Corruption of the gold exchange - Historical article

[Engineer]

Clipped from a ZH comment:

"THE ILLINOIS STATE JOURNAL – Oct. 28th, 1869

The Gold Exchange of New York

(from the NY Independent)

The proper function of gold exchange is to supply suitable facilities to those who actually need to buy gold for business purposes, or have it to sell. The purchasers are merchants who want the article to pay their import duties, and also those who must use it in the settlement of gold contracts. The sellers are the receivers of gold interest, or gold treasure from California, or from foreign countries. These are chiefly the parties doing business in New York, who need the convenience of a gold exchange, or a market where they can buy and sell gold. The aggregate of their transactions, under our present monetary system, would not exceed $400,000,000 in a whole year. All their necessities might be abundantly met by the gold dealers, buying and selling over their own counters. The actual gold wants of the community would then fix the price of the article under the law of supply and demand, just as its wants determine the prices of all other articles under the same law. This would remit gold exchange to the ordinary principles of trade; and, as we believe, it would be a vast improvement upon the operations of the Gold Board, and the Gold Clearing House, both of which might be dispensed with, to great public advantage.

This famous Gold Board is simply an organization of men meeting daily in the Gold Room, acting under certain rules for the purchase and sale of gold, having nominal transactions that range from fifty to five hundred millions of dollars per day, and in the course of a year amount to some twenty or thirty billions of dollars. The magnitude of its operations shows conclusively that its main business is not to supply a gold exchange for the people. It is simply a great speculating organization, making artificial prices for gold, subjecting those prices to violent fluctuations, and doing a fictitious business that has no adequate basis in the amount of capital employed or in the wants of trade. The Government does not need it, the banks do not, and the people do not need it. It is a convenient machinery for gold speculators, and for nobody else.

Add the Gold Clearing House, and then the facility for this gambling speculation is entirely complete. The Clearing House, virtually keeps the accounts of and settles the differences between the members of the Gold Board – daily passing the purchases of each to the debit side of his account, and the sales to the credit side, and requiring a daily adjustment of the difference between the two accounts by giving or receiving checks for an actual amount. By such a system comparatively a small capital is made to do an immense business. A gold speculator may have transactions at the rate of a million of dollars per day (on the basis of one thousand dollars of his capital, provided he keeps his purchases and sales so nearly balanced as not to call for the actual use of more than his sum. The Clearing House is a capital institution for banks in the settlement of their differences; but it is exceedingly objectionable as a contrivance for gold speculators. It enables them to do business in amount altogether disproportionate to their capital.
It is perhaps true that the country will not be wholly relieved from the evils of gold speculation until we resume specie payment; yet it has become a very grave question whether Congress ought not to pass a law making it a penal offense for any man to sell gold without the actual delivery of the article at the time of transaction. Such a law would require the seller to furnish the gold, and the buyer to pay for it; and hence, its tendency would be to reduce the amount of the speculation by increasing its difficulties. The country wants and must have some relief from these gambling operations in gold. The evil has already been borne quite long enough."