All Commentary
Friday, July 1, 1988

The Wall Street Journals Second Language

Dr. Peterson, an adjunct fellow at The Heritage Foundation, is a Washington, D.C., consulting economist. For fourteen years he wrote The Wall Street Journal’s “Reading for Business” column.

Why the growth of The Wall Street Journal? In November 1883, Wall Street news agents Charles H. Dow and Edward D. Jones introduced their first publication, “Customers’ Afternoon Letter,” two pages which summarized messenger-delivered, hand-written financial bulletins (onion-skin carbon copies called “flimsies”) which they had issued during the day. A year later the “Letter” published the first Dow Jones Stock Price Index.

With subscriber and advertiser lists growing and reaching beyond downtown Manhattan, the two entrepreneurs hit on a rather radical idea—a daily financial newspaper. On July 8, 1889, the first issue of The Wall Street Journal rolled off the presses. It was four pages in length and cost two cents. In 1902 circulation hit 7,000, in 1927 40,000, in 1947 100,000.

Today, with more than two million daily circulation and an estimated readership of five million, and with 18 printing plants across the nation linked by a satellite facsimile transmission system, the Journal is America’s largest daily newspaper. It proclaims itself “the daily diary of the American dream.” Pulitzer Prize judges and schools of journalism have acclaimed its well-written English, its smoothly flowing text, its investigative “scoops.”

To me, though, the growth of The Wall Street Journal is mainly attributable to its remarkable second language—prices. Prices, like music, are a common tongue, a universal language, even understood by the illiterate. It is a language also copiously available, of course, in the business sections of city papers across the country and in other financial publications such as Investor’s Daily and The Journal of Commerce.

For its part, the Journal publishes a torrent of daily financial data, with scores of tables, charts, bar graphs, rates, and indexes. The Dow Jones Stock Price Index of yore, for example, has now evolved into an Industrial Average of 30 stocks, a Transportation Average of 20 stocks, a Utilities Average of 15 stocks, and a 65-Stock Composite.

Prices of stocks and bonds are covered not only in exchanges such as New York (popularly known as the Big Board), American, Boston, Philadelphia, Midwest, and Pacific, but in over-the-counter (NASDAQ) markets. Foreign stock markets reported include Toronto, Montreal, London, Amsterdam, Brussels, Frankfurt, Zurich, Paris, Milan, Stockholm, Hong Kong, Sydney, and Tokyo.

Too, of special interest to speculators and hedgers, the Journal (as do most financial sections) details daily commodity cash or spot prices as well as expected future prices (called futures) such as those for soybeans, gold, cotton, coffee, crude oil and other raw materials, and for financial futures such as British pounds, Japanese yen, Canadian dollars, Swiss francs, interest rates, and stock indexes (notably the Standard & Poor’s 500).

Daily interest rate and yield figures are also reported. Money rates include those for the prime, federal funds, discount, mortgages, call money, commercial paper, certificates of deposit, bankers acceptances, London late Eurodollars, London interbank offered rates (LIBOR), foreign prime, Treasury bills, and Federal Home Loan Mortgage Corporation (Freddie Mac).

So the Journal offers, in its second language, literally thousands of prices and price-related figures on a daily basis, with all manner of weekly, monthly, and quarterly summaries, with even, in a special section, a yearly summary, the last one dated January 4, 1988, and headlined “Crash Casts a Giant Shadow on Investment Outlook.”

Hence what the reflective reader of the Journal or any other financial section sees is a moving panorama of economic, business, and financial news, almost all bearing directly or indirectly on prices.

Reflecting further, that reader may also see in those prices the broad sweep of a market society, of a global economy, of supply and demand at work to help satisfy human needs and wants—of division of labor and social cooperation in action.

But how and why do masses of people cooperate—people who, for the most part, don’t know each other, who perhaps are separated by thousands of miles, who quite conceivably speak different languages, hold different customs, practice different cultures, and may even be, here and there, on unfriendly terms with each other?

Consider. The Journal reader wakes up via his Hong Kong-produced alarm clock-radio, switches on the lights powered by electricity carried on copper mined in Chile, reads his morning Journal printed on Canadian newsprint, drinks his Brazilian coffee, eats wheat flakes from grain farmed in Kansas, consumes a banana grown in Ecuador, puts on his clothes made of Alabaman cotton and Australian wool, and drives to his office on tires made partly from Malaysian rubber, using gasoline refined from oil pumped in Saudi Arabia.

In such remarkable seemingly mindless global integration and peaceful cooperation—without, in the main, the intervention of government-we witness what Leonard Read called “the miracle of the market.”

This is social cooperation, Adam Smith’s invisible hand, F. A. Hayek’s division of knowledge, Ludwig von Mises’ praxeology—the science of human action—at work, all knit together by prices, by everybody’s second language, by a vast globally connected price network. These prices may be expressed in different currencies. No matter. Currencies translate readily into each other in the marketplace, so that whatever the good, the Mexican peso price and the comparable U.S. dollar price are interchangeable, as the American tourist in Acapulco soon finds out.

Human incentives—human nature—are also at work. These are the incentives impelling the reader of the Journal and of financial sections generally. Producers and consumers, buyers and sellers, savers and investors, dealers and speculators, hedgers and bankers, brokers and commission agents, private individuals and corporate executives, and many others (including quite a few college and university business and economics students and their professors)—all communicate or try to communicate with each other through prices as they pore over financial pages, driven by innate incentives, broadly by the will to live and, if possible, to live better, as each views life.

But to live is to choose, to exchange one state of affairs for another. An exchange may be autistic, within oneself, swapping, say, working time for leisure. Or an exchange may be social, involving another person. Whatever the type of exchange, the human family around the globe invariably engages in what Mises referred to as catallactics, the subjective determination of ratios of exchange or prices within broad margins.

Exchanges—this for that—are motivated strictly by gain, by a sense of improvement. Thus a market exchange is—to quote from Mises—“effected only if each party values what he receives more highly than what he gives away.” Price or a perceived favorable cost-benefit relationship is hence central to any exchange.

Market Exchanges

Market exchanges, then, are at once both intrapersonal and interpersonal. The buyer values, intrapersonally, the good more than the money, just as the seller values the money more than the good. If so, a transaction gener ally takes place, interpersonally, with gain perceived by both parties. What the buyer regards as a purchase is regarded by the seller as a sale.

And so through prices, subjectively determined, through free markets, the national and international division of labor, the broad sweep of individualistic human action the world over, the intricate link-up of differing currency and financial systems, the diverse work of various market societies, here and abroad, go forward, price by price, transaction by transaction—social cooperation literally on a global scale.

Worldwide mutuality and sociability emerge. The individual, from one ethnic origin to another, from one culture to another, from one race to another, serves so as to be served. And society tends to become peaceful and progressive.

Also central to this pricing and division of labor process is the role of the entrepreneur. The entrepreneur is the spark of the free enterprise system, a profit-seeker and opportunity-discoverer, an innovator and initiator, alert to prices and inadequate market responses in ever-dynamic commerce. He is in this sense something of an arbitrager and speculator. He buys when and where he thinks the price is too low. He sells when and where he thinks the price is too high.

For the entrepreneur, then, gnawing questions: When? Where? How? For many an entrepreneur, apart from the investor, speculator, business executive, etc., the financial pages mark a starting place to search out market opportunities, find entrepreneurial ideas, keep “abreast of the market” (to quote a Journal feature).

Thus in one way or another the entrepreneur discovers, advertently or inadvertently, unmet or imperfectly met market demands or social needs, perhaps employing formal market research, perhaps not. In any event, he tries to anticipate future prices, knowing that if he anticipates wrongly, he incurs a loss.

On discovering what he thinks is a market opportunity, he dickers with the owners of the factors of production—land, labor, capital—and is thereby intimately concerned with their prices—rent, wages, interest rates—with income and outgo. If he projects a profit, he may undertake production and scout consumers for his wares, attracting them, perhaps with advertising, on the basis of price, quality, or convenience—or possibly some combination of the three (although quality and convenience are at bottom but aspects of price).

Without the entrepreneur, the wheels of commerce and industry would not turn. The story of Charles Dow and Edward Jones and their founding of The Wall Street Journal is not untypical of entrepreneurship and its discovery process.

So throughout the process (call it capitalism or the profit-and-loss system) prices serve as guideposts for entrepreneurship and society, and serve as man’s universal language, a language spanning continents and frequently moving with electronic speed—Hong Kong to New York, for example, in nothing flat.

The language addresses everyone, and everyone listens, hard usually, as in the reading of a will. This language is mostly quantitative and assumes many forms—wages, employee benefits, interest rates, rents, profits, losses, legal fees, insurance premiums, jury awards, speech honoraria, school tuition, bridal dowries, product prices, monthly payments, discount coupons, convenience factors, betting odds, unit costs, “frequent flyer” tickets, and so on.

Coordinating Production with Consumption

Prices communicate. Sometimes loud and clear. Sometimes quietly and subtly. Price movements, for example, can signal oversupply or undersupply, overdemand or under-demand, and thereby act so as to wipe out shortages, on the one hand, and surpluses, on the other. Prices thereby serve in market societies to coordinate production with consumption, with the consumer in the driver’s seat (with “consumer sovereignty,” to use the phrase coined by W. H. Hutt).

So prices serve as human incentives—the seller fascinated by high prices, the buyer by low prices—to create wealth and serve others, to forge capital and boost productivity, to stimulate entrepreneurship and steer the production of goods and services toward society’s most urgent needs, as reflected in an ever-shifting network of prices, all with implied profit opportunities, both for the producer and the consumer—the seller and the buyer.

Too, in this pricing process of supply and demand—which can be seen, if imperfectly, in the financial pages—society simultaneously achieves three key market phenomena: price determination, production direction, and in come distribution. The interventionist or socialist tends to think of these three as separate actions and hence each capable of “helpful” government manipulation. Not so. But let Mises speak from Human Action:

The pricing process is a social process. It is consummated by an interaction of all members of the society. All collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. Competing in cooperation and cooperating in competition all people are instrumental in bringing about the result, viz., the price structure of the market, the allocation of the factors of production to the various lines of want-satisfaction, and the determination of the share of each individual. These three events axe not three different matters. They are only different aspects of one indivisible phenomenon which our analytical scrutiny separates into three parts. (3rd edition, p. 338)

Mises was of course a champion of free markets, of seeing how government intervention into peaceful private activity tends to make things worse rather than better. And daily are the Journal and the financial press generally supplied with stories and editorials on the boomerang effects of rent controls, farm subsidies, import tariffs, minimum wages, welfare payments, and other forms of price control—democratic government’s favorite intervention. In the words of Mises: “A government can no more determine prices than a goose can lay ben’s eggs.” (Human Action, 3rd edition, p. 397)

Prices. Catallactics. Human incentives. Human action. This is what the financial press stresses, especially in its second language. This language of prices is universal. It talks. It shouts. It moves people. On all continents. It also sells The Wall Street Journal.