Bucket Shops and Business Progressivism

What are the origins of an investor’s democracy in the United States? In When Wall Street Met Main Street, Dr. Julia Ott argues that the origins of an investor’s democracy is intimately tied to the birth of deregulatory neoliberalism in the 1920s. Formed under the ideology the “new proprietorship,” which connected the interests of small shareholders to large publicly traded corporations, broader securities ownership helped to forestall the possibility of state intervention and promote business self-regulation. Expanding on Dr. Ott’s argument, “Bucket Shops and Business Progressivism” aims to highlight the additional role regulatory progressivism played in creating an investor’s democracy. Exchanges such as the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT) had waged a long legal war against bucket shops—businesses that allowed patrons to wager on price fluctuations in stock and commodity markets without purchasing real assets—beginning in the 1880s. Although CBOT won an important Supreme Court case in 1905, federal and state courts had, on the whole, proved an inconsistent partner to eliminate bucket shops. Consequently, exchanges increasingly embraced the legislative reformism of the Progressive Era and encouraged new statutory rules to quash bucket shops, especially at the state level between 1905-1910, often in the name of public welfare. At the same time, many exchanges started to reduce barriers to entry such as lowering minimum investment requirements, making it easier for investors of limited means to participate. Drawing primarily on newspapers, common law cases, legislative records for states and Congress, and muckraker exposés, this paper will demonstrate that although these policies did not uniformly eliminate bucket shops, exchanges and boards of trade across the country were willing to pursue a combination of state regulation and self-regulation as a means of establishing legitimacy and shunning perceived competitors.