate (Hche) as a 
 receipt, and delivers the check proper (talon) to a repre- 
 sentative of the Syndical Chamber who presents it at once 
 to the bureau of current accounts established in the Bourse 
 itself, under the supervision of the Secretary General. 
 
 The employes of this bureau, referring to the data on these 
 checks continually presented to them, make the correspond- 
 ing debit and credit entries to the accounts of the various 
 brokers. In an hour the current accoimt of each broker is 
 closed, and his credit or debit balance established. Each 
 Agent de Change carries an account with the Bank of 
 France, which through a previous arrangement with the 
 Compagnie des Agents de Change aids the settlement as 
 follows : 
 
 Each debtor broker draws a special yellow check on the 
 Bank of France for the amount he owes, to the order of the 
 Caisse Commune. The Caisse Commune then draws its 
 checks upon the Bank to the order of the various creditor 
 
42 THE PARIS BOURSE AND FRENCH FINANCE [484 
 
 brokers for the amounts due them, the total of which must 
 obviously equal the total of checks drawn to the Bank's credit, 
 as they relate to the same transactions. Then the Bank simply 
 debits and credits upon its books the accounts affected, while 
 the special account created with the Caisse Commune is 
 always exactly balanced. Thus the settlement of immense 
 sums is effected without the least movement of cash. 
 
 For the purpose of verification, the bureau of current 
 accounts sends to each broker a daily statement of his ac- 
 count, and a general statement of all balances due the Bank. 
 The latter returns it with certification that it conforms to 
 the balances of the yellow checks. A third statement is de- 
 posited in the archives of the Syndical Chamber. Brokers 
 may settle otherwise, outside, by cash or agreement, but if 
 by check on the Bank of France, the check must be a blue one. 
 This process, which is carried on every open day, applies 
 only to the cash market. The term settlement or liquidation, 
 as it is called, though based on the same underlying prin- 
 ciples, is much more complicated in practice and takes place 
 only at the middle and end of each month. 
 
 Commissions, though varying with the market and the 
 security traded in, average a little less than in Wall Street. 
 In the cash market, one-tenth of one per cent is charged on 
 all except litigated securities, for which one-fourth per cent 
 is required. For the monthly settlement a charge of one- 
 tenth to one-twelfth of one per cent is made, totaling one per 
 cent or a little over if a security is carried through the year 
 (12 successive liquidations). In the market for securities 
 settled fortnightly, one-tenth of one per cent is the prevail- 
 ing rate. 
 
 The obligation of the brokers to guard and collect coupons 
 is an interminable source of expense and trouble, owing 
 to the large number and variety of securities, the dispersion 
 of the paying companies' offices, and often the pettiness of 
 
485] BOURSE TECH NIC 43 
 
 the individual amounts collected. The Syndical Chamber 
 has established a central bureau for receiving and cashing 
 coupons. It also pays calls on partly-paid stock when prop- 
 erly covered. Brokers deposit the coupons, or often the 
 certificates on which the dividend is due. The clerks of 
 the bureau stamp them with the registered number of the 
 broker, and send them out for collection by its dozens of 
 receipt boys (gargons de recette). In forty-eight hours the 
 amount is credited to the broker by means of a rose check 
 at the Chambre de Compensation at the same time that he 
 receives the green checks of his debtor colleague. 
 
 Furthermore, in order to simplify the process of settling 
 security balances, the Syndical Chamber has another ar- 
 rangement with the Bank of France by which the latter 
 opens to the Agents de Change special deposit offices for 
 securities. Receipts given by the bank are at once received 
 by the Syndical Chamber, which gives in return its own re- 
 ceipts (recepisses) . These receipts pass from hand to hand, 
 from broker to customer, and especially between offices on 
 liquidation days in lieu of the actual certificates. Securi- 
 ties so deposited must be in packages of twenty-five shares 
 (actions), or twenty-five bonds (obligations) which are the 
 minimum amounts dealt in on the term market, or 2,500 
 francs of rentes, or the minimum amount of foreign govern- 
 ment securities dealt in for the account. The Bank of 
 France receipt deposited with the Syndical Chamber can be 
 withdrawn only when the recepisse surrendered therefor 
 bears the name of an official broker as its last endorser. 
 
 In 19 1 2, the total separate bundles of securities held by 
 the Bank of France was 863,607, the number of certificates 
 13,462,309, and the value of the above at prices of December 
 24, 1913, over $1,600,000,000. Those deposited by brokers 
 are not stated separately, but may be supposed to constitute 
 a very large part. 
 
CHAPTER III 
 Bourse Technic (Continued) 
 
 THE TERM SETTLEMENTS 
 
 In the term market, there are no transactions at the 
 " average price ", this being ascertained at the close of the 
 session for other purposes. In this market, the purchaser of 
 securities has, unless the contrary has been agreed upon by 
 the contracting parties, the s6-called right to discount (droit 
 d'Sscompte) , i. e. the right to demand immediate delivery of 
 the securities upon payment of the purchase price. It is 
 sometimes used, though less than formerly, by market lead- 
 ers to embarrass short sellers, and force a rise. However, 
 as such securities are delivered only four days after notice 
 of calling has been given, and after a period of at times 
 six or seven days has elapsed, it would be useless to call after 
 the tenth of the month for the medio settlement, or after the 
 twenty-fifth for the ultimo, as the settlement at the end of 
 the month is known.' 
 
 Unlike the situation in Wall Street, it is entirely legal to 
 trade in options (puts, calls and straddles, etc.) in Paris, 
 where they have great popularity on account of the small 
 capital required for large transactions. The almost endless 
 complications and importance of such options have brought 
 out a volume devoted to their explanation.- No option 
 
 ' Cf. Buchere, op. cit., p. 257. 
 
 ' Vidal, " Le Stellage," Congrks Valeurs Mobilieres, Paris, 1900. 
 44 [486 
 
487] BOURSE TECH NIC 45 
 
 contracts may be made for a longer period than two months 
 (second or fourth liquidation) in either term market. 
 
 Option contracts may either be converted each day at two 
 o'clock into "firm" (regnlar) contracts, or be abandoned. 
 They are dealt in for the day after the fifteenth for the medio 
 liquidation, and the day after the last day of the month 
 for the ultimo. They must be converted or abandoned by 
 I 130 o'clock of the day before the liquidation for which they 
 were contracted.^ All firm transactions, i. e. ordinary pur- 
 chase and sale contracts in the term markets, must be for the 
 next settlement. For French Government securities, shares 
 of the Bank of France, of the Credit Foncier (national land 
 banks), and shares and bonds of certain French railways, 
 settlement is due at the end of each month, (tdtimo). For 
 all others settlement is made at the end of the month, and 
 also at the 15th, (medio) of each month. 
 
 All through the fortnight or month, the Agents de Change 
 have contracted with each other on behalf of their many 
 clients. Their books are filled with open debit and credit 
 accounts, at times with enormous balances both of securi- 
 ties and cash in favor of or against many of their clients. 
 No individual, material guarantees are required by brokers 
 from each other. Each one is supposed to be fully pro- 
 tected as to his client buyers or sellers, by cover, (about 
 ten per cent) or by satisfactory guarantees, and to be re- 
 sponsible for his contract in any case, as will be seen later. 
 In case of panic, the Syndical Chamber has the power to 
 forbid brokers to sell for clients, except in liquidation of a 
 bull position, unless the latter provide shares for immediate 
 delivery. 
 
 For the ultimo liquidation, by which clients settle accounts 
 with the Agents de Change, and the latter with each other, 
 
 1 Buchere, Operations de la Bourse, pp. 250, 299. 
 
46 THE PARIS BOURSE AND FRENCH FINANCE [488 
 
 and by which the clients through the Agents de Change settle 
 with the reporteurs (lenders of money up to full market 
 value on stock), five days are required — the 30th, 31st, the 
 1st, 2nd, 3rd and 4th. For the medio where the same 
 operations take place, four days are needed — the 1 5th, 1 6th, 
 17th and 1 8th. This settlement of the brokers with each 
 other and with the reporteurs is properly called the central 
 liquidation. For this settlement the facilities of the cash 
 market may not be used, all time transactions, without ex- 
 ception, being required to go through the liquidation centrale. 
 
 Some of these time transactions are entered into only for 
 the medio settlement, some, like those in Government rentes, 
 for the ultimo settlement only, while other shares are traded 
 in for both accounts. All time contracts, however, are 
 eventually liquidated at one or the other of these collective, 
 compulsory settlement periods.^ 
 
 The first day of the settlement is the day of general 
 liquidation and carry-over operations {reports) . The second 
 and third days are devoted to office work, statements of ac- 
 counts, straightening out of books, establishment of balances 
 of differences of both securities and cash. For the medio 
 settlement, ( 1 5th-of-the-month) , a single day suffices. The 
 day before the last day of the settlement, called " debtors' 
 day," the client debtors deliver securities or settle their cash 
 debit balances with the brokers. The last day, called credi- 
 tors' day, the brokers, through the Syndical Chamber, ex- 
 change the securities and credits that have been received 
 by them, and further distribute them among their client 
 creditors. 
 
 In order to simplify the settlements as much as possible, and 
 to hold to a minimum the cash payments for securities, several 
 practices have developed auxiliary to the preparatory book- 
 
 '- Cf. J. Combat, Manuel des Operations de Bourse, pp. 193-274. 
 
489] BOURSE TECHNIC 47 
 
 settling process which precedes the transfer of credit and se- 
 curities. One of these processes has to do! with the balancing 
 of securities, and is known as a " compensation ". It occurs 
 between a customer and two or more brokers, when the 
 former has bought and sold similar shares through different 
 offices. To obviate what would be in effect delivering to 
 and receiving from himself, he sells at the making-up price 
 (coiirs de compensatioti) , where he has bought, and buys up 
 to a similar amount where he has sold, until only the balance 
 of his purchases or sales remains to go through the settle- 
 ment. These orders are marked " for bookkeeping pur- 
 poses only " and are simply entered on the brokers' books, 
 not executed in the market. 
 
 The complement of this process is called a " delegation " 
 and has to do only with cash or credits. It is a draft drawn 
 by a customer upon a broker who owes him, in favor of a 
 broker who is his creditor. A special blank form is pre- 
 scribed for this transaction by the Syndical Chamber. As 
 in all collective settlements, there must be some com- 
 mon price fixed for each security. On the Paris Bourse, 
 this price, called the compensation price, is usually the clos- 
 ing or cash price of the security in question at the end of 
 the period intervening between settlements, and, of course, 
 may be either higher or lower than the compensation price 
 of the preceding and following settlements. It is fixed by the 
 respective syndical chambers on both Parquet and Coulisse. 
 The differences between this price and the various market 
 prices, at which bargains have taken place, constitute the 
 losses and gains of the buyers and sellers, or, as they are 
 called in Paris, givers of orders (donneurs d' ordres) ; for 
 the name client is reserved for another class which, on the 
 Parquet, occupies a place unique in the stock exchange of 
 the world. 
 
 This class, which the French call " reporteurs ", and 
 
48 THE PARIS BOURSE AND FRENCH FINANCE [490 
 
 " clients ", consists of capitalists, banks, railroad and indus- 
 trial companies, etc., who loan their funds for fortnightly or 
 monthly periods, on securities up to the full extent of their 
 market value. They act through the brokers almost alto- 
 gether, trusting to their judgment in the selection of the 
 borrower, usually one who wishes to " carry over " stock, 
 bought or sold short, to the next settlement day. Inasmuch 
 as the brokers, as will be described fully in the next chapter, 
 are collectively liable for the huge sums loaned through 
 them individually to their order-giving customers, they are 
 obliged to give a prominent place in the settlement to the 
 reporteurs, as well as to their commission-paying friends. 
 
 The reporteur, as does also the short seller (in regard to 
 his intentions) advises the Agent or Coulissier, some days 
 before the liquidation, of the amount he wishes to invest. 
 He receives from the Agent a memorandum stating the na- 
 ture and amount of securities reported and giving a receipt 
 for them. The securities are usually held by the Agent (or 
 rather by the Bank of France to his account) for the re- 
 porteur until the next settlement. The reporteur is required 
 to give two days notice of withdrawal of funds preceding 
 liquidation.'^ 
 
 In the cash market, securities, owing to their great num- 
 ber and to the widely varying amoimts and denominations 
 of certificates which are dealt in, are not settled. The 
 settlement covers only the cash and credit balances. But in 
 the time markets, both are " compensated ". This necessi- 
 tates the carrying on of two simultaneous processes in the 
 bookkeeping work that precedes and accompanies the central 
 liquidation (settlement) between the brokers. One of these 
 processes has to do with the recording, accounting, and 
 balancing of the securities involved in the period's trans- 
 
 1 Cf. J. Combat, Manuel, p. 236. 
 
491 J BOURSE TECHNIC 49 
 
 actions, preparatory to their final acceptance or delivery, and 
 the other with a similar handling of cash and credits. Work 
 is carried on in the brokers' offices along these twO' parallel 
 lines simultaneously. 
 
 To facilitate the handling of the time transactions ef- 
 fected in the period of a liquidation, the Syndical Qiamber 
 has prescribed the keeping of an auxiliary book by each 
 broker, called " Register of Brokers ". In this register a 
 double page is devoted to each of the sixty-nine colleagues 
 of the broker in question. The left page, divided into a 
 great number of vertical columns, corresponding respectively 
 to the securities negotiated at terme (on margin), is used 
 for purchases. The right page, similarly divided, is de- 
 voted to sales. AH operations entered on the daily account 
 books of the broker and his clerks are carried to this register, 
 the sales of the broker being carried to the left page headed 
 by his name, and entered in the column accorded to the se- 
 curity sold to him. Purchases are carried in a similar man- 
 ner to the right page of the broker affected, and recorded 
 under the proper security heading. 
 
 If only these data w^ere used as a basis of settlement, each 
 broker would deliver to and receive from every other broker 
 immense amounts of many securities, when perhaps his 
 final position would prove to be without change, so far as 
 securities were concerned, or with a small credit or 
 debit balance. The simplifying process is, therefore, carried 
 further. Since on the day before the day of liquidation, 
 entries in this register, mentioned above, are provisionall}'- 
 stopped, the addition of the sums inscribed in the different 
 columns gives the total credit and debit amount of each 
 security of the broker in question in relation to each other 
 broker. 
 
 Subtraction of the lower from the higher total of each 
 security gives the credit or debit balance which one broker 
 
50 THE PARIS BOURSE AND FRENCH FINANCE [492 
 
 has against each of the other sixty-nine brokers for every 
 security in which he has dealt. The obtaining of this ele- 
 mentary balance is the first step in the bookkeeping work of 
 the settlement. This done, the next step is to transcribe 
 these elementary balances into a second note book or ledger 
 (brochure), each sheet of which is used entirely for one 
 security. In the middle of this sheet the names of the 
 brokers are printed, one under the other, in alphabetical 
 order, as shown below. Opposite the name of each broker 
 the elementary balance previously obtained is entered, 
 buyer balance on the left, seller balance on the right. 
 
 RIO TINTO 
 
 
 Brown et Cie. 
 
 200 
 
 so 
 
 Jean Paul 
 
 
 ISO 
 
 Rousseau Freres 
 
 
 These elementary balances taken off the day before the 
 day of liquidation are not definitive. They may be modi- 
 fied in one way or another by the operations of the next 
 day (the first day of liquidation), or by reports concluded 
 the same day, or by the compensations described above. The 
 provisional elementary balances thus obtained are at once 
 corrected by taking into account these superseding modi- 
 fications. 
 
 Under the head of each security and at the right of the 
 name of the broker to whom sold, is placed the number of 
 shares which the broker has to deliver; similarly, the shares 
 to be taken up are grouped on the left. The difference be- 
 tween the total of the two columns gives the net credit or 
 debit securities balance of the broker toward his colleagues 
 
493] 
 
 BOURSE TECHNIC 
 
 51 
 
 en masse ^ or toward the syndicate. In case the twO' totals are 
 equal, the broker has neither to deliver nor receive the stock 
 in question. This second step gives the total balance of each 
 security to be delivered. It is easy to see the great simpli- 
 fication effected by this process, which leaves the position of 
 the broker exactly the same as though he had settled his stock 
 or bond account individually with each of his confreres 
 in turn. 
 
 The third step is taken with the help of the Syndical 
 Chamber which substitutes itself for each Agent de Change 
 
 Liquidation Sheet. (Reduced to 3 agents and 3 securities) 
 
 M. FONTAINE 
 
 M. FONTAINE 
 
 Jean Paul . . 
 Brown et Cie . 
 Rousseau Freres 
 Balance bought. 
 
 r/c 
 
 Rio 
 
 Rus- 
 
 rentes 
 
 Tinto 
 
 5f« 
 
 75 
 
 200 
 
 
 25 
 
 '■■ 
 
 SO 
 
 75 
 
 100 
 
 200 
 
 125 
 
 3% 
 rentes 
 
 Jean Paul . . 
 Brown et Cie 
 Rousseau Freres 
 Balance sold. 
 
 75 
 25 
 
 Rio 
 Tinto 
 
 50 
 150 
 
 Rus- 
 sian 
 
 SO 
 75 
 
 I2S 
 
 in settlement of his account with the other sixty-nine. 
 For this purpose each office transmits to the office main- 
 tained by the Syndical Chamber on the evening of the first 
 day of the mid-monthly liquidation, and on the morning of 
 the second day of each end-of-the-month liquidation, a sheet 
 called " liquidation sheet " reproducing in compact form the 
 data carried to the brochure, mentioned above. This sheet 
 is divided vertically into two parts, each part containing as 
 many vertical columns as there are securities comprised in 
 the liquidations. All the elementary seller balances are in- 
 scribed in the column to the right devoted to the security in 
 
52 THE PARIS BOURSE AND FRENCH FINANCE [494 
 
 question, opposite the name of the Agent de Change who 
 must make dehvery. All the elementary buyer balances 
 are inscribed on the left in the column given to the respective 
 security opposite the name of the Agent de Change who 
 must receive the security. To escape any error which would 
 delay the normal progress of the liquidation, the brokers' 
 clerks check these elementary balances. If a comparison 
 of the total buyer and seller balances reveals a buyer 
 balance, it is carried to the foot of the seller column; 
 and vice versa, if a seller balance is found. This pro- 
 cess is completed for all the securities on the sheet. The 
 Syndical Chamber is thus furnished simultaneously with 
 the sheets made up by the seventy offices. The liquidating 
 clerks of the Syndical Chamber immediately undertake the 
 final step in the settlement of share accounts. They take 
 account of only the total debit or credit balances in each 
 security of each broker. These sums are transcribed upon 
 the liquidation sheets of a large " format ", of the same type 
 as the sheets turned in by the offices, on the right of the name 
 (in the center) of the Agent de Change under the proper 
 security heading if it is a seller balance; at the left of the 
 name of the Agent de Change, if a buyer balance. Adding 
 column by column, that is to say, security by security, the 
 clerks of the Syndical Chamber must find the totals equal, 
 since the securities sold are also the securities purchased. 
 This work must be finished the evening of the first day of 
 liquidation for Hquidations of the fifteenth of the month, 
 and the morning of the second day for the end-of-the-month 
 liquidations. It only remains to bring together the Agents 
 de Change who are actually to deliver and those who are 
 actually to receive. 
 
 The Syndical Chamber clerks set off (rapprochent) for 
 each security successively the offers of and demands for 
 shares. They make the quantities to be taken up agree, 
 
495] BOURSE TECHNIC 53 
 
 cancel (biffent) upon the sheet the names of the Agents de 
 Change whose obHgations to deliver or receive securities are 
 settled by offsetting credits (servis) and those " rung out " 
 (liber es). They then indicate upon tickets (tableaux) sent 
 to the offices of delivering Agents de Change the next day, 
 the names of the colleagues in whose names the deliveries 
 must be prepared. 
 
 There is left now only the material delivery of the se- 
 curities. This last task is effected through the mediation of 
 the Syndical Chamber. In each office, the packages of de- 
 liveries are prepared, account being taken of the tickets de- 
 livered to them from the Syndical Chamber office. If these 
 are registered certificates the}^ are transferred to the name of 
 the buying Agent de Change, or converted into bearer se- 
 curities, to be passed over to him to make, within ten days, a 
 final transfer to the name of his client purchaser. 
 
 Bearer securities are divided into packets containing the 
 least quantity negotiable in the time market. The certificates 
 are delivered to the Syndical Chamber before noon of the 
 morning of the last day of liquidation, accompanied by a 
 memorandum (bordereau), or list of contents, names, etc. 
 Receipts (recepisses) endorsed with the name of the Agent 
 de Change may be, and usually are, substituted for the actual 
 certificates. In the afternoon of the last day of liquidation 
 the certificates and receipts, which in the morning have been 
 stored in the delivery room of the Syndical Chamber, are 
 distributed among the creditor Agents de Change, the latter 
 sending a messenger furnished with power of attorney to 
 take delivery. 
 
 To preserve the record of the deliveries, the Secretary Gen- 
 eral has two statements drawn up, one comprising the se- 
 curities to be delivered, quantities and names of sellers ; the 
 other, securities to be taken up, quantities and names of 
 buyers. Thus, delivery of a few thousand certificates suf- 
 
54 THE PARIS BOURSE AND FRENCH FINANCE [496 
 
 fices to settle definitively transactions in which millions of 
 shares change hands. 
 
 The settlement of the cash accounts due between the 
 various Agents de Change is obviously simpler than the set- 
 tlement of securities, since here no complications intervene 
 such as those caused by the diversity of the types of securi- 
 ties. When the clerks of the different offices, at the end of 
 each session of the Bourse, post the record of the day's 
 business from the journals to the register of the Agents de 
 Qiange, they enter the price and amount of each security 
 upon the same page in a special column, to the account of 
 each colleague. 
 
 Sums due from securities sold, coupons, options, etc., are 
 totaled on one side and compared with debit totals from 
 securities purchased, options abandoned, etc., and the result- 
 ing debt or credit balance established against every other 
 Agent de Change. The morning of debtors' day (third or 
 fourth day of liquidation) also called day of checking of 
 cash, each office makes up its cash sheet, entering opposite 
 the name of each of the sixty-nine Agents de Change, at the 
 left the elementary credit balances, at the right the element- 
 ary debit balances previously obtained. Adding the sums 
 entered on each side and comparing them, a total credit or 
 debit balance, as the case may be, is obtained. 
 
 This total balance, however, is not yet definitive. It can 
 be modified by means of "delegations" (drafts drawn on 
 one Agent de Change to the order of another Agent de 
 Change) by a client who wishes to escape a shifting of his 
 funds. The balance being corrected in view of the delega- 
 tions, a new balance appears, called the balance after dele- 
 gation, which sum the Agent de Change definitely must pay 
 to or receive from the Syndical Chamber. 
 
 All the offices file with the bureaus of the Syndical Cham- 
 ber the evening of debtors' day, their verified cash-balance 
 
497] BOURSE TECHNIC 55 
 
 sheets, which are checked by the clerks collectively. Then 
 the liquidating clerks carry to a cash-liquidating sheet, similar 
 to those handed in by the Agents de Change, the total 
 balances, creditor to the right, debtor to the left. Adding 
 the sums on the right and on the left, the totals must be 
 equal since the dues of the creditors are a necessary counter- 
 part of the obligations of the debtors. The Secretary Gen- 
 eral then has drawn up two cash sheets or tickets, the first 
 containing the names of the debtors and the amounts they 
 are to pay, the second the names of the creditors and amounts 
 they are to receive. These sheets are at once forwarded to 
 th Bank of France. 
 
 The final settlement takes place the last day of the 
 liquidation, called the day of creditors. The debtor brok- 
 ers must draw, to the order of the Caisse Commune 
 syndicate, drafts on the Bank of France to the amoimt 
 of their debt. Before midday, they must furnish to 
 the Secretary General a memorandum issued by the 
 Bank certifying that they are prepared to meet this 
 obligation. In the afternoon, the Caisse Commune gives 
 the order to the Bank of France to credit the accounts of 
 the Agents de Change creditors in the liquidation, the 
 amount of the drafts drawn to their order by the Caisse 
 Commune necessarily equalling the payments made to it in 
 the morning by the debtor brokers. The sums due the 
 clients from the Agents de Change must be paid them, at 
 the latest, the day after the close of the liquidation. 
 
 Close of Liquidation. The total cash debit or credit of 
 an office does not indicate the position of all the clients of 
 the Agents de Change toward all of the other sixty-nine 
 Agents de Change clients. The amount and value of the 
 securities taken up or delivered must be compared ; if taken 
 up, added to a cash credit balance or subtracted from a cash 
 debit balance, if delivered, subtracted from a credit balance 
 
^6 THE PARIS BOURSE AND FRENCH FINANCE [498 
 
 or added to a debit balance. Owing to the "solidarite" (see 
 next chapter) of the Agents de Change, this information is 
 not without interest to the colleagues of the Agent de 
 Change. Hence, each office furnishes the Syndical Chamber 
 with a table, called " tableau recapitulatif ", indicating the 
 cash balance (without showing the delegations which alter 
 the exactness of it) including the quantity of securities taken 
 up or delivered, their value having been calculated by multi- 
 plying the quantity by the mal<ing-up price {cours de com- 
 pensation) . The approximate position of each office is thus 
 stated in a sort of bi-monthly balance sheet, which is de- 
 posited in the " Cabinet " of the Company of the Agents de 
 Change, and may be consulted by all the members of the 
 Parquet. 
 
 It should be noted that, although for clarity in description 
 the operations of the liquidation relating to securities and 
 cash were separated, they are carried out simultaneously in 
 practice. The payment of cash takes place at the same time 
 as the delivery of securities and the securities are taken up 
 the last day, at the same time credit balances are available 
 at the Bank of France. 
 
 The ultimo (end-of-the-month) settlement on the Parquet 
 is accompanied step by step by the ultimo settlement on the 
 Coulisse. In fact, so necessar)'- is this correspondence Idc- 
 tween the two that the Minister of Finance, in his report of 
 September 191 5, on the resumption of liquidations inter- 
 rupted by the war, pointed to the practical necessity of such 
 simultaneous operation. The procedure on the Coulisse 
 markets is in principle and method as nearly as possible 
 identical with that on the Parquet, except that the Banquiers 
 are not obliged to put all their transactions through their 
 central liquidation, and are more careful about their " coun- 
 ter-parties" than the brokers. The right oi discount (droit 
 d' cscompte) also does not exist on the Coulisse. 
 
499] BOURSE TECHNIC 57 
 
 The Bureau of Compensation of the Syndicat des Ban- 
 quiers for future settlement occupies a building jointly with 
 the Syndicat trading for immediate settlement. Here the 
 members of the latter organization send their clerks in the 
 morning with the balances of securities to be delivered to 
 each other member. These clerks also act as receivers and 
 take away the securities to be delivered to them. 
 
 Each firm has a separate booth with a desk and counter 
 allotted to it, there being about one hundred and fifty such 
 booths in the institution. The securities are delivered from 
 one firm to the other in packages, similar to the delivery of 
 checks as between banks by the New York Bank Clearing 
 House, except that the securities are verified and the balances 
 proved at the time of the delivery. After this examination, 
 payment is made to the deliverer's employe by a Bon de 
 Comptabiiite, or order on the members of the association, 
 which also acts as a receipt. Red Bans are given for debits 
 and white ones for credits. These are used to establish the 
 net debits or credits of a firm. Debits have to be made good 
 during the morning. For net credits a white Bon is given, 
 which, after balances are struck and the cash proven, can be 
 exchanged at four o'clock in the afternoon for a check of the 
 Association on the Bank of France for the amount involved. 
 
 It is not obligatory on the part of the members of the Asso- 
 ciation to deliver all their securities through this department, 
 as in many cases they have not received between eight and 
 nine o'clock in the morning, when the settlement takes place, 
 all that they may have to deliver. Also, in cases where the 
 deliverer is doubtful about the standing of a firm that is to 
 receive his securities, he delivers only a small proportion, about 
 ten per cent to twenty per cent, making the excuse that the 
 balance has not arrived from his client, thus failing tem- 
 porarily in delivery. As all debits have to be made good by 
 one o'clock in connection with all securities delivered through 
 the settlement room, the deliverer, believing that the buyer has 
 made good by his ability to take that which was delivered to 
 him in the morning, then delivers directly to the receiver at 
 his office the securities in question. 
 
58 THE PARIS BOURSE AND FRENCH FINANCE [500 
 
 111 connection with the securities delivered by the organiza- 
 tion for immediate settlement, credits are not paid out until 
 four-thirty o'clock in the afternoon. The routine and prin- 
 ciples concerning the receipt and delivery of securities traded 
 in for the account on the fortnightly " Pay Day " is, to all 
 intents and purposes, practically the same as in the case of 
 those traded in for immediate settlement, except that there is 
 an obligation to deliver which is not present in the cash settle- 
 ment.^ 
 
 In the latter days of the official liquidation, the Agents de 
 Change have large remittances to make to the Banquiers on 
 account of split commissions, etc., while the latter may, as 
 givers of orders, be heavily in debt to the former. These 
 at times not inconsiderable settlements, are made individ- 
 ually, and constitute the one cumbersome feature that im- 
 pairs the title of the Paris Bourse to a fully perfected 
 technique. 
 
 One farsighted or lucky provision is the beginning of the 
 ultimo liquidation on the last day of the month. The mone- 
 tary demands of the stock market are thereby postponed to 
 the second, third and fourth of the new month, thus in part, 
 escaping the stringency in the money market due to the usual 
 and unusual end-of-the-month payments, a circumstance 
 which causes the Berlin Bourse members, whose final and 
 entire payments are made on the first day of the new month, 
 constant anxiety. But considerations such as this belong 
 rather in the next chapter, on credit facilities. 
 
 1 Quoted! from S. F. Streit. 
 
CHAPTER IV 
 Credit Facilities of the Paris Bourse 
 
 The Paris Bourse, quite unlike Wall Street, is notable for 
 the huge amount of Government securities, and of foreign 
 securities, listed on its markets. It is the second interna- 
 tional market in the world, and has been said to control the 
 credit of forty countries/ Since 1823 Paris has invested 
 heavily in foreign securities and up to the outbreak of the 
 Avar, more than half the stocksi and bonds on the Bourse 
 were of foreign origin, notwithstanding the provision that 
 such securities (since 1907) could be listed on the Parquet 
 only with the consent of the Ministers of Finance and For- 
 eign Affairs." These foreign securities are chiefly those of 
 foreign Governments, though there are some of foreign rail- 
 ways, public utilities, mines, and industrials. 
 
 In 1914 Paris was the leading market for Russian bonds, 
 and for a large part of the public debt of Spain, Portugal, 
 Turkey, Greece, Egypt, Algiers, Tunis, Roumania, Serbia, 
 and other Balkan states, as well as that of many South 
 American countries. The total foreign investments listed on 
 the Parquet alone were estimated at $14,000,000,000,^ the 
 value of the French securities, chiefly Government " rentes " 
 and railroads, being somewhat less. At present of course, 
 the huge war borrowing, estimated at some $12,000,000,000 
 
 ^ Vidal, op. cit., p. 167. 
 
 ' A. Neymarck, in Journal de Societe Statistique de Paris, Jan. 1916, 
 p. 47- 
 ' Ibid., also Hirst, The Stock Exchatige, p. 90. 
 
 SOI] 59 
 
6o THE PARIS BOURSE AND FRENCH FINANCE [502 
 
 to date (January, 19 19) ^ swells immensely the sum of 
 domestic securities, while many foreign stocks and bonds 
 have been resold, notably to the United States. Other 
 French stocks and bonds are those of municipalities, the 
 Credit Fonder (corresponding to our own Farm Loan 
 banks), other banks and credit companies, public utilities 
 and industrials. 
 
 The annual increment of listings depends 011 the annual 
 French savings, and the arhount of these invested in se- 
 curities. The average annual savings so invested are esti- 
 mated by Neymark to be about one billion," which, deduct- 
 ing $600,000,000 for replacements, leaves some three or 
 four hundred millions as new capital. This habit of sav- 
 ing (I'epargne) of which the French never tire, and which 
 lias been erected to the dignity of a sort of a guardian spirit, 
 depends in turn upon the annual productive power of the 
 French people. This latter is, of course, one of the most 
 difficult of all economic facts to ascertain. If we accept the 
 statement of R. G. Levy,' that the value of the land in France 
 is $12,000,000,000 and the value of buildings, etc., is $15,- 
 000,000,000, counting securities at his figure of $40,- 
 000,000,000, we find the total wealth of France before the 
 war to have been approximately $67,000,000,000, a figure 
 which probabl}'' considerably understates rather than over- 
 states the actual wealth. If as much as ten per cent gross is 
 earned upon this total, the annual income of France is around 
 $6,000,000,000. ' While according to an estimate by L. C. 
 Money the actual national income of the United Kingdom at 
 the outbreak of the war was about $11 ,000,000,000. A similar 
 
 ' Next chapter. 
 
 ' Cf. Rist, " Nos Ressources Financieres," Revue de Paris, Dec. i, 
 1915, p. 656. 
 
 ^ Quarterly Journal of Economics, Nov., 1915. 
 ■• Cf. Rist, op. cit. 
 
503] CREDIT FACILITIES OF THE PARIS BOURSE 6 1 
 
 estimate for Germany was given in a statement issued a little 
 later by the German Government.^ In 19 12 securities ad- 
 mitted to the list in France totaled about $600,000,000, in 
 Germany $650,000,000, United Kingdom $300,000,000, 
 Austria $150,000,000, and the United States $700,000,000.^ 
 
 The great source of French wealth is her wonderfully 
 fertile soil from which she could, if necessary, entirely sus- 
 tain herself, importing only a small amount of grain and 
 meat in the way of staple foodstuffs. From her great silk, 
 iron, steel and other industries, from her fisheries and her 
 merchant marine, she also draws large returns. The funda- 
 mental basis, however, of French credits and French institu- 
 tion.'? is the industrious and frugal character of the French 
 people, their sterling integrity and sound common sense, 
 even though it is said that French thrift is not so accumu- 
 lative as English speculation and German enterprise.^ 
 
 As the Bank of France loans out its millions with a 
 minimum of restrictions, confidence in its success being 
 based on the discretion of its directors, so the Paris Bourse 
 owes its great financial stability and high credit to the semi- 
 ofificial and responsible role that the Agents de Change have 
 long played in the financial history of France, and the rather 
 rigidly organized and well understood function that they 
 have gradually assumed. 
 
 The Agents de Change are more than a mere association 
 of stock brokers who buy and sell on commission.* Their 
 organization is a close-knit and responsible one that guaran- 
 tees to buyers the bona fide character of securities on its offi- 
 
 1 New York American, Dec. 2, 1915. 
 
 2 Neymarck, " Rapports a I'institut International de Statistique," vide 
 Proceedings. 
 
 ^ Vide Levy. 
 
 * Cf. Boissiere, op. cit., p. 216. 
 
62 THE PARIS BOURSE AND FRENCH FINANCE [504 
 
 cial list, and guarantees to its givers of orders, as they are 
 called, that all sums or securities due them from any broker 
 shall be rendered, even in case of the delinquency of the 
 broker. The third undertaking of this unique organization is 
 to guarantee to those who lend money on securities {re- 
 porteurs) through the medium of its members, full repay- 
 ment of all such sums, regardless of the security on which 
 the loan is made, the individual speculator or investor to 
 whom it is made, or the Agent de Change who handles it. 
 In other words this guarantee is not individual but collec- 
 tive, and this collective responsibility of the Parquet tO' its 
 buying and selling and its money-lending clients has become 
 famous as the " solidarite " of the Agents de Change. (It 
 is not practised by the Syndicates of Bankers, the Coulisse). 
 More than any other one feature, except the prohibition 
 to Agents de Change of dealing for their own account, has 
 this credit solidarity shaped the nature of the fully de- 
 veloped brokerage monopoly. It accounts in large degree 
 for the care taken in the listing of securities, for the close 
 scrutiny of prospective members and the financial respon- 
 sibility required of them. It also explains the constant watch 
 maintained by the Syndical Chamber over the operations of 
 each member, the great powers of that body, and the 
 supposedly difficult conditions imposed on traders who do 
 other than a strictly cash business. The collective re- 
 sponsibility of the Parquet to lenders of money on securi- 
 ties, a thing unknown on any other exchange, has naturally 
 had a profound effect in attracting capital into the fortnightly 
 and monthly loans {reports),^ by which speculation in stocks 
 and bonds is financed. Making such loans safe, as il- 
 lustrated farther on, has undoubtedly brought down the rate 
 of interest charged. The report rate frequently runs for 
 
 : \ ^ ■.■■'. '1 ' Buchere, op. cit., p. 265. 
 
505] CREDIT FACILITIES OF THE PARIS BOURSE 63 
 
 months under three jier cent or four per cent, which rate, plus 
 a commission charge of one-half of one per cent on most 
 securities at the monthly carryovers, makes the net cost of 
 carrying securities some four per cent or five per cent 
 per annum. 
 
 The whole result of the perfecting of this complex 
 mechanism for marketing securities has been, aside from 
 the great power acquired by the Compagnie des Agents de 
 Change, the promotion of the corporate form of business 
 organization in France/ In the United States the de- 
 velopment of the New York Stock Exchange, combined with 
 the lack of a discoimt market for commercial paper,^ has 
 even to a greater degree brought about the same result, 
 whereas in London, with its great commercial paper market 
 and antiquated stock exchange, the limited partnerships still 
 thrive like the green bay tree. 
 
 The listing of securities is safeguarded by requiring that 
 they must be legally issued, with the exception of French 
 rentes which must be admitted, and of foreign government 
 securities which are admitted only with the consent of the 
 French Government. One-fourth of the shares must be 
 outstanding and full paid (libere), they must be quoted in 
 their country of origin, and the price of emission together 
 with a list of subscribers must be officially furnished tO' the 
 Compagnie. The purpose of the issue must, in addition, be 
 a proper economic one ; enough shares must be outstanding 
 to make a genuine price; and lastly a transfer agent, and, in 
 certain cases, an office must be maintained at Paris.* 
 
 The responsibility of enforcing these requirements rests 
 on the Syndical Chamber. In 1869, for instance, the Syndi- 
 
 1 Cf. Vidal, op. cit., p. 166. 
 
 - Warburg, " The Discount System of Europe." 
 
 ^ Boissiere, op. cit., pp. 150-152. 
 
64 THE PARIS BOURSE AND FRENCH FINANCE [506 
 
 cal Chamber admitted to quotation, the mortgage bonds of 
 the Memphis, El Paso and Pacific Railroad. Because of the 
 favorable publicity, the bonds were quickly placed, and the 
 first three coupons had been paid before the Parquet, hear- 
 ing rumors of fraud, made investigations, and later de- 
 nounced the Company. 
 
 This brought on the collapse of the Company, whereupon 
 the Syndical Chamber was sued by the defrauded security 
 holders for the amount of their loss. Fraud in procuring 
 admission was shown by the attorneys of the Syndical 
 Chamber, but the latter was held at fault by the highest 
 court for not knowing that only a million of the forty million 
 capital stock had been subscribed, that only a hundred and 
 thirty thousand had been actually paid in, and that the bonds 
 were thus rendered only conditional securities and were un- 
 safe. This omission, the Court held, constituted an act of 
 negligence, and the Syndical Chamber was required to pay 
 one-fifteenth of the damages. This judgment is said to be 
 unique, though the Syndical Chamber has passed on millions 
 of securities.^ 
 
 Speculating customers of the Agent de Change must be 
 known by the Agent to be financially and morally responsible, 
 or must otherwise provide sufficient margin to secure the 
 broker in his operation. In Paris and London speculations 
 are financed by brokers on the mere word of the client buyer 
 or seller tO' an extent that would cause heart failure in 
 New York. When once an introduction is secured and 
 references verified, business is done largely on faith and trust, 
 though the custom of requiring " cover " — usually about ten 
 per cent, varying with the security, the market and the cus- 
 tomer — is an old one in Paris, and sanctioned by law. The 
 broker however is held by his fellow members to a strict 
 
 ' Boissiere, op. cit., p. 170. 
 
507] CREDIT FACILITIES OF THE PARIS BOURSE 65 
 
 compliance with the dictates of prudence. The Syndi- 
 cal Chamber can call for his books for examination at any 
 time, and has the power peremptorily to cut short doubtful 
 speculations. In time of panic, the Syndical Chamber can 
 forbid brokers to sell short for clients unless the latter pro- 
 vide shares for immediate delivery. If a broker becomes 
 doubtful of a client's solvency, he can refuse to " report " 
 him, i. e., supply him with funds for carrying over his se- 
 curities from one liquidation to the next, in which case the 
 client either settles his account, or is " sold out under the 
 rules." 
 
 In case of a delay in delivery on the part of a broker, the 
 receiving broker can " post " the other, and at the end of 
 three full sessions the former is " sold out " by an official of 
 the Syndical Chamber, i. e., a new purchase is made for the 
 benefit of the complainant broker, the broker at fault being 
 liable for the difference. The Syndical Chamber has also 
 the power to intervene to compel a broker to furnish names 
 for transfer operations, or an " acceptance," in the process 
 of "indirect discount" {droit d'escompte), and whenever 
 a client has cause to complain of failure of a broker to remit 
 funds or shares. 
 
 When an Agent de Change fails, he leaves the Parquet 
 forever, a ruined man. The Syndical Chamber steps into 
 his place, calls for a report from each broker who has dealt 
 with him, then proceeds to sell him out, undoing by counter 
 operations all his open transactions, thus releasing each 
 broker from settling with him, and charging the losses or 
 crediting the gains to his assets, leaving his now uncovered 
 colleagues to find a solvent counter party to take the bank- 
 rupt's place. The customers are given their choice of 
 liquidating or maintaining their position with the bankrupt 
 broker according to their interests, until a given time, when 
 those owing pay up, and those having credit balances re- 
 
66 THE PARIS BOURSE AND FRENCH FINANCE [508 
 
 ceive the full amount of their principal, regardless of the 
 state of assets of the bankrupt office. A broker is required 
 to participate personally to the extent of at least one-fourth, 
 in the purchase of his seat ^ and in the deposit of a guarantee 
 fund (cautionnement) of $50,000 with the Government, the 
 two-fourths totaling some $82,000 (estimating price of seat 
 at some $240,000). A working capital of some $80,000 
 additional is necessary, (an Agent de Change at times ad- 
 vancing in a single session as much as $12,000 for registra- 
 tion taxes). It is apparent, therefore, that the broker must 
 be of considerable financial responsibility. 
 
 The amount of capital required has become so large that 
 it has long been customary for an Agent to associate with 
 himself silent partners (bailleurs de fonds) who supply the 
 sum that he lacks and share proportionately in the profits and 
 losses. This capital is, of course,' also available to creditors. 
 If that capital is exhausted, resort can be had to his share of 
 the reserve of the Compagnie bank (Caisse Commune). 
 
 If even this should not prove sufficient, then the com- 
 bined resources of the other members of the Parquet can 
 be requisitioned, provided the obligations of the broker 
 are not illegal, as in the Bex cases where the Court held 
 that the Compagnie was not liable for commitments of a 
 broker who had secretly guaranteed a fixed rate of interest 
 on reports, regardless of the market rate. This collective 
 responsibility is far-reaching and amounts even in normal 
 times to a huge sum. When the great Catholic bank, the 
 Union Generale,- crashed to ruin in 1882, dragging down 
 a score of allied financial and industrial institutions includ- 
 ing the entire Parquet of Lyons, the Paris Bourse found 
 itself heavily involved. Large amounts of the Union 
 Generale securities had been sold through certain Agents de 
 
 ^ Marintsch, La Bourse, op. cit., p. 223. 
 
 ' E. Kaufman, La Bank en France, p. 33 ; also Vidal, p. 189. 
 
509] CREDIT FACILITIES OF THE PARIS BOURSE 67 
 
 Change to the members of the Coulisse, and the latter were 
 on the brink of ruin. They sued their confreres on the 
 Parquet for the sum of $16,000,000 and on the ground of 
 irregularities in the transactions were awarded judgment by 
 the courts. Though the Compagnie as a whole had then 
 but a vague moral obligation, it stood steadfastly behind 
 its members, borrowing the $16,000,000 and honoring their 
 signatures, till the last sou was paid.^ 
 
 This joint liability has since been made obligatory by 
 the law of 1898 already mentioned. It means that in case 
 of a sudden and extensive rise in prices and the subsequent 
 default of the share sellers or, what is more often the 
 case, a sharp and unexpected drop followed by the failure 
 of numerous speculators for a rise, the entire Parquet 
 would be held liable for the unpaid credit balances, due in 
 the first case to the " bulls ", and in the second, to the 
 " bears " and to the reporteurs or money lenders. As the 
 amounts loaned out on the Bourse range from what was 
 probably a minimum of $100,000,000, August, 1914 ^ to 
 over $300,000,000 at the time of the Agadir incident ( 191 1 ) , 
 it is evident that the engagement undertaken by the Parquet 
 is by no means a light one. 
 
 The total resources ^ of the Parquet have been estimated 
 as follows, the amount of the surplus of the Company 
 bank (Caisse Commune) being, for reasons of prudence, 
 kept a secret. The value of the seats fluctuates. In 1857 
 it was $480,000, in 1898, $320,000. 
 
 The total value of the seats at $300,000 (1914) x 70 $21,000,000 
 
 The total value of the guaranty fund, 50,000 x 70 3,500,000 
 
 The surplus of the Caisse Commune say (?) 3,000,000 
 
 A total of $27,500,000 
 
 ' Boissiere, op. cit, p. 317; also Cleveland Moffett, op. cit. 
 ^ See following chapter on War Finance. 
 ' Boissiere, op. cit., pp. 316-320. 
 
(S8 THE PARIS BOURSE AND FRENCH FINANCE [510 
 
 If this should still be insufficient, the reserve of the Caisse 
 Commune could be utilized, and recourse could be had by 
 common-law action to the assets and personal fortunes of 
 the bankrupts. Altogether the total value back of the brok- 
 ers' contracts has been estimated at not far from $100,- 
 000,000, and in 1896 it was stated by Hayaux du Tilly in 
 the Marche Financier (p. 105) that the public had not lost 
 a sou through a broker's act in seventy-five years. 
 
 As in all great financial centers, there exists in Paris a 
 "money trust." That is to say the private banks or a 
 number of the big credit institutions (as they have called 
 themselves since the failure of John Law's scheme made the 
 word " bank " so unpopular) by acting in common are 
 powerful enough to control to a greater or less degree the 
 credit obtainable by various other institutions and com- 
 panies. By concentrating their report loans, for instance, 
 on some one security, or group of securities, and then sud- 
 denly withdrawing en masse from the market, at the same 
 time selling these particular securities short, it was possible 
 for this " money trust " seriously to upset the normal mar- 
 ket, cause widespread distrust, and demoralize the whole 
 speculating and investing public. 
 
 Apart from the danger of raids by financial adventurers, 
 there are sudden withdrawals of funds due to loss of con- 
 fidence, or to urgent demands for capital from other quar- 
 ters. Subscriptions to the national loan in 1891 withdrew 
 so much capital from the Bourse that reports were forced 
 up to twenty per cent and thirty per cent on certain securities. 
 For the first payment on the loan of $140,000,000 some 
 $468,000,000 were desposited, a large part of this sum 
 evidently having been employed in reports at the time.^ 
 
 In the middle of January in the panic of 1907, report 
 
 ' O. Marintsch, La Bourse. 
 
51 1 J CREDIT FACILITIES OF THE PARIS BOURSE 69 
 
 rates rose so rapidly that speculators brought securities to 
 the Bank of France for short loans until it was forced to 
 raise its loan rate from three and one-half per cent to four 
 per cent although it loans only eighty per cent or less of the 
 market price/ 
 
 To offset the effect of such influences the Parquet origin- 
 ally formed a common fund (Caisse Commune)," called 
 popularly the report bank, to make loans to brokers and 
 their clients for from fifteen to thirty days, to the full mar- 
 ket value of their securities. This fund at first consisted 
 of one-fourth of the profits of each broker, but was aug- 
 mented later in various ways. At present, the fund is 
 recruited mainly from the sale to brokers by the Syndical 
 Chamber of stamps that must necessarily be affixed to the 
 purchase and sale sheets also issued by the same authority. 
 Dividends are now paid semi-annually by the bank. 
 
 The chief functions of the bank are to support the collec- 
 tive current expenses of the Compagnie, to make loans to 
 brokers in time of need, and tO' substitute itself for a 
 bankrupt broker for safeguarding creditors' interests. As 
 the Compagnie through its Syndic buys and sells rentes for 
 the account of the French Government, the Caisse Commune 
 maintains a fund to meet the needs of this service. A 
 guarantee fund is held by the Caisse in the name and to the 
 account of each of the seventy Agents, the amount being 
 fixed by the Syndical Chamber. In 1908 the sum which 
 must be provided by each Agent was about $20,000, but this 
 may be increased at any time if the Compagnie so decides. 
 The amount of the stamp tax collected by the Syndical 
 Chamber varies, but runs about five per cent of the com- 
 missions received. The collective reserve, as mentioned 
 
 1 Maurice Patron, Bank of France in its Relation to Notional and 
 International Credit. 
 ^ Cf. Boissiere, op. cit., p. 321. 
 
70 THE PARIS BOURSE AND FRENCH FINANCE [512 
 
 above, is concealed in order to avoid informing speculators 
 in credit of an opportune moment for a raid.^ 
 
 No advance may be made by the Caisse Commune to an 
 insolvent broker. To a solvent one funds may be advanced 
 under two conditions, first that the advance be for not more 
 than six months, second, that the Agent de Change give the 
 Syndical Chamber the privileges of a silent partner, or 
 give security to an amount equal to the loan. The Syndical 
 Chamber may renew loans up to $20,000 for six months 
 more. Beyond this, a General Assembly of the Compagnie 
 must decide. 
 
 On the Coulisse or among Syndicats des Banquiers, there 
 is no joint liability for individual obligations. To be ad- 
 mitted to membership in the Syndicat for cash transactions, 
 however, brokers must be able to show means of at least 
 $20,000, and for admission to the Syndicat for transactions 
 for future settlement, the minimum is set at $200,000. 
 Listing requirements are not onerous. Each firm may deal 
 for its own account, and is responsible only for its own 
 debts. Loans are therefore made by reporteurs on the 
 Coulisse with much greater care, the reputation of the firm 
 and character of the security offered being carefully scrutin- 
 ized. When loans are made on Coulisse securities, it is 
 customary for the lenders to require that thej^ shall have 
 custody of the certificates, while on the Parquet these are 
 usually left in the hands of the Agents de Change, a receipt 
 issued by the Syndical Chamber being accepted instead. On 
 the Coulisse also, the rate varies greatly from security to 
 security, and from firm to firm. In case of a CouHsse fail- 
 ure, the creditors share pro rata as in the case of an ordin- 
 ary commercial failure. 
 
 As stated dn the first part of this chapter (p. 60) some 
 three or four hundreds of millions of dollars of new capital 
 
 ' Cf. Boissiere, op. cit.. p. 333. 
 
513] CREDIT FACILITIES OF THE PARIS BOURSE 71 
 
 are annually available from French sources for speculation 
 and investment in bourse securities. This sum is aug- 
 mented to an unknown degree from foreign sources, or 
 diminished, on the other hand, by transfer of French funds 
 to foreign markets. It is clear that this golden influx in- 
 volves either an increase in the prices of the existing securi- 
 ties, the creation of new securities for its absorption, or a 
 series of fluctuations involving losses whereby wealth is 
 transferred to other hands and withdrawn from the market 
 for other uses. 
 
 As in all speculative markets, attempt is made to antici- 
 pate permanent investment. New securities are con- 
 stantly being listed and held on borrowed money and old 
 ones accumulated at what is hoped to prove to be a low 
 level of prices. These securities are held by the speculators 
 and others on the bourse by means of the fortnightly and 
 monthly loans (reports) ^ provided by wealthy individuals, 
 trustees, railroad, insurance, utility, and industrial com- 
 panies, the private bankers, called generally la haute banque, 
 and the great credit institutions." The Bank of France does 
 not make report loans. 
 
 These report loans, of course, are guaranteed by the Com- 
 pagnie, and can be withdrawn or shifted at the end of each 
 fortnight or month, according to the account for which they 
 were made. The report rate of interest which they bear is 
 the most sensitive credit barometer in France, as is possibly 
 the private commercial paper rate in England. It is pre- 
 vented from being an exact reflection of the bourse situation 
 through some operators' making outside loans for as 
 long as a year in order to conceal their position or avoid 
 commissions and taxes, or the periodical uncertainties of the 
 
 ' J. Combat, Manuel des Operations de Bourse, p. 232. 
 
 'J. Combat, Banques et Operations de Banque, pp. 69, 338. 
 
72 THE PARIS BOURSE AND FRENCH FINANCE [514 
 
 liquidations.* Formerly, the rate varied greatly on differ- 
 ent securities, as it does to-day in New York, London, and 
 on the Coulisse, a spread of 3.7 per cent between Rio Tintos 
 and rentes being not unusual. " This fact caused an endless 
 shifting of loans, report arbitraging, for the profit in the 
 difference between the various rates. Since the collective 
 guarantee became effective, however, the rate has tended to 
 equalization over all securities, and opportunities for inter- 
 est arbitraging are small, though the power of discrimination 
 for cause by the Agents or the Syndical Chamber is in nowise 
 lessened ! ^ It is noteworthy in this connection that the 
 same rate of interest received by the reporteur is charged 
 the borrower, the Agent acting, without other compensation 
 than his commission, as responsible intermediary. In New 
 York and London, on the contrary, the broker borrows 
 (largely from bankers) and lends to his customers at an 
 advanced rate, many members making their office expenses 
 from the resulting profits. The rate runs ordinarily a little 
 less than the Bank of France rate and a little more than the 
 private commercial discount rate on prime bills, varying 
 from one per cent to four per cent on the Parquet, and from 
 three per cent to five per cent on the Coulisse.* 
 
 Turning now from the Bourse to the money market, there 
 is a financial institution outside the Bourse, yet most closely 
 associated with it, called La Haute Banque,'^ that supplies a 
 large part of the securities as well as the funds with which 
 Bourse operations are carried on. Following is a list of 
 the most important French private banks comprising La 
 
 ' J. Combat, Manuel des Operations de Bourse, p. 236. 
 
 ' Rene Chevrot, Pour devenir financier, p. 379. 
 
 ' Boissiere, op. cit., p. 208. 
 
 ^ Combat, op. cit., p. 236. 
 
 " E. Kaufman, La Banque en France, p. 166. 
 
515] CREDIT FACILITIES OF THE PARIS BOURSE 73 
 
 Haute Banque, one of the distinguishing characteristics of 
 which is that few or no reports of their situation or oper- 
 ations are made public: Rothschild Freres, Heine et Cie., 
 Hottinguer et Cie., J. Stern et Cie., Vernes et Cie., and La 
 Banque de Paris et Pays Bas, a powerful private company 
 of some $20,000,000 capital that accepts no deposits from 
 the public. The above are the leading private firms that, 
 owing to their limited ownership, do a more venturous busi- 
 ness than the great deposit-accepting, report-making credit 
 institutions ^ that outrank them in wealth and power. 
 
 The chief of these latter are Le Credit Lyonnaise, capital 
 $50,000,000, La Societe Generale, capital $100,000,000, one- 
 half paid in, Le Comptoir National d'fiscompte, capital 
 $40,000,000, and La Societe Generale de Credit Industriel 
 et Commercial, capital $20,000,000.- 
 
 In 1908 the total loans of these four companies on se- 
 curities, including reports (at least one-third) were some 
 $180,000,000 and their total discounts were some $540,- 
 000,000. Being always able to turn a large part of these 
 discounts into cash at the Bank of France, they could loan 
 freely on the Bourse large sums for periods of two weeks or 
 a month. For this same reason, they carry on hand only 
 enough cash to meet their daily needs, and at the Bank of 
 France only enough tO' insure rediscounting in sufificient 
 volume. The total cash of the Credit Lyonnais for in- 
 stance, amounts to eight or ten per cent of deposits, and 
 this is generally true of the others. There are no legal re- 
 serve requirements. Loans are made upon all kinds of 
 securities regarded as good, at varying rates, requiring a 
 margin of from twenty per cent on, say, French railroad 
 
 ^ A. Neymarck, Journal de Societe de Statistique de Paris, ]\ray-June, 
 1909. 
 ' Lucien Lagrave, Les Stablissements de Credit, pp. 30, 55. 
 
74 THE PARIS BOURSE AND FRENCH FINANCE [516 
 
 bonds, to thirty or forty per cent on miscellaneous securities, 
 depending on the collateral, the individual, and the market 
 situation. Usually one per cent to two per cent more than 
 the Bank rate is charged on securities and likewise on dis- 
 counts. One-half to one per cent is paid on demand deposit 
 checking accounts. On time deposits one or two per cent 
 for one year, two or two and one-half per cent for two years, 
 and three per cent for three years is paid. These great banks 
 with hundreds of branches in France and abroad thus col- 
 lect funds from all sources and concentrate them for large 
 mercantile and Bourse operations.^ 
 
 In what might be called the second group of La Haute 
 Banque are H. de Bethman et Cie., Demachy et Cie., 
 Lazard Freres et Cie., de Neuflize et Cie., Perier et Cie., 
 Mallet Freres, and many other private banks, usually firms, 
 but sometimes individuals.^ All of these various financial 
 interests are more or less directly interested in financing the 
 flotation and absorption of listed and unlisted securities. 
 The amount of free capital they have available for short 
 loans and the amount of securities carried on borrowed funds 
 primarily determine the report rate of interest. The rate 
 is of course influenced by the commercial demand for short 
 loans and the total supply of available funds. Such funds 
 may come from foreign as well as domestic sources de- 
 pending, among other considerations, on the rate of interest 
 prevailing in the foreign country, or in other words, the 
 demand for and supply there of short-time fmids. As a 
 rule France has been in the past more often a lender than a 
 borrower, and French financial institutions have invariably 
 turned finally to the inexhaustible resources of the Bank 
 of France. 
 
 ^ Interviews with Credit Lyonnaise and Comptoir d'escompte oificials: 
 vide National Monetary Commission. Also Andre Liese, Ez-olution of 
 Banks and Credit in Fraiice, p. 193 et seq. 
 
 ' J. Combat, Banques et Operations de Banque, p. 338. 
 
517] CREDIT FACILITIES OF THE PARIS BOURSE 75 
 
 It is through the commercial discount rate, its discount 
 poHcy and its enormous potentiaHties that the Banic of 
 France exercises its influence over the Bourse and its oper- 
 ation.^ Its power to issue paper money in the form of bank 
 notes depends practically on the demand for money (ex- 
 pressed in terms of what may be called the bankable paper 
 offered it), as will be illustrated in the following chapter on 
 the financial measures necessitated by the war. 
 
 The French Government has put only three important 
 restrictions on the issue of banknotes by the Bank of 
 France. The total amount of the issue is fixed at a definite 
 figure, a figure however, which is progressively raised when 
 it seems probable that the issue will be exceeded by the de- 
 mand; second, the issue must be covered in one of three 
 ways : first, by metal (gold or silver) ; secondly, by French 
 Government bonds, provincial, municipal, or other public 
 securities, or certain securities guaranteed by public bodies 
 (a list of securities on which loans may be legally made is 
 kept up to date by the bank) ; and thirdly, by commercial 
 paper of various kinds, of not longer than three months 
 maturity. This paper must have three signatures. Two 
 of these must be by persons domiciled in France. In 
 lieu of a third signature a deposit of securities be- 
 longing to the class on which loans may be made, or of 
 warehouse receipts, may be accepted. About 70 per cent 
 of discounted paper bore in 1909 the indorsement of a bank, 
 but the percentage of direct loans to individuals is steadily 
 increasing, especially since 1898 when the minimum amount 
 of an acceptable bill was lowered to $100. To be admitted 
 to the discount privilege, however, a minimum account of 
 $100 must first be opened vdth the bank. The character 
 of the collateral eligible for loans is fixed by laws and de- 
 
 ' A. Huart, L'Organisation du Credit en France, pp. 62-130. 
 
76 THE PARIS BOURSE AND FRENCH FINANCE [518 
 
 crees, but the amount loaned, depending on the collateral, is 
 determined by the General Council (board of directors) of 
 the bank, a list of such percentages being kept by the bank 
 officials. The percentage (of the market value) runs from 
 60 per cent to 80 per cent. For loans and all operations on 
 securities, the clientele is composed mainly of individuals. 
 In fact, the current account for loans now used in general 
 business affairs, originated from the need of stockbrokers 
 for temporary transfer loans. ^ The bank pays no interest 
 on deposits. 
 
 The supplementary third signature to obtain a security 
 loan may be given once for all by guarantee by separate 
 deed {aval par acte separe). A " mixed account " system 
 also exists, by which securities deposited serve, according to 
 the position of the account, to guarantee advances made or 
 discounts granted to the same customer. The Bank of 
 France has for loans on collateral and discounts of com- 
 mercial paper two rates, the loan rate running usually one or 
 one-half per cent higher than the discount rate. The 
 Bank does not loan below its published rates. The third 
 restriction on the note issue is the obligation of the Bank 
 to pay out gold, or silver (an option of which it seldom avails 
 itself) on demand upon presentation of its notes. There 
 is no legal requirement whatever as to the amount of gold 
 reserve to be kept behind the notes. That matter is left 
 solely to the judgment of the Bank, the governor and vice 
 governor of which, however, are appointed by the French 
 Government. As the Bank is required to pay out gold or 
 silver for its notes, and as it must also pay out its notes in 
 discounting certain acceptable bills, the extent of the reserve 
 is more or less automatically determined. It has risen and 
 
 ' Patron, Bank of France in its Relation to National and International 
 Credit. 
 
519] CREDIT FACILITIES OF THE PARIS BOURSE 77 
 
 fallen with every event in the history of France, and a full ex- 
 planation of its fluctuations would supply almost a complete 
 story of French national life. All other banks in France, 
 in fact all French financial institutions, and especially the 
 Bourse, function with the knowledge that they can rely on 
 securing funds at any moment in return for definite forms 
 of security from the Bank of France, whose power legally 
 to issue money is in turn limited only to the demand, how- 
 ever great, expressed in terms of these forms of security. 
 In 1907 the Bank had $697,000,000 of coin and bullion, dis- 
 counts of $235,000,000 and advances on securities of $112,- 
 000,000.^ 
 
 • By the law of February, 1906, the limit of note issue was 
 fixed at some $1,160,000,000 and at the close of 1907 the 
 outstanding note issue was some $950,116,290. 
 
 So much for the outside system of credit to which the 
 Bourse has access and which, in ordinary times, keeps it sup- 
 plied with sufficient funds at a low rate, accepting without 
 question its receipts for securities stored in the Bank of 
 France's vaults and its guarantee of those securities 
 based on its solidarity. The events of 1914-1915 were to be 
 an acid test of financial institutions all over the world, and 
 they left the Bourse financially high and dry. They re- 
 vealed that not only the Coulissiers but the Agents de Change 
 as well had not sufficiently foreseen the war to require ade- 
 quate cover from the buyers on whose behalf they had 
 pledged their own credit to the reporteurs. They revealed 
 furthermore that the financial strength of the Compagnie 
 des Agents de Change was not equal, in the great emergency, 
 to the obligations it had gradually assumed or had had thrust 
 upon it, and that neither its own efforts to raise funds and 
 
 1 Cf. " Interviews with M. Pallain, etc," National Monetary Comm., 
 vol. i, p. 189 et seq. 
 
78 THE PARIS BOURSE AND FRENCH FINANCE [520 
 
 restore confidence, nor the importance of its operations had 
 availed to prevent the closing of its term markets for a 
 period of fourteen months from the outbreak of hostilities, 
 although the big deposit banks managed to resume oper- 
 ations by January i, 191 5. 
 
 It is clear that the value of the guarantee of the Agents 
 rests in the last analysis upon their income, which in turn 
 depends upon the rates of brokerage, the volume of sales, 
 and the costs of operation ; an income that can be estimated 
 by the general public partly by the price of seats (seldom 
 sold), very vaguely by the receipts from the Bourse tax 
 (since 1893), and more vividly by the silence or lamenta- 
 tions of the Agents themselves. 
 
 The volume of sales, as noted supra, is not known. The 
 commissions charged by the Agents have been regulated by 
 law since 1638, and in 1801 the court {tribunal) of com- 
 merce of the Department of the Seine, by virtue of author- 
 ity conferred on it, fixed the maximum rate at one-fourth 
 per cent. This rate remained in force throughout the nine- 
 teenth century,^ though the Syndical Chamber, in view of 
 the tendency of Agents in competition to lower the rate to 
 minor fractions, fixed in 1887 certain minimum charges, 
 dealing below which would render the Agent liable to 
 severe penalties. The rate of securities involved in litiga- 
 tion alone remained and remains still at one-fourth of one 
 p€r cent. In the reorganization of 1898, the maximum was 
 fixed by law for all other classes of securities as follows : 
 one-tenth of one per cent for cash operations with a mini- 
 mum of fifty centimes (about ten cents) per lot; one-tenth 
 of one per cent for term operations (except for the three 
 per cent rentes fixed at five-sixths of one per cent) ; and 
 finally for report operations in the term market about one- 
 
 1 Boissiere, o/>. cit., p. 196. 
 
521] 
 
 CREDIT FACILITIES OF THE PARIS BOURSE 
 
 79 
 
 half of the ordinary term rate for all securities except the 
 rente three per cent which took the same rate as in cash 
 transactions, five-sixths of one per cent. In 1901 these 
 maxima were raised for securities of small denominations 
 in the term market, to five cents per share or bond of those 
 selling for less than $50, ten cents for those between $50 and 
 $100 and reduced for foreign government securites selling 
 below $10 to one-twentieth of one per cent. Below is a 
 table of the actual rates established by the Syndical Cham- 
 ber of the Parquet within these limits. On shares not fully 
 paid the commission is calculated only on the net amount, 
 the part unpaid being deducted. The franco (see p. 80) 
 was applied to all operations. 
 
 Cash 
 
 In all securities 
 
 Teem 
 
 In rentes 3% and rentes 354% re- 
 spectively. 
 In foreign Government securities. 
 
 In shares and bonds under $50 
 In shares and bonds between $S0 
 
 and $100 
 In shares and bonds over $500 
 
 Report 
 In French rentes 3% 
 
 In all other securities undergoing 
 both liquidations, 
 liquidated at end of mo. 
 only in special certificates of 
 For. Govt, loans over $12 
 
 Transactions 
 
 15 of 1% of amount negotiated 
 minimum loc. 
 
 Transactions 
 % of 1% and zy3%. 
 
 Sc. for smallest lot negotiable in 
 term market and progressively in 
 proportion. 
 
 5c. per share or bond. 
 
 IOC. per share or bond. 
 
 iV of 1% of amount of sale. 
 
 Operations 
 
 i%%. 
 
 5V of 1% of the amount of sale. 
 tV of 1% of the amount of sale. 
 
 7Sc. for the smallest lot negotiable 
 and progressively in the same 
 proportion. 
 
 In the early part of 1910 the great falling-off of direct 
 orders and commissions for the Agents became a source of 
 
8o THE PARIS BOURSE AND FRENCH FINANCE [522 
 
 much anxiety and complaint on their part. Fluctuations in 
 the three per cent rentes gave rise to increased activity 
 among the customers of the Coulisse dealers for their own 
 account in term transactions on which no commissions were 
 paid. This resulted in cutting off a certain revenue that 
 formerly came to- the Parquet. Many investment firms began 
 to sell emissions of securities direct to- clients without recourse 
 to a Bourse Campaign, and later themselves provided a mar- 
 ket by dealing in such securities (untaxed operations), es- 
 pecially those suitable for saving, trust, and similar funds. ^ 
 The Parquet petitioned in vain for higher maximum rates. 
 Finally after much agitation and proof of hardship an agree- 
 ment was reached March 15, 1910, between the Agents, 
 the societies of credit, and the banquiers of the Coulisse, 
 suppressing entirely the indirect franco in the cash market, 
 and allowing the direct franco only when the arbitraging 
 client's name was given by the intervening bank. The term 
 " indirect franco " is applied to operations in which the big 
 credit institutions, having collected thousands of orders 
 throughout France and elsewhere, fill them en masse in their 
 own names at one-half rates (franco) and turn them over 
 later to their scattered clientele. On the other hand a 
 remise of 25 per cent on commissions was accorded.' 
 
 Even before the war, the advantages gained by the agree- 
 ment were regarded by the Agents as scarcely offsetting what 
 seemed to be an incurable dullness of the market. In the 
 budget of 1 91 4 the tax on Bourse transactions was raised. 
 This increase provided an added discouragement. Now, 
 with the losses involved in closing the term market for four- 
 teen months and with the meagre amount of sales during 
 the period since it was reopened, together with the demon- 
 
 ^ Cf. Deville, La Crise de la Bourse de Paris, pp. 71-86. 
 ^ G. Frangois, Revue d'Economie Politique, 191 1, pp. 81-89. 
 
523] CREDIT FACILITIES OP THE PARIS BOURSE 81 
 
 strated inability of the credit power of the Parquet quickly 
 to restore the situation, it may be expected that the Agents 
 will ask for a further increase in the rate of commissions. 
 They would probably make this demand even had there been 
 no increase in the cost of living to warrant it. On the other 
 hand, the opponents of the Agents will urge, as in the past, 
 that the institution of the brokerage monopoly is obsolete and 
 ineffective in time of emergency, that its solidarity is the 
 cause of long closing periods as at the time of the Union 
 Generale crash in 1882 when the Parquet liquidations with 
 some $33,000,000 involved, were postponed seven months. 1 
 The Parquet will doubtless be attacked as undemocratic, as a 
 privileged company securing increased power without effort 
 as its list of securities grows. It will also be pointed out 
 that the Government should take advantage of the war con- 
 ditions to indemnify the Compagnie for its equity in the 
 legal monopoly and establish for all securities a free market, 
 composed of both dealers and brokers.^ 
 
 ' Leon-Say, " Leg Interventions du Tresor a la Bourse depuis 100 
 Ans.," Annales de I'&cole des Sciences Politiques, 1888. 
 ' Vidal, op. cit, pp. 18 and 236. 
 
CHAPTER V 
 
 The Bourse and War Finance 
 
 The effect of even a threat of war on financial institutions 
 was illustrated in 191 1 when on July second Germany an- 
 nounced that a warship had been sent to Agadir, Morocco 
 for the protection of German interests. Whether this step 
 was dictated by German military interests with the purpose 
 of carrying forward another step in an aggressive policy, or 
 whether it was deliberately undertaken as an experiment to 
 test German preparations, as was believed in some quarters, 
 or whether it was primarily to divert the attention of the 
 German public from internal matters was but a short time 
 open to question. Relative to the monetarj'^ crisis in Ger- 
 many which attended it, the Kaiser is rumored to have said 
 in effect, that it must not happen again, and tO' have given 
 directions that German financiers should be consulted and 
 given opportunity to take precautionary measures in case of 
 similar troubles in the future. The instigation to this latter 
 course may not have originated with the Kaiser, but cer- 
 tain it is that from 191 1 on the efforts of the Reichsbank to 
 strengthen the German banking system were redoubled, and 
 that three years later Germany was fully equipped finan- 
 cially to meet the outbreak of war.^ 
 
 The announcement of the sending of the Panther was 
 made on Saturday, Juty 2d. The middle of the year is al- 
 ways a time of financial stress and uncertainty, especially 
 in Germany. In the latter part of June the Reichsbank had 
 
 ^ " German Financial Preparation for War," Revue de Paris, March, 
 191S. 
 
 82 [524 
 
525] THE BOURSE AND WAR FINANCE 83 
 
 given notice that it would require an additional commission 
 for accommodation furnished by it at the end of the quarter, 
 and this indicated, as it proved, that there were heavy en- 
 gagements on the Berlin Bourse, and that there would be an 
 unprecedented demand for funds. In preparation, gold was 
 drawn from London (some $3,500,000), Egypt, and posi- 
 sibly from Vienna, while it is known that English, French, 
 Belgian, Dutch, Swiss, and Austrian banks, attracted by the 
 high interest rates; loaned large sums in Berlin.^ The im- 
 mediate result of the announcement was a much greater fall 
 in prices, and more disturbance in both London and Paris 
 (where because of internal causes the situation wasi 
 already delicate), than in Berlin, which had the use for 
 definite periods of foreign resources, an advantage that 
 might be prolonged indefinitely. As the week wore on, 
 prices gradually recovered, but speculation naturally died 
 down as the banks accumulated reserves, and low interest 
 rates with easy money ruled the markets generally. By the 
 end of the month, however, it was apparent that French 
 bankers, as their loans matured, were withdrawing money 
 from Berlin, and from London as well, and also, as it later 
 developed, from Belgium, Russia, and other countries. It is 
 possible that the French Government had decided, as a coun- 
 terweight to German display of military power, to make 
 the most of French financial superiority, possibly with the 
 object of preventing future crises by making this one as 
 expensive as possible to German borrowers, though this 
 motive was not avowed. Meanwhile the central banks of 
 France, Germany, and England were taking measures to 
 strengthen their reserves, and veiled warnings appeared irl 
 the financial press.' By the last of August, withdrawals of 
 French funds directly and indirectly from Berlin and the 
 
 ' Statist, July I, p. 24; July 8, p. 59. 
 ' Economist, July, December, 191 1. 
 
84 THE PARIS BOURSE AND FRENCH FINANCE [526 
 
 fear of war, had driven Berlin bankers and debtors to 
 London and even New York and Chili for replacements, 
 causing considerable liquidation on both exchanges, amount- 
 ing to as much as $25,000,000 in New York. This was 
 accompanied by a decrease in prices especially of inter- 
 national securities, notably Canadian Pacific, by many 
 points. It has been estimated that some $250,000,000 of 
 foreign money was constantly employed by Germany. 
 Heavy losses were occasioned German speculators by the 
 dragging out of negotiations, prices dropping on the Berlin 
 Bourse from 4 per cent to 5 per cent on bank stocks, and 
 from 12 per cent to 20 per cent on industrials. Serious 
 runs on foreign banks occurred in various parts of Germany, 
 and on Black Saturday in September a veritable panic took 
 place on the Berlin Stock Exchange. By the middle of 
 September, led by the Bank of Belgium, nearly every im- 
 portant central bank in Europe had raised its discount rate. 
 Included in the number was the Bank of France, which had 
 maintained its rate at 3 per cent for some three years and 
 eight months. A deputation of German bankers, voicing 
 the protests of all German finance, called at the Foreign 
 Office for assurance as to the progress of negotiations, and 
 to the relief of Europe, were told that they were proceeding 
 fa\^orably. The German press adopted a friendlier tone, 
 and the Morocco affair soon became a matter of history 
 until the events of 19 14 recalled it vividly to the present of 
 that date. As indicating the gravity of the crisis in France. 
 it was reported ^ that the banks in Paris at the midmonthly 
 liquidation generally refused to lend to the Coulisse, which 
 would have been in a deplorable situation, had not the 
 Rothschilds come to its assistance. 
 
 This Morocco incident, coupled with previous ones, seems 
 to have left the impression both in France and Germany, 
 
 ' Statist, September 23, 1911, p. 726. 
 
527 J THE BOURSE AND WAR FINANCE 85 
 
 that the next aggressive act of Germany would result in 
 war, and to have convinced the German powers that a sud- 
 den onslaught was desirable from a financial as well as from 
 a military point of view, as was exemplified three years later. 
 
 In October, 1912 the war cloud burst in the Balkans, and 
 all Europe was plunged into a fever of excitement. The 
 possibility, always in the minds of all, of a general confla- 
 gration, made for idle bank balances, low interest rates, 
 little speculation, and a steadily falling level of security 
 prices. This decline in security prices was accelerated as 
 the ominous weeks of the first half of 19 14 passed. Dur- 
 ing this period of tension, French bank balances were largely 
 withheld from Germany, but not, as it developed, from 
 Germany's allies. 
 
 It is impossible to understand the money market and' 
 bourse events of European countries generally without ref- 
 erence to the political purposes dominating the use of loan- 
 able funds. ^ 
 
 In 1907 the French Government had given notice that for- 
 eign loans might not be listed on the French Bourse with- 
 out its consent. This followed the Delcasse incident of 
 1905 when Germany, taking advantage of the Russian rev- 
 olution of that date, assumed a high-handed attitude to- 
 ward Russia's ally. On December 16, 191 3, a circular issued 
 by M. Caillaux renewed and extended this provision even to 
 treasury notes. According to the Finance Minister, this was 
 due to the efforts of Huerta and several Balkan states, 
 notably Turkey, (behind whom we now know was the hand 
 of Germany) to arrange for advances without countenance 
 of the French Government. This move evidently origin- 
 ated, however, in the protest of Russia after the Ottoman 
 bond issue of $20,000,000 in Paris early in 1914. Russia 
 
 ' V . R. Aubry, L'Admission a la Cote des valeurs etrangeres. 
 
86 THE PARIS BOURSE AND FRENCH FINANCE [528 
 
 complained that the Russian and Serbian issues should have 
 come first/ 
 
 The total nominal capital issues emitted on the French 
 market were in 1912 some $1,117,800,000 and in 1913, some 
 $966,200,000. Not quite 50 per cent of these went into 
 purely French undertakings, the rest going into foreign 
 issues. In the early part of 1914 a great campaign for a 
 Turkish loan was carried through in Paris. Certain rail- 
 road concessions were secured for French interests in Turk- 
 ish territory, while incidentally several millions went, via 
 Turkey, to repay German loans and to strengthen the Otto- 
 man navy. Later, loans of $100,000,000 to Turkey and 
 $35,000,000 to Greece were authorized, and though not pub- 
 licly issued, it is impossible to say how much had been pri- 
 vately advanced when the war broke out. The French for- 
 eign office has evidently not always been fortunate either in 
 its forecasts of coming events, or in its control over the 
 international operations of certain French banks.^ If the 
 armed-camp situation of Europe is to continue, it is evident 
 that French advances to foreign interests ought to be 
 directed by a wider vision.^ 
 
 Throughout 1913 the bank rate remained at 4 per cent; 
 reports averaged 1.95 per cent to 3.27 per cent; money was 
 plentiful, yet there was little speculation.* 
 
 At the end of June settlement, 1914, on the Bourse the 
 perpetual 3 per cent, France's premier security, stood at 
 83.05 francs. At the end of July on the brink of war, they 
 sold for cash at 78 francs, a drop of 5 francs on one of 
 
 ' London Financial Times, January 6, 1914. 
 
 ' V. J. E. Favre, Le Capital Frangais ou service de I'etranger. 
 
 ' Raphael George Levy, " Les Banques Frangais pendant la guerre,'' 
 Journal des £conomistes, Aug. 1915, p. 236. LaChapelle, Nos Finances 
 pendant la guerre, p. 164. 
 
 * Raffalovicli, MarchS Financier, 1913. 
 
529] THE BOURSE AND WAR FINANCE 87 
 
 the prime securities of the worid/ that sold over 90 francs 
 at the outbreak of the Balkan war in 1912. 
 
 Especially to be noted was the case of the 3^^ per cent 
 rente that had just been emitted July 7 to the extent of 
 some $161,000,000. It had been widely advertised by a 
 popular ministry and was over-subscribed 40 times, largely 
 by speculators who anticipated a speedy resale at a moder- 
 ate advance over the issue price of 91 francs. On the 8th, 
 9th, and loth of July the price actually did rise to respec- 
 tively 91.25, 91.50 and 92, and large amounts were dealt in 
 on the Parquet and the Coulisse term markets. By the 
 25th of July the price had fallen to 85 francs, which would 
 have spelled ruin to numerous holders if they had been 
 obliged to liquidate on the 31st. If they failed, in case of 
 liquidation, the Agents concerned would have had to bear 
 the loss, and if it proved too heavy for them, the Syndical 
 Chamber, by virtue of the legal solidarity of the Compagnie 
 would have been obliged to pledge all the resources of the 
 Parquet to the reimbursement of the reportei4/rs and the 
 sellers.^ 
 
 This depreciation was of course paralleled by the fall of 
 the whole list," shares of banks, foreign government bonds, 
 railroad and industrial prices dropping from 5 to 675 ( Suez 
 Canal shares) points, largely during the second half of July. 
 
 As early as July 14 a semi-panic had occurred on the 
 Vienna Bourse, heavy falls of prices taking place for the 
 fourth time in twelve days. This coincided with a state- 
 ment issued by the Austrian Foreign Office that "Austria 
 Hungary this time has decided that its wishes must be at- 
 
 ' L'£coHomiste Frangais, July 31, 1915, p. 139; Commercial and Finan- 
 cial Chronicle, Aug. i, 1914, p. 299. 
 ' LaChapelle, Nos Finances pendant la guerre, p. 156. 
 ' L'Sconomiste Frangais, Nov. 21, 1914, p. 56. 
 * Cote de Banque et Bourse. 
 
88 THE PARIS BOURSE AND FRENCH FINANCE [530 
 
 tended to and complied with to the full extent by Serbia." ^ 
 By the 23d prices were collapsing on all the Exchanges of 
 Europe and America. There was a semi-panic on the Paris 
 Bourse. There were rumors of failures of banks and of 
 difficulties of a big credit institution in securing the return 
 of funds advanced to Bulgaria. 
 
 On the 24th and 25th, the Paris market, overwhelmed by 
 an avalanche of sales, collapsed entirely. The Chambre de 
 Compensation (Coulisse) closed the Coulisse market. The 
 S)mdicate of bankers closed their market (Coulisse) and 
 prescribed a limited time in which cash transactions might 
 take place. The Parquet remained open ostensibly, but 
 trading was exceedingly restricted and prices were only 
 nominal.' Owing to the long-continued period of anxiety, 
 the amount loaned on securities on the Bourse was the low- 
 est of many years, estimated at some $125,000,000, of which 
 about $80,000,000 was in reports. But there had been a 
 sudden and terrifying fall in the value of these securities, 
 and to make the next settlement of July 31st, the Agents 
 demanded of the unfortunate holders who had bought at the 
 higher prices, some $50,000,000 as the balance of the re- 
 imbursement due short sellers and reporteurs. Many of the 
 latter had already giv6n notice to the Agents that they 
 wished to be reimbursed at the coming settlement, but it was 
 soon found that the purchasers, largely speculators for a 
 rise, were not able to take up their purchases, and could not 
 borrow elsewhere the sums due. This situation inevitably 
 turned all eyes to the money market, to the big credit institu- 
 tions that always employed many millions in reports, and 
 to the Bank of France, all of which, as will be seen, were 
 already having troubles of their own.* 
 
 ' Economist, July 18, 1914. 
 
 ^ Eeofiomist, Aug. i, 1914, p. 231. 
 
 ' Georges LaChapelle, Nos Finances pendant la guerre, p. 118. 
 
531 ] THE BOURSE AND WAR FINANCE gg 
 
 Some of these credit societies were undoubtedly embar- 
 rassed by considerable uncollectible loans of a nature indi- 
 cated above. Working always on a minimum cash reserve 
 they were in no condition to meet the heavy withdrawals 
 by depositors that had already begun on the 24th. The de- 
 posits of the four leading credit companies totaled over 
 $1,000,000,000 December 31, 1913. For all the banks the 
 deposits were estimated by Raphael George Levy to be some 
 $2,000,000,000. These credit societies had preceded the 
 Bourse in their claim for credit accommodation from the 
 Bank of France, their sole source of ready money. Many 
 of their loans, of course, had been made to men now mobil- 
 ized and to those living in territory soon to be invaded, 
 from whom payments could hardly be expected; while, on 
 the other hand, a large part of their deposits was payable 
 on demand. 
 
 In a situation quite similar to that of the Bourse and the 
 big credit banks were hundreds of savings banks of Paris 
 and the Provinces, with deposits estimated at some $1,- 
 000,000,000 and little ready cash. It was calculated that 
 between the 25th of July and the ist of August, with- 
 drawals from the deposit and savings banks exceeded $600,- 
 000,000.^ 
 
 All these, however, were not the only visitors expected at 
 the Bank of France. A secret agreement had been made be- 
 tween the Government and the bank, signed by M. Klotz, 
 finance minister, and M. Pallain, governor of the bank (Nov. 
 II, 191 1 ) at the time of the Agadir incident. This agree- 
 ment provided that the bank should put at the disposal of the 
 Government $580,000,000 in measure as required from the 
 date of mobilization. In return, the bank was to receive 
 treasury notes running three months, and renewable at the 
 
 ^ Sconomiste Europeen, Dec. 11, 1914, p. 242. 
 
90 THE PARIS BOURSE AND FRENCH FINANCE [532 
 
 rate of i per cent per year. Since that date, it transpired, 
 the bank had undertaken the responsibility of the financial 
 preparations for war. It had followed minutely every indi- 
 cation of financial preparations for war on the part of Ger- 
 many, and had taken careful measures to meet them. It 
 had sent to its branches a secret circular, to be opened only 
 in case of war, giving detailed instructions that later were 
 everywhere carried out to the minute. It had had printed a 
 stock of $300,000,000 of 20 franc ($4) and 5 franc notes 
 to supply the demand for small change it foresaw would 
 result from the hoarding of gold coin during the war. It 
 had apportioned these notes territorially according to the 
 probable demand, and they were issued everywhere at a 
 given moment. This agreement, however, and the prepara- 
 tions made by the bank were then generally unknown, and 
 although the weekly statement of the bank was open to all, 
 and the bank's position was known to be sound, the moment 
 was so fraught with dire possibilities, and the situation of all 
 other financial institutions was so desperate that not without 
 anxiety every mind arrived at the same conclusion, that all 
 now depended on the Bank of France. 
 
 The situation of the Bank of France was in every way, 
 good. Since 1870 when the payment of the billion-dollar 
 indemnity to Germany drew the gold out of the peasants' 
 socks, the Bank had steadily increased its bullion reserve. 
 In 1905 it reached some $520,000,000. July 30, 1914, it 
 stood (including some silver) in round numbers at $953,- 
 000,000. This sum was over 50 per cent of all liabilities, 
 and only some $383,000,000 less than the note issue (al- 
 ready swollen, in round numbers, to $1,336,000,000 only 
 $24,000,000 under its legal limit of $1,360,000,000) , making 
 
 ' LaChapelle, " La Banque de France," Revue de Paris, April 15, 1915, 
 p. 822. 
 
533] '^^^ BOURSE AND WAR FINANCE gi 
 
 a reserve against notes of over 70 per cent. One powerful 
 fact had impelled the Bank thus to build up its gold reserve. 
 It was the visible evidence that the confidence of the nation 
 in its national bank was well grounded. It far outweighed 
 the commercial portfolio as the material rock on which rested 
 the French system of money and credit. So long as con- 
 fidence in the Bank existed it could issue its notes without 
 limit to meet the exigencies of war without danger of a 
 sudden storm of demands for redemption in coin. 
 
 The statement of the Bank for July 30 showed that re- 
 course to its resources since July 23d had been on a large 
 scale. Its note issue had jumped some $154,000,000, its 
 Paris discounts had increased in the same period over $164,- 
 000,000, and its advances on public securities had grown by 
 over $8,000,000 ; it had also lost over $4,000,000 of its gold 
 reserve on which demands were increasing with every hour. 
 To have attempted to meet at once all these diverse and con- 
 flicting demands, obviously in large part the result of panic, 
 would have involved a dangerously great and immediate 
 expansion of its note issue. This would possibly have im- 
 perilled confidence in the stability of the Bank and in the 
 Government. In addition, such action would have brought 
 about a rise in prices. 
 
 By Monday, the 27th, all continental exchanges were 
 closed, or trading under close restrictions. The 28th of 
 July, Austria declared war on Serbia. On August ist Ger- 
 many declared war on Russia, and the French president 
 signed the decree of mobilization. The 28th, the Syndic 
 went to the Finance Minister to talk over the situation, and 
 on the 31st two meetings with the big bankers and the Bank 
 of France were held. The bankers said that in view of their 
 precarious situation they could not come to the aid of the 
 Bourse while the Bank of France said it must reserve its 
 resources for the national defense. The unanimous opinion 
 
g2 THE PARIS BOURSE AND FRENCH FINANCE [534 
 
 of the meeting was that the Uquidation of the 31st should be 
 postponed, and after consulting with the Coulisse, the 
 Finance Minister hesitated no longer in concurring. 
 
 Immediately the Syndical Chamber proceeded to arrange 
 its internal affairs to postpone the settlement, while the 
 Finance Minister agreed to homologate the decision, post- 
 poning the settlement of July 31st to the end of August and 
 later to the end of September, 1914. 
 
 Thereupon the big banks, who saw a large part of their 
 funds immobilized in advances upon unsalable securities, and 
 in non-liquidating reports, demanded a moratoritmi on de- 
 posits, the merchants making a similar demand for com- 
 mercial paper/ Existing law authorized the postponement 
 of the maturities of commercial paper, but was silent about 
 deposits, hence the council of ministers refused at first to 
 rescue the banks. Later, urged by M. Cochery, the council, 
 on the plea of emergency and of immediate ratification by 
 the Chamber of Deputies, decreed, on the night of July 31, 
 August I, a moratorium on bank deposits,- though this was 
 clearly illegal. 
 
 The 5th of August, the date of the German declaration of 
 war on France, an emergency law was passed, permitting 
 the Government through successive decrees, beyond the two 
 already made (some four in all), to suspend payment of 
 coupons, interests, dividends, sums due on contract, of in- 
 surance, mortgages, saving deposits, (except $20 per month 
 to each depositor) , to prorogate delays in payments of rents, 
 etc., and even of installments due on the recent 3^^ per cent 
 loan. The whole economic life of the country was arrested, 
 and all credit suspended. It is noteworthy that with the ex- 
 ception of the secret agreement of 191 1 between the Govern- 
 
 ' Jean Salames, Le Moratorium, 1915. 
 
 '■' LaChapelle, Nos finances pendant la guerre, p. 118. 
 
535] THE BOURSE AND WAR FINANCE 93 
 
 ment and the Bank, which was confirmed, all of these emer- 
 gency measures were improvised on the hour. 
 
 Most important of all for the Bank were the suspension 
 of specie payments, and the decree raising the authorized 
 note issue from $1,360,000,000 to $2,400,000,000. This 
 enabled the bank, beside providing the Government with 
 funds in accordance with the agreement of 191 1, to continue 
 discounting without restraint or conditions, bills offered it 
 by the credit societies and others.^ 
 
 Its discounts risen already on the 
 
 25 of July, 1914, to $310,800,000, increased rapidly from 
 
 day to day, on the 27 " " reaching 316,600,000 
 
 " 28 " " " 336,400,000 
 
 " 29 " " " 387,400,000 
 
 " 30 " " " 488,800,000 
 
 " 31 " " " 578,000,000 
 
 " I " Aug., " 608,200,000 
 
 " 2 " " " 685,200,000 
 
 These discounts, in spite of the moratorium which post- 
 poned the payment of the bills which the bank was admitting 
 to discount, continued under certain conditions to grow, 
 totaling August 4, some $800,000,000, and finally, on Oc- 
 tober I, $995,200,000. By a decree of the 29th of August, 
 however, these " frozen " bills were charged with interest 
 at 5 per cent. The effect of this appeared in the reduction 
 of the total held by the bank by $120,000,000 from October 
 I to December 10, 1914, although by April, 191 5 there were 
 still in the bank's portfolio some $600,000,000 of bills pro- 
 rogated. This policy of course freed the credit banks of 
 deposit from the heavy burden of uncollectible bills, and 
 provided them with resources to repay their depositors on 
 demand, and thus hasten the day when they could recom- 
 mence the discount of bills drawn after August 4, 1914 and 
 not subject to the moratorium. 
 
 In fulfilling its agreement with the Government the Bank 
 ' Economist, Aug. ig, 1914, p. 322. 
 
94 THE PARIS BOURSE AND FRENCH FINANCE [536 
 
 by March, 191 5 had advanced $920,000,000 and by a new 
 agreement signed at Bordeaux September 21, 1914, the total 
 amount of advances was fixed at $1,200,000,000 with in- 
 terest at I per cent per year. This debt to the state and 
 the commercial paper moratorium in effect entailed a forced 
 issue of notes as in 1870. The result of this has not 
 yet been so unfortunate as in the past, but recognizing the 
 danger of inflation the minister of finance engaged the State 
 to reimburse the Bank in the shortest possible time, either 
 by means of ordinary budget receipts, or from the first loan, 
 or from other extraordinary resources. A year after the 
 cessation of hostilities, the renewal of the treasury notes 
 turned over to the Bank in proportion to its advances, will 
 be effected at the rate of 3 per cent per year. The profits of 
 the extra 2 per cent, however, will not go directly to the 
 stockholder, but will constitute a special fund to cover the 
 losses that may be entailed by the " frozen " assets held in 
 the Bank's portfolio.^ 
 
 This policy of the state's guaranteeing directly the out- 
 come of operations undertaken by the Bank on its own re- 
 sponsibility, in the words of M. Ribot, finance minister, 
 could hardly be defended except as an action taken in a time 
 of crisis, which would always remain exceptional.^ France 
 followed a precedent set a little before by the British Gov- 
 ernment, in guaranteeing the Bank of England against sim- 
 ilar losses, and in consideration of a similar service rendered 
 by the Bank to commerce and the banks and to the credit 
 structure both of the present and the future. ** 
 
 The weekly statement of July 30, 1914, was the last one 
 
 'LaChapelle, " La Banque de France,'' La Revue de Paris, Apr. 15, 
 1915, P- 822. 
 ' Report of M. Ribot, December, 1914. 
 3 Nos Finances Pendant la Guerre, p. 279. 
 
537] THE BOURSE AND WAR FINANCE 95 
 
 published by the Bank until six months of war had passed, 
 when the practice was definitely resumed. At this time, 
 January 28, 191 5, the metal reserve of the Bank was 
 some $999,800,000 as compared with $953,000,000 at the 
 end of the preceding July, to which, however, must be 
 added liquid assets of some $37,200,000 at the disposal of 
 the Bank in foreign countries. Bills held subject to the 
 moratorium were some $636,400,000, loans to the State 
 $780,000,000, while the note circulation had risen from 
 some $1,3336,000,000 to $2,094,600,000. While the em- 
 barrassments of the credit banks had resulted eventuall}' 
 in the withdrawal of certain depositors and a large fall 
 in deposits, the universal approval of, and confidence in 
 the Bank of France had had the opposite effect, and its 
 average of current deposits (comptes courants) had in- 
 creased over $200,000,000^ from some $189,514,372 on 
 July 30, 1914, to $530,115,246. Its current discounts, how- 
 ever, not overdue, had fallen from about $300,000,000 July 
 25 in the early days of the crisis to $239,000,000 in round 
 numbers, while its advances on public securities were in 
 round numbers practically the sarnie ($140,000,000) as in 
 July 1914 and also July 1913.^ The discount and loan rates 
 of the Bank that had stood respectively at 3J/2 per cent and 
 4/4 per cent from January 29, 1914, (previously 4 per cent 
 and 5 per cent) were raised on July 30 to 4^ per cent and 
 5J4 per cent and on August i to 6 per cent and 7 per cent, 
 although the Bank of England's rate had gone to 10 per 
 cent. August 20, the rates were lowered to 5 per cent and 6 
 per cent where they have since remained (January, 1919). 
 The higher rate is naturally imposed for loans on securities, 
 from the greater immobilization of capital that they entail. 
 In advance of reverting to the intimate Bourse situation 
 
 1 Nos Anances pendant la guerre, p. 236. 
 - Vide Weekly statements, Bank of France. 
 
96 THE PARIS BOURSE AND FRENCH FINANCE [538 
 
 it is illuminating to trace the course of the French deposit 
 banks whose position was of the greatest concern to the 
 Bourse/ The liberal discount policy pursued by the Bank 
 of France, and later the liberation of certain sums that they 
 had employed in reports, did not suffice for many a day to 
 allow these institutions to continue without the moratorium 
 which was legally affirmed August 4, to apply to their de- 
 posits. They were not altogether exempted, however. The 
 decree of August 4 allowed them to postpone the repayment 
 of cash deposits and creditor balances on current account for 
 30 days, dating from August i, 1914, under the following 
 conditions. Any deposit or credit balance of $50 or less 
 could be entirely withdrawn during the 30 days by the de- 
 positor. On larger amounts, the holder could withdraw, in 
 addition. to this sum, only 5 per cent of the balance. 
 
 The provisions applied only to depositors of August i, 
 or earlier. Agricultural, commercial, industrial employers 
 could withdraw each payday enough of their deposits to 
 meet their payroll requirements, on presentation of the pay- 
 roll. Requisitioned industries could withdraw the total 
 sums due them. By successive decrees of progressively less 
 lenient terms, repayment was postponed in turn to 30 days 
 from September i, then 30 days from October i, then to 
 December 31, and finally a last extension was decreed to the 
 end of February. By the new decrees, the minimum of 
 obligatory repayments was carried to $200 and finally to 
 50 per cent or 75 per cent of the balance, depending upon 
 whether it was desired for personal or for commercial and 
 industrial use.^ By the decree of August 29, mentioned 
 heretofore, it was further decreed that the credit companies 
 should pay 3 per cent interest on the " frozen deposits ". ' 
 
 ' G. Manchez, SociSUs de Depots, pp. 1-169. 
 
 ^ Deseure, " Le Moratorium," La Revue de Paris, Mar. 1915, p. 166. 
 
 ' Report of M. Ribot, 1914. 
 
539] THE BOURSE AND WAR FINANCE gy 
 
 This provision hastened the action of the credit companies 
 in reducing their debts. Early in December, the Credit 
 Lyonnais, Societe Generale, Comptoir d'fiscompte, Credit 
 Industriel et Commercial, La Banque de I'Union Parisienne, 
 and the Banque de Paris et de la Suisse, announced that be- 
 ginning with January 15, they would no longer avail them- 
 selves of the moratorium. 
 
 In the review of the financial situation, a model of clarity 
 and precise knowledge, written by finance minister Ribot 
 while the French Government, early in December, 1914, was 
 still at Bordeaux, mention is made of the decision just taken 
 by some of the credit companies to begin again the discount 
 of commercial paper on as large a scale as possible. Ribot 
 also refers to criticisms of a lack of courage and confidence 
 made against them, saying that with the general prostration 
 of business (thousands of concerns had closed their doors 
 since August i) the demand for discounts was not great, 
 cash transactions being the rule, and that moreover, the 
 credit companies had preferred to wait until the Bank of 
 France had declared itself prepared, as it had just done, to 
 discount under the same conditions as before the war, the 
 bills presented to it. Below is a comparison of certain 
 items, in round numbers, in millions of francs, from the 
 June 30, 1914 and 191 5 statements of the four leading 
 credit companies.^ 
 
 Cas& 
 I914 I9I5 
 
 Credit Lyonnais .... 231 808 
 
 Societe Generale . . . 160 102 1 
 
 Comptoir d'fiscompte 197 393 
 Credit Industriel et 
 
 Commercial 15 22 137 118 72 46 291 207 
 
 * Includes Gov't treasury notes {Bans de la Defense Nationale). 
 fDec. 31, 1914. 
 
 ^ L' Economist e Francois, Aug. 1914 and 191S; May 1915. 
 
 Bills Rtports and 
 Discounttd Secured Loans 
 
 Deposits and 
 Credit Accounts 
 
 1914 igis 1914 1915 
 1648 858* 357 254 
 739 278 1 403 475 1 
 1017 560 249 181 
 
 I9I4 1915 
 2378 396 
 1644 IO81 t 
 1437 1083 
 
g8 THE PARIS BOURSE AND FRENCH FINANCE [540 
 
 Of all the great French financial institutions, the Bourse 
 was undoubtedly the hardest hit by the sudden explosion of 
 the war, and the reason is not difficult to comprehend. The 
 objects of its transactions are exclusively long-term securi- 
 ties, representing for the most part a fixed capital. With 
 the closing up of thousands of factories, shops and businesses 
 of all kinds following the mo'bilization, with the complete 
 stoppage of trade with Germany and Austria and Russia and 
 its decline with other countries, and with the invasion of the 
 richest and most industrialized provinces of France by the 
 foe, it was inevitable that some interest and dividends should 
 cease to be paid, perhaps forever. It was natural also that 
 everyone, and especially those in need of funds, should wish- 
 to sell, and that none should wish to buy. Consequently it 
 is not surprising that security prices, even those of the- 
 French Government, fell even lower and lower. Neither is 
 it surprising that the buyers, who had contracted to pur- 
 chase some $100,000,000 at July prices, largely with the 
 expectation of carrying them over from liquidation to 
 liquidation on borrowed money until they could sell them, 
 to permanent investors at an advance, caught in the trap 
 of war, were unable for many months to take up (pay for 
 outright) their purchases, or even to pay up the ever- 
 increasing " differences " between the prices of July 1914 
 and the actual prices, whatever they might be, or even to 
 borrow by their sole efforts, the necessary sums.^ The fol- 
 lowing table of a few leading shares indicates the general 
 course of the market from July 2, 1914 to July 26, 1917, 
 including prices of December 7, date of the reopening of 
 the market for cash transactions after the closure early in. 
 September when the Government moved to Bordeaux. 
 
 ' Cf. L'Econoiniste Frangais, August 8, 1914, p. 203. 
 
541] 
 
 THE BOURSE AND WAR FINANCE 
 
 99 
 
 3 per cent. Rentes /<?-- 
 peiual(3X 95 in 1913J 
 Russian 5 per cent. . . 
 Bank of France shares. 
 Credit Lyonnais . . 
 Suez Canal .... 
 
 Northern Ry 
 
 Paris-Lyons Ry. . . . 
 
 
 1914 
 
 
 1915 
 
 1916 
 
 July 2 
 
 July 30 
 
 Dec. 7 
 
 July 22 
 
 July 27 
 
 83fr.7Sc. 
 
 78 
 
 72 fr. 50 
 
 69 
 
 64 fr. 30 
 
 102 fr. 5 
 
 95 fr. 9 
 
 88 fr. 20 
 
 
 89 fr. 150 
 
 4060 
 
 4400 
 
 4350 Prox. 
 
 4475 
 
 5175 
 
 1592 
 
 1340 
 
 1050 
 
 1006 
 
 1220 
 
 497S 
 
 4300 
 
 4000 Prox. 
 
 3990 
 
 4470 
 
 172s 
 
 1249 
 
 1400 Prox. 
 
 1215 
 
 1485 
 
 123s 
 
 1190 
 
 
 
 1052 Prox. 
 
 1165 
 
 I9I7 
 
 July 26 
 
 61 fr. 10 
 
 75 £'• S 
 5210 
 
 "37 
 
 4500 
 
 1286 
 
 990 
 
 Prices of July 30 to September 3 on the Parquet and from 
 August 17 on the Coulisse, which was temporarily reopened 
 on that date after the closure of July 24, were for cash^ and 
 were more or less nominal. For the great mass of securi- 
 ties the decree of August 29 postponed the liquidation 30 
 days, while the decree of September 27, 1914, in view of the 
 apparent impossibility of the situation's being retrieved by 
 the market itself, suspended indefinitely " all demands for 
 repayment and all legal actions relative to time transactions 
 previous to- August 4, 1914 in rentes, Government obliga- 
 tions and other securities, as well as to related report oper- 
 ations." The amounts due were to be increased by interest 
 at the rate of 5 per cent per year." 
 
 This decree, on September 15, 1915, when the war was 
 going better, and the reopening of the term market was 
 in view, was modified as follows. The liquidation was 
 to take place at the end of the month, 14 months from its 
 original postponement. The differences between the prices 
 of that date and those of July 15 and June 30 (for securi- 
 ties not quoted in the middlemonth) due from purchaser*,, 
 
 ' " Marche, Financier hebdomadaire," Hconomisie Europeen, etc. 
 ' £conomiste Frangais, Oct. 3, p. 383. 
 
lOo THE PARIS BOURSE AND FRENCH FINANCE [542 
 
 "were made payable 10 per cent the day after the settlement, 
 and 10 per cent at each end-of -month settlement for the next 
 9 months to June 30, 1916. Differences (caused by fur- 
 ther falls in prices) due as the result of succeeding settle- 
 ments (after September i) were to be payable at once as in 
 ordinary times. The accumulated moratorium interest was 
 made payable from the 2nd of the following October. It 
 was also provided that debtors could obtain further re- 
 lief through appeal to the courts. Sums due in the future 
 from the end of October to the end of June 1916 and also 
 those accorded a further postponement by the courts were 
 to bear interest at 6 per cent. All demands for payment 
 from debtors with the colors, or from inhabitants of in- 
 vaded provinces, were to be indefinitely postponed. All 
 demands for payment and legal action not comprehended in 
 the foregoing, except in regard to enemy subjects, were 
 provisionally postponed.^ 
 
 This decree was not issued without opposition. The 3 
 per cent rente which had stood at 83 francs 70c. at the June 
 settlement of 1914 had declined to 68 fr. 25 c. on September 
 10, 191 5, and reached 66 fr. 50 (4J4 per cent basis) on Sep- 
 tember 30 following, a decline of 17 fr. 20. Many holders 
 t;omplained, and a deputy asserted vehemently that the liqui- 
 dation price should be fixed as that of July 31, 1914, the date 
 of the postponed July liquidation, but M. Ribot, pointing out 
 that no actual settlement had taken place at that time, and 
 that if it had, prices in the panic would have touched an un- 
 known low level, stood firmly for the preservation of the 
 original contracts. 
 
 In the meantime, between August 1914 and September 30, 
 191 5, many relief measures had been proposed and some 
 a.dopted. Indeed it was as the consequence of the final 
 
 1 Journal OiKciel, Sept. 16, igi6. 
 
543] THE BOURSE AND WAR FINANCE jor 
 
 attainment of an accord between the Bourse, the Bank of 
 France and the Government that it was decided to attempt 
 the Hquidation and prepare for the opening of the term 
 market under a regime of Hmited prices. Some of the de- 
 cisions had even been taken and put into effect as early as 
 November. The first arrangement reached was in the nature 
 of an offer by the Bank to pay over 40 per cent of the loans 
 (not exceeding a total advance of $40,000,000) for carry- 
 ing forward securities, on the deposit with the Bank of the 
 securities in question. The money was to be paid to the 
 Agents de Change depositing securities on behalf of their 
 clients, and acceptance of course was voluntary. The 
 statutes governing the Bank did not allow it to make ad- 
 vances on all the diverse securities reported. Three signa- 
 tures were required to enable the Bank to discount. Or- 
 ders were tO' be drawn by Agents, acting for clients to whom 
 sums were due, on the debtors represented by their Agents. 
 These would be countersigned by the Syndic for the Syndi- 
 cal Chamber of the Compagnie, and discounted at the Bank 
 up to 40 per cent of the sums reported, at 5 per cent. These 
 sums were then to be turned over to capitalist reporteurs 
 who desired to be reimbursed.^ This partial solution left 
 the Coulisse out in the cold, but that enterprising commun- 
 ity {Chambre Syndical de Banquiers) promptly began the 
 organization of a kind of solidarity of its own. They in- 
 vested $2,200,000 in National Defense notes (bons) and 
 eventually used this security as the basis of a liquidation 
 bank to assist in solving the " frozen " carry-overs on the 
 Coulisse.^ However, neither arrangement seemed to have 
 had any immediate effect. The Agents de Change on their 
 
 1 Cf. L'&conoyniste Frangais, Nov. 14, 1914, p. 495, and Nov. 21, 1914, 
 p. 920. 
 ' Ibid., Nov. 28, 1914, p. 960. 
 
lOj THE PARIS BOURSE AND FRENCH FINANCE [544 
 
 part put difficulties in the waj^ and the Coulisse could 
 not find lenders with the necessary capital. Thus matters 
 dragged along through 191 5, until, through rising prices 
 here and there, and friendly adjustments, the total sum 
 tied up at the middle of the year was estimated at some 
 $60,000,000/ 
 
 The efforts of M. Ribot, to whom it was a cause of anxiety 
 in view of the coming loans, that this great national security 
 market should be so long embarrassed, finally succeeded in 
 bringing about the arrangements that led to fixing the date 
 for the term settlement at September 30, 191 5. 
 
 The Bank of France agreed to raise the limit of its ad- 
 vances offered to $50,000,000. The Parquet issued $15,- 
 000,000 of 6 per cerit notes backed by the credit of the Com- 
 pagnie, and these were easily placed. With these funds, to 
 which was added by M. Ribot a contingent guarantee of the 
 treasury of some $15,000,000 in treasury notes renewable 
 every three months for two years, the Agents not only of- 
 fered to reimburse all reporteurs who desired it, but loaned 
 $7,000,000 to the Coulisse to enable it to reimburse credit- 
 ors for the " differences " and the moratorium interest due 
 them on Coulisse securities. 
 
 It was agreed that the settlements on the two markets 
 should proceed simultaneously, as many operators and capi- 
 talist reporteurs were debtors on one and creditors on the 
 other. The settlement was to be carried out according to 
 the ordinary regulations. Purchasers of securities could 
 take them up at any settlement, but if not able to do so, 
 could continue to be officially reported. 
 
 One of the big problems of the Bourse had been the 3^^ 
 per cent rentes in which speculation had been particularly 
 heavy on the Coulisse de Rentes. Some time before, Mr. 
 
 1 Cf. L'£conomiste Frangais, June 26, 1915. 
 
545] THE BOURSE AND WAR FINANCE 103 
 
 Ribot, having agreed with the Bank of France that it should 
 advance necessary sums on them, had made them con- 
 vertible at 91 into 5 per cent notes of the National Defense 
 (on a 3>^ per cent basis) and he announced at this time 
 that nearly all of them had been so converted. As to the 
 floating 3 per cent rentes, always an important part of the 
 ■carryovers, he stated that a great financial institution ( Caisse 
 de Depots et Consignations) had agreed to buy them as 
 offered/ These efforts were successfully carried through 
 and it soon appeared that the sums raised would not be 
 needed, as the reporteurs did not ask reimbursement after 
 the liquidation of the 30th. They had regained confidence 
 and continued to support the market,^ the business of which 
 however, had shrunk to a minimum of its former total. In 
 fact, it is improbable that French finance and the Paris 
 Bourse will ever regain their old international position and 
 •prestige. 
 
 All these measures described in the preceding pages, im- 
 portant as they were in themselves, were subordinate or 
 tributary to the first great financial necessity of a nation at 
 war, the raising of funds for the national defense. Some 
 account of this process, with which they were inextricably 
 involved, is necessary to a clear comprehension of the 
 measures described above. 
 
 When M. Ribot took office the 26th of August 1914, he 
 found indeed that the task of financing the war was one of 
 tremendous difficulties. The prostration of the banks and 
 the Bourse, and the Government's lack of facihties, to 
 say nothing of the $160,000,000 loan which had just been 
 issued and of which only $76,000,000 had been paid up, 
 
 1 Nos Finances Pendant la Guerre, p. 166. 
 
 ' Cf. G. LaChapelle, " La Bourse de Paris," in Revue de Paris, July, 
 1915, p. 384. 
 
I04 THE PARIS BOURSE AND FRENCH FINANCE [546 
 
 deprived him of the power to^ issue an immediate and 
 large loan in the usual way. As mentioned above, he 
 went first to the Bank of France, and up to January 28, 
 191 5, had relied on it to the extent of $780,000,000.^ 
 His next step was to take care of the balance of the 
 3J/2 per cent rentes, as shown previously, by offering to 
 exchange them for treasury notes (see below) on a 3J4 
 per cent basis with a 5 per cent premium, and entrust- 
 ing the Bank with their immediate rescue. This opera- 
 tion added $92,400,000 (this amount was eventually paid 
 up) to the Government's resources. He then inaugur- 
 ated the issue of treasury notes denominated " Bans de la 
 Defense Nationale" and conducted a great patriotic cam- 
 paign for their purchase, reorganizing the agencies of the 
 treasury for the placing of the notes, of which there were 
 some 18 categories, directly with the ultimate buyers. The 
 interest, at first 5 per cent, was payable in advance, and was 
 deducted from the price of issue. It was virtually a huge 
 discount operation of their Government's notes on the part 
 of the French people. They were at first issued in denom- 
 inations of $20, $100, and $200, and later in as small 
 amounts as $1 and $4 sold through the post offices. The}^ 
 matured in 3 months, 6 months, and i year and were ex- 
 changeable at par for future long-term loans. Later the 
 rate on the three-month maturities was cut to 4 per cent and 
 the Bank of France was empowered to discount any not hav- 
 ing over three months to run. The issue met with general 
 approved by the public, and by the 30th of June, 191 5, over 
 $1,100,000,000 of these notes v/ere in circulation, and by the 
 31st of August following, $1,394,000,000 not including those 
 placed in England and the United States. As the amount 
 of these notes increased, especially the longer maturities, pre- 
 
 ' Bilan de Bank de France. 
 
547] THE BOURSE AND WAR FINANCE 105 
 
 parations were made for a longer term issue/ These notes 
 or bonds bore 5 per cent interest, were to mature in 1925 
 and were emitted at 96 fr. 50. Subscriptions by the 30th of 
 June were nominally over $500,000,000 and by August, 
 191 5, had exceeded $600,000,000.'' 
 
 By the 12th of November, 191 5, according to M. Ribot,^ 
 the total of notes had reached $1,670,000,000 and the total of 
 bonds of 5 and 10 years maturities, had passed $731,000,000, 
 a combined total of over $2,400,000,000. It was time for 
 the great national loan that had been heralded from the first 
 days of the war. 
 
 This loan which could be paid up in notes, short term 
 bonds, the 33^ per cent rentes, or even the 3 per cent per- 
 petual rentes was for an indefinite amount, at 5 per cent 
 perpetual, but guaranteed against conversion up to January 
 I, 1 93 1, and exempt from taxation. The issue price was 
 fixed at 88 per cent for those who paid up in four successive 
 installments by March 15, 19 16, and at 87 fr. 25 for those 
 settling at once. Subscription began November 25, 191 5.' 
 The total amount subscribed was $3,260,000,000 of which 
 $1,273,600,000 was cash. The share of France in the 
 Anglo-French loan placed in the United States had been 
 $259,000,000 and the gold loan in London had brought in 
 $302,400,000, the grand total being at this date (January 
 31, 1915), including advances from the Bank of France of 
 $1,060,000,000, some $5,531,400,000. 
 
 By the 31st of July 19 16, according to the report of M. 
 Ribot to the Budget Committee, ° the total receipts from 
 loans including $100,000,000 or more placed in the United 
 
 ' " Loi de loth et Decret du 13 Fevrier 1915," Journal OiRciel. 
 
 - Nos Finances Pendant la Guerre, p. 252. 
 
 ^Journal OMciel, Nov. 13, 1915. 
 
 ■* L'Sconomiste Frangais, Nov. 27, 1915, p. 695. 
 
 = Ibid., Sept. 1916, p. 383. 
 
Io6 THE PARIS BOURSE AND FRENCH FINANCE [548 
 
 States, treasury notes sold in England of $463,000,000, ad- 
 vances from the Bank of France of $1,660,000,000 and from 
 the Bank of Algeria of $9,000,000, had reached some $7,- 
 653,000,000, while the total expenses of the Government, 
 civil and mihtary, from August i, 1915 to December 31, 
 1916 were estimated at some $12,300,000,000. A new loan 
 was necessary. It was issued, beginning October 5 and 
 closing exactly on October 29, 19 16. The rate was 5 per 
 cent perpetual, price 88 fr. 75 or 87 fr. 50 for holders of 
 the preceding 5 per cent loan whose subscription was full 
 paid. It was not to be subject to conversion before Janu- 
 ai-y I, 1 93 1 and was to be free from all taxes. On the i ith 
 of December M. Ribot announced in the Chamber of 
 Deputies that total nominal subscriptions were some $2,- 
 300,000,000. 
 
 From November 26 to December 6, 191 7 subscriptions 
 were taken for a third national perpetual loan of $2,500,- 
 000,000 real capital. The rate was fixed at 4 per cent, the 
 price (for immediate payment) at 68 fr. 60, and the rentes 
 were exempt from taxation. In addition a sinking fund 
 was provided to'retire them. The French subscription alone 
 was $2,055,300,000.^ 
 
 A report on the 191S budget by Louis Main " estimated 
 the total expenditures of the Government from August i, 
 1914 to December 31, 1917, at $21,300,000,000, met in part 
 by $4,000,000,000 in notes and by $6,200,000,000 from the 
 three big loans. 
 
 In the early part of 1918, such were the straits to which 
 the treasury was reduced, new 5 per cent bonds {obliga- 
 tions) of the national defense were issued at par, but with 
 the advantage of being payable at the will of the holder at 
 
 ' M. Klotz, Finance Minister, in Chamber of Deputies, Dec. 28. 
 - L'Economiste Francois, Dec. 1917. 
 
549] ^-^^ BOURSE AND WAR FIXANCE 107 
 
 the Bank of France, at the end of the first year, or at the 
 end of any six months thereafter. If held for the full period 
 of maturity, 5 years, a premium of six months additional 
 interest was offered/ 
 
 In September igi8, the fourth and last war loan was au- 
 thorized.^ It was a 4 per cent perpetual rente emitted from 
 October 20 to November 24 at 70 fr. 80. The unpaid 
 coupons, not to exceed 50 per cent of subscriptions, of the 
 loans emitted or gviaranteed by Russia were made receivable 
 in payment, as were also of course, the treasury notes, and 
 coupons and certificates, under certain conditions, of pre- 
 vious bonds, and rentes. The loan was an enormous suc- 
 cess. The total amount subscribed was over $6,000,000,000 
 in nominal capital or a real return of over $4,000,000,000 
 of which half was expected to be in new money.' It is 
 understood that some $50,000,000 of Russian coupons were 
 turned in. There were 7,000,000 subscribers, the average 
 amount of the subscriptions being $140. Some $104,000,000 
 were allotted to the London market and oversubscribed on 
 the first day of issue. Treasury notes to the extent of $2,- 
 400,000,000 were converted into the new issue, more than 
 had been absorbed by the three previous issues together, al- 
 though some $6,600,000,000 are still outstanding.* 
 
 Over $10,800,000,000 (actual capital received) or nearly 
 $12,000,000,000 nominal (actual repayments) had been com- 
 prised in the four great war loans at 5 per cent and 4 per 
 cent. The total debt, according to Mr. Ribot, was $34,- 
 000,000,000 (address in Senate December 19 18) as com- 
 pared with $6,400,000,000 before the war. Of the present 
 
 ' L'&£Onomiste Frangais, May 4, 1918, p. 571. 
 
 '' Journal Officiel, Sept. 26. 
 
 ' Announcement of M. Klotz, Finance Minister, Dec. and Jan. 
 
 * Economist, Dec. 28, 1918, Jan. 4, 1919. 
 
Io8 'i'llE PARIS BOURSE AND FRENCH FINANCE [--q 
 
 debt outstanding $5,400,000,000 was placed in other coun- 
 tries.' It was forecast by M. Ribot that the French budget 
 for 19 1 9 would be $3,400,000,000. He estimated the pri- 
 vate incomes of France at perhaps $8,000,000,000 as com- 
 pared with an estimate of $6,000,000,000 before the war," 
 the increase in part or whole being due, of course, to the 
 monetary inflation, the note issue of the Bank of France on 
 November 14, three days after the signing of the armistice 
 being well over $6,000,000,000. 
 
 The ■' frozen " bills discounted by the Bank had declined 
 in amount to some $200,000,000 and its gold and silver 
 ($60,000,000) stocks increased to $1,153,347,368 (a little 
 over 10 per cent of the note circulation) partly held abroad, 
 while the 3 per cent rente, the gauge of France's credit, that 
 had fallen in the dark days of March 1918 to 56 fr. 75, stood 
 November i, 1918 at 62 fr. 3.^ 
 
 ' M. Klotz, address before the French Senate, 1918. 
 
 ' Economist, Dec. 7, Dec. 28, 1918, pp. 772 and 880 respectively. 
 
 'Bank of France Statement, and Cote Vidal. 
 
CHAPTER VI 
 Conclusion 
 
 To contrast fundamental institutions of different coun- 
 tries, of a financial or other nature, is nearly as difficult 
 as to contrast the national characters of which they are the 
 outgrowth, and in part the expression. In comparing Ameri- 
 can institutions with those of England and France and Ger- 
 many, it is to be borne in mind that it is, first, a comparison 
 of American with European institutions; and secondly, ex- 
 cluding England, that it is a comparison of American in- 
 stitutions, evolved largely from English models, with conti- 
 nental European institutions springing from entirely dif- 
 ferent historical backgrounds. 
 
 Up to the recent Russian revolution, no European coun- 
 try had been so thoroughly democratized as the United 
 States. Everywhere in Europe, vestiges of the long con- 
 tinued upper-class privileges survive in all forms of business 
 where they would not be understood or tolerated in this 
 country. The tenacious grasp of the modern prototypes of 
 the old clerical and noble class on these slowly slipping 
 privileges has acted not only to hold back democratization 
 of industry and finance, but also as a brake on all progress 
 as well, especially when progress, even merely in the sense 
 of efficiency, connoted any extensive change. This observa- 
 tion applies more to the Latin and Slavic countries and to 
 England than to Germany where indeed autocracy had rather 
 by immense effort, harnessed efficiency to its car. This lack 
 of a desire to change, even to progress, born of inertia and 
 SSI] 109 
 
no THE PARIS BOURSE AND FRENCH FINANCE [552 
 
 fear of losing some privileged position, is particularly 
 noticeable in financial institutions. 
 
 In France the Agents de Change have a century-old legal 
 monopoly of dealing in listed securities for a commission, 
 and by the same token may not buy and sell on their own 
 account. Hence the immortality of the Coulisse whose 
 members act as brokers in unlisted securities, and, by con- 
 nivance with the official Agents, in listed securities as well. 
 They also act as principal in dealings in all securities. The 
 Coulisse's function of buying and selling on its own account 
 is performed with some formality on the London Exchange 
 by a definite class of jobbers who ostensibly do not deal 
 directly with the public, but only with brokers representing 
 clients. In New York any broker may buy or sell without 
 formality in the open market for himself as principal, or for 
 clients for a commission. 
 
 The merits of the three systems have been variously dis- 
 cussed. There are opportunities for collusion between brok- 
 ers or between the various groups of market men to defraud 
 their clients under each system, and, as in all business, the 
 integrity of the operator, the vigilance of the customers, and 
 full publicity of pertinent facts for the benefit of the latter 
 are the best safeguards against dishonesty. 
 
 In Paris the Agents, and to a less degree the Coulissiers. 
 are responsible parties. To belong to any of the formal or- 
 ganizations, a broker must possess a minimum capital. In 
 New York as on the Paris Parquet, the number of seats is 
 limited and the value of each ranges from $40,000 to 
 $100,000. On the New York curb, however, which cor- 
 responds to the Paris and London unlisted markets, and 
 which no one pretends to defend without reserve, there is no 
 limit to membership, and one might add, no qualifications, 
 though the volume of sales at times makes it one of the 
 biggest markets in the world. In the London Exchange 
 
553] CONCLUSION III 
 
 membership is also unlimited, though certain conditions are 
 imposed. The amount of capital required is small, and 
 that responsibility on contracts is less is shown by com- 
 paratively numerous failures. 
 
 The onlooker on the floor of the three exchanges is 
 chiefly impressed with the exceptional activity of the New 
 York market, and of the Yankee market in London. In 
 Paris one stock at a time is " called " and traded in till no 
 more bids or offers meet in a common price. In London the 
 brokers seek out a jobber or jobbers in the stock they wish to 
 trade in, and dicker with them individually, while in New 
 York, everyone rushes in apparently indiscriminately to buy 
 or sell one or many stocks, either as principal or as agent, 
 though it is true that there has been a natural development in 
 New York of skilled " room traders " who take no orders 
 from the public, but act entirely as jobbers. 
 
 The trading principles of all three markets are funda- 
 mentally the same if the whole market in each city is con- 
 sidered. An important cause of the divergence in practice 
 is the tremendous number of different securities listed in 
 Paris and London as compared with New York, whose se- 
 curities vip to the present have been chiefly those of Ameri- 
 can enterprises. As American industry is notorious for its 
 centralization, it follows that enormous amounts of capital 
 are represented by comparatively few kinds of securities, 
 with the tendency in this drection increasing, a fact that 
 diminishes the need for so many skilled specialists in the 
 stock market. This is a democratic and efficient practice 
 that contrasts favorably with the multiplicity and intricacy 
 of the t3'pes of securities one finds in certain foreign coun- 
 tries. 
 
 The speculative public in all countries is divided into two 
 general classes, one of which, most numerous on occasions 
 of prosperity in certain industries, is not noted for its pei*- 
 
112 THE PARIS BOURSE AND FRENCH FINANCE [554 
 
 spicacity, while the other class is distinguished by an extra- 
 ordinary amount of that very quality. In the United States 
 the general interest in speculation and the democratic atmos- 
 phere has caused the alertness of the speculator or investor 
 to be supplemented by devices for increasing the fruits there- 
 of. To a greater extent than anywhere else in the world, 
 he is quickly and accurately supplied through the stock ticker 
 and news ticker services with market information. The 
 amount and price of each sale is recorded on a running tape 
 in every broker's office and elsewhere, and the daily papers 
 print the total sales of each day while shrewd surmises are 
 always afloat as to the identity even of important buyers and 
 sellers. For certain reasons known to themselves the powers 
 that be in Paris and London give out no total of daily sales. 
 The trouble, or expense, or lack of interest on the part of 
 the public, or danger to uninformed persons of panicky 
 tendencies are given as reasons. But the advantage of the 
 New York method in securing full publicity of transactions 
 is obvious. 
 
 The rigid government regulation of the continental 
 bourses is a practice that finds no counterpart in the English 
 speaking countries where each man is supposed financially to 
 look out for himself. In France government regulation of 
 the Bourse has had a long historical evolution. It is a ves- 
 tige of the old tributary position of commerce and finance to 
 the noble and clerical governing class- now being retained 
 and strengthened for other reasons. In Germany govern- 
 ment regulation is of recent origin and is clearly due to the 
 greater socialization of industrj' and finance in that country 
 (vide introduction chapter) under a power-centralizing and 
 efficiency-worshipping autocracy. 
 
 The ever vigilant factor, however, that really controls the 
 stock markets and their operators is the banks, especially 
 the financial banks, and it is significant that reform legis- 
 
555] CONCLUSION 113 
 
 lation in Germany not only did not diminish, but actu- 
 ally increased the power and influence of the big German 
 banks over market operations. There is no doubt that 
 there is everywhere a concert among the banks in regard 
 to stock-exchange loans, their amount, the securities fav- 
 ored, the brokers and customers favored or discriminated 
 against, the rate of interest, the listing of securities and a 
 variety of other matters where the common interests of the 
 money lenders are affected. As indicated previously, our 
 antiquated banking and monetary system had constrained 
 the New York banks to make only day to day loans on the 
 stock exchange whereas all European stock loans run for 
 longer periods, usually two weeks or one month. These 
 time loans, with their consistently low rate of interest, have 
 long been a contrast to our call-loan system with its fluc- 
 tuating interest rate which at times goes above 100 per 
 cent. Only recently (June 191 9) the interest rate rose on 
 a wide bull market to 15 per cent, proof that our discount 
 market or clearing machinery is not yet working smoothly 
 in suflicient volume. 
 
 It is in this relation of the banks to the stock market 
 that we have yet the most to learn from European practice. 
 To extend bank loans from overnight to bi-monthly or 
 monthly periods will bring about an immense saving in 
 accounting routine, in money, and in financial ability to 
 dodge the lightning, which would then strike only at known 
 intervals. Before this constructive reform, must come a 
 preliminary overhauling of the system of clearing stocks by 
 interposing an efficient clearing mechanism between each 
 broker and all his confreres at each settlement of accounts, a 
 mechanism perfected to the extent of being readily applicable 
 to the huge amount of clearance that will pile up with a term 
 settlement, and one that can be coordinated with a union of 
 stock-exchange banks to handle stock loans on a more effec- 
 tive and safe basis than exists at present. 
 
114 THE PARIS BOURSE AND FRENCH FINANCE [556 
 
 Whether such a reform, as it undoubtedly must be con- 
 sidered from the banking point of view, would be accom- 
 panied by changes in the rate of commissions and in the 
 practice of brokers acting as middlemen in credit, borrow- 
 ing immense sums from the banks and loaning them piece- 
 meal to customers, is a moot question. In Paris and Berlin, 
 bankers, so far as the rate of interest is concerned, loan 
 direct to the speculators. In London, on the other hand, the 
 same system prevails as in New York, the broker and jobber 
 making a profit on the rate paid and charged. In Berlin 
 so careful a watch is kept over the national interest, that 
 restrictions placed on the rate that might be paid on funds 
 borrowed from foreign countries, prevented German specu- 
 lators from competing with each other for non-German 
 accommodation. 
 
 A change in this matter of credit organization would 
 work a fundamental alteration in the character of our brok- 
 erage firms, aligning them on the one hand more definitely 
 in the interests of their customers, on whose commissions 
 they would be solely dependent, and on the other hand, tend- 
 ing to eliminate them altogether by bringing the banks into 
 closer contact with the trading community. 
 
BIBLIOGRAPHY 
 
 Agger, Organized Banking. 
 
 Aubry, L'admission d la cote des Valeurs etrangeres. 
 
 Bagehot, Lombard Street. 
 
 Bank de France bilan hebdomadaire. 
 
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 Buchere, Operations de la Bourse. 
 
 Chevrot, Pour devenir Financier. 
 
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 Banques et operations de banque. 
 
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 Deseure, " Le Moratorium," Revue de Paris, Mar. 1915. 
 
 Deville, La crise de la Bourse de Paris. 
 
 Dunbar, History and Theory of Banking. 
 
 Economist (London). 
 
 £,conomiste Europien. 
 
 L'£conomiste Frangais. 
 
 Emery, Speculation on Stock and Produce Exchanges in the U. S. 
 
 Faure, Le capital Frangais au service de I'etranger. 
 
 Federal Reserve Bulletin. 
 
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 Francois, Revue d'economie politique. 
 
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 Friend, " The Paris Bourse," Forum, Oct. 1901. 
 
 Gibson, Stock Exchanges. 
 
 Giffen, Stock Exchange Securities (London). 
 
 Guilmard, Le Marche libre. 
 
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 Handworterbuch der Staatswissenschaft, " Borse." 
 
 Hirst, The Stock Exchange (London). 
 
 Huart, L' organization du credit en France. 
 
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 Juhliet, N. A. Review, May, 1916. 
 
 Kaufman, La Bank en France. 
 
 557] 115 
 
Il6 BIBLIOGRAPHY [558 
 
 Klotz, Addresses to Senate, Chamber of Deputies and Announcements 
 
 to Press. 
 La Chapelle, Nos Finances pendant la guerre. 
 
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 Lagrave, Les £tablissements de credit. 
 
 Les Grand Marches financiers, A. Aupetit and others. 
 
 Levy, R. G., Quarterly Journal of Economics, Nov. 191S. 
 
 Jour, des Sconomistes, Aug. 1915. 
 
 Liese, Evolution of Banks and Credit in France. 
 
 London Financial Times. 
 
 Manchez, Societes de depots. 
 
 Manuel des Agents de change banque, finance et commerce. 
 
 Marintsch, La Bourse. 
 
 Moffett, " Paris Bourse," Century Mag., March, 1904. 
 
 Moody, Art of Wall Street Investing. 
 
 Nesrmarck, Le Rentier, July 12, 1915. 
 
 Journal de Soc. de Statistique, Paris, Jan. 1916. 
 
 — — "Rapports a I'imstitute international de statistique." 
 
 Osborne, A''. Y. Stock Exchange. 
 
 Patron, Bank of France in its Relation to National and International 
 
 Credit. 
 Powell, The Mechanism of the City (London). 
 Pratt, Work of Wall Street. 
 Proc. Academy of Political Science, Jan. 191 1. 
 Raffalovitch, MarchS financier, 1913. 
 Revue de Paris, March, 1915. 
 
 Ribot, Reports as finance minister and addresses in Senate. 
 Rist, " Nos Ressources financieres," Revue de Paris, Dec. 1915. 
 Robert-Miller, La Bourse de Paris. 
 Salames, Le Moratorium. 
 Say, " Les interventions du tresor a la Bourse depuis 100 ans,'' in 
 
 Annates de I'ecole des Sciences politiques. 1888. 
 Statist (London). 
 
 Stock Exchange Investments, anonymous (London). 
 Times Annalist. 
 
 Van Antwerp, Stock Exchange from Within. 
 U. S. Monetary commission publications on French, English, German, 
 
 and American banking. 
 Vidal, History and Methods of Paris Bourse. 
 
 "Le Stellage" (Congris valeurs mobilieres, Paris, 1900). 
 
 Warburg, The Discount System in Europe. 
 
 Defects and Needs of our Banking System. 
 
 White, Money and Banking. 
 
STUDIES IN HISTORY 
 
 ECONOMICS AND 
 
 PUBLIC LAW 
 
 EDITED BY 
 
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 VOLUME EIGHTY-NINE 
 
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 London : P. S. King & Son, Ltd. 
 
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CONTENTS 
 
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 1. Women's Wages — Emilie J. Hutchinson, Ph. D i 
 
 2. The Return of the Democratic Party to Power in 1884 
 
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 3. The Paris Bourse and French Finance — William Parker, 
 
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 1. [51 The Boonomlcs of the Russian VUIagre. 
 
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 %. [6] Bankruptcy. A Stndy In Comparative lieslslatlon. 
 
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 5. [34] German "Wage Theories. A History of their Development. 
 
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 [57] Tlie Historical Development ojt the Poor Liaw of Connecticut. ^ _ 
 
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 1. [58] Tlie Economics ol Land Tenure in Georgia. 
 
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 2. [59] Mistake In Contract. A Study In Comparative .rnrlsprndenoe. 
 
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 3. [60] Combination In tlie Mining Industry. „ 
 
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 1. [65] 'Municipal Control of Public XT tilltles. 
 
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 2. [66] The Budget In the American Commomvealths. 
 
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 1. [68] Trade and Currency in Early Oregon. 
 
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 8, [69] Luther's Table Talk. By Pkesbeved Smith, Ph.D. Price, Ji.oo. 
 
 3. 170J The Tobacco Industry in the United States. 
 
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 1. [72] The Economic Policy of Robert Walpole. 
 
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 2. [73] The United States Steel Corporation. 
 
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 2. [76] TheDevelopment of the Legislature of Colonial "Virginia. 
 
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 3. [77] The Distribution of Ownership. 
 
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 1. [78] Early N'e'w England To"wns. By Anne Bush MacLear, Ph.D. Price, ^i. 50. 
 
 2. [79] New Hampshire as a Royal Province. 
 
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 [80] The Province ol New Jersey, 1664—1738. By Edwin P. Tanner, Ph.D. 
 
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 1. [81] Private Ifreight Cars and American Railroads. 
 
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 2. [82] Ohio before 1850. By Robert E. Chaddock, Ph.D. Price, |i.so. 
 8. [83] Consanguineous Marriages in the American Population. 
 
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 1. [86] Factory Legislation in Maine. By E. Stagg Whitin,A.B. Price.Ji.oo. 
 
 5. [87] •Psychologloallnterpretations of Society. 
 
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 S. [88] *An Introduction to the Source^ relating to the Germanic Invasions. 
 
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 S. [90] Social Reform and the KefoPmatlon. 
 
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 S. [91] Responsibility for Crime. By Philip A. Parsons, Ph.D. Price, $1.50. 
 
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 1. [93] The Conflict over the Judicial Powers In the tTnlted States to 1870. 
 
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 «. [93] A Stndy of the Population of Manhattan vllle. 
 
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 8. [94] •Divorce: A Study In Social Causation. 
 
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 1. [95] *ReconstrnctlonlnTexas. By Charles William Ramsdell, Ph.D. Price, J2.50. 
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 ». [103] Political History of New Xork State during the Period of the Civil 
 
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 ». [105] Ohio Politics during the Civil War Period. 
 
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 [107] New Jersey as a Royal Province. By Edgar Jacob Fisher, Ph. D. 
 
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