476 FRANK A. VANDERLIP 



In half a dozen years we piled up against other countries a 

 trade balance in our favor of more than $2,600,000,000, a 

 trade balance far larger than the net trade balance had been 

 from the beginning of our government down to the time when 

 this remarkable expansion started. 



And then we made mistakes. We were in the midst of a 

 prosperity so great that it went beyond the experience of the 

 most experienced. With the flood tide of this prosperity cov- 

 ering all of the old landmarks, it was small wonder that there 

 were blunders made in steering the craft of business. We ran 

 into excesses, extravagances and miscalculations. Capital 

 made mistakes of over-capitalization; labor made mistakes of 

 arbitrary and unwise demands ; every body made mistakes of 

 extravagance. Producers made errors in estimating the de- 

 mand and made miscalculations in the multiplication of their 

 productive capacity. Those errors of estimate were almost 

 unavoidable. There was a surplus demand above our produc- 

 tive capacity, and that demand went knocking at the door of 

 first one factory, then another and another, producing the 

 impression on the mind of each individual manufacturer that 

 the demand legitimately pressing upon him warranted him in 

 doubling his plant; and when every one started to double his 

 productive capacity, capacity soon ran ahead of demand. 



The railroads were caught in much the same situation. 

 They made huge engagements for expenditures which they 

 felt were necessary in order to handle the traffic that was press- 

 ing on them. For the time being, far too great a portion of 

 liquid capital was absorbed into fixed forms of investment. 

 Directly and indirectly, bank credits which were payable on 

 demand were, in a dangerous proportion, converted into new 

 manufacturing plants and into new railroad tracks, equipment 

 and terminals. Bank reserves fell until they were a danger 

 signal pointing with certainty to the need for more conserva- 

 tive administration. Banks applied the financial brakes of 

 higher interest rates. Stock market values, unduly inflated 

 by the spirit of optimism which was all pervading, began to 

 melt. 



In 1902 this turn came. The decline which followed cut 

 a billion dollars off the value of securities in a few months. 



