Activity & Liquidity

To such financial cynics as Pundit John T. Flynn, securities speculation is the moral and practical equivalent of a crap game. By more moderate theorists it is conceded the useful function of keeping markets liquid. Last week after President Roosevelt's fatherly warning to Government employes to stay out of the market (see p. 15), New York Stock Exchange President Charles R. Gay found occasion in Chicago to repeat the old argument for speculative liquidity, observing that "calculating, measured speculation has been a constructive force. . . .'' Right back at Mr. Gay came the Securities & Exchange Commission's David Saperstein with a distinction between market "liquidity" and "activity." Professional traders, said he, more often created the latter than the former because unless the market was already liquid they ordinarily would not play.

Accompaniment to these woodwinds of theory was the resounding brass of a world-wide market break more immediately illustrative of Mr. Saperstein's point than of Mr. Gay's. In London, where commodity prices cracked early last month after Franklin Roosevelt's pronouncement on their high levels (TIME, April 19), stock speculators rushed to sell on news of Britain's higher industrial profits tax. In New York the market slide which began in March became a small avalanche, carrying U. S. Steel common down 10 points to 98, Chrysler down 6, Allied Chemical down 13, and the Dow-Jones industrial stock average down 6 1/2 points, including the biggest single day's drop since July 26, 1934. Market observers saw in this no mere repetition of the milder reaction in April 1936, with which it had a curious day by day parallel. At week's end as stock prices leveled off on solid ground an air of ingenuous satisfaction was all too plain in Washington. Mr. Roosevelt had apparently done a good job of deflation by suggestion, and the behavior of London banks in restricting credit on American securities gave reason to believe that the British Government understood its cues.

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