The Stock Market, Credit and Capital Formation

APPENDIX D

A FEW STATISTICAL FIGURES FOR ENGLAND

The statistical material concerning the relationship between stock market activity, the money market situation, industrial investment and monetary circulation was described as meagre for the United States. For the United Kingdom such material is, to my knowledge, almost non-existent. There are no figures published on the volume of stock exchange transactions, on stock exchange loans (beyond 1931), on stock exchange clearings or on the balances carried by stock exchange members.

In Table XVII we reproduce some of the few series which are available. These are the new capital issues for the United Kingdom; money lent at call and at short notice; call money rates; and an industrial stock price index. The first three series in Table XVII extend from 1922 to 1939; the industrial stock price index is given only from 1925 onward because its computation and base were changed at that time, and consequently earlier figures would not be comparable with those reproduced.

Money lent at call and at short notice is the sum of the amounts reported by 10, and since 1936, by 11, banks. These amounts, however, are not co-extensive with, but merely include stock exchange loans. The volume of stock exchange loans is known for the period from 1922 to 1931 inclusive, thanks to a study made by the MacMillan Committee in 1931. Table XVIII reproduces this series. A comparison with Table XVII shows that stock exchange loans amounted to from a fifth to a third of the total of “Money at call and at short notice.”

Stock exchange loans were of very modest dimensions in London as compared with New York. The record figure for London of less than 52 million pounds sterling in April, 1928, looks quite diminutive in comparison with the 8549 million dollars, or that is, approximately 1762 million pounds sterling, which the New York Stock Exchange loans reached in September, 1929. The relative movements are likewise much smaller in London than in New York: the New York record was not far from three times the 1926 figure; the London record was some one and two-third times the 1926 figure.

The industrial stock price index shows clearly that the amplitude of fluctuations was much smaller in the London market than in the New York market. The London index, with the average of 1924 as a base, reached its high of 149 in January, 1929; the New York index of industrial stock prices, if based also on 1924 prices, reached its high in September, 1929, at 342. In the subsequent slump the London index fell to 73 in June, 1932; the New York index, again with 1924 as a base, reached its low in the same month at 52. The recovery carried the London index up to 170 in October, 1936; it carried the New York index up to 198 in February, 1937.1

The London fluctuations in stock prices (100:149:73:170) differ from the New York fluctuations (100:342:52:198) not only in amplitude but also by the fact that in London the peak in the thirties exceeded the peak in the twenties, while the opposite was the case in New York.

A comparison of the 1924-29 upswing in new capital issues for the United Kingdom with that for the United States does not show any striking difference as long as we consider total new issues without regard to the type of issue (government or corporate, bonds or stock). New capital issues for the United Kingdom reached in 1928 (the peak) more than three times the volume of 1923. In the United States the capital issues of the record year 1929 exceeded the 1922 or 1923 figures by a smaller rate. If regard were had to corporate capital issues or even to corporate stock issues, more violent fluctuations might possibly be seen in the United States, where stock issues in 1929 were more than 10 times as high as in 1922.2 The shrinkage in total new capital issues after 1929 was drastic both in the United Kingdom and in the United States, but in the United Kingdom the lowest point in this item came in 1931 whereas in the United States it came only in 1933 and at a relatively lower level.

There are no data available which would throw any light on the problem of the absorption of credit or circulating media by the stock market.

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