Iniiuence of Credit on Prices 9 



' In the United States i year and lo months pass after the ex- 

 tension of loans has begun before commodity prices rise, in Eng- 

 land I year, while in France commodity prices respond to the 

 extension of loans at the end of 6 months. This difference is 

 probably due to the fact that industry in the United States and 

 England during boom times reaches a stage of much greater 

 activity than it does in France. Overproduction of goods, then, 

 occurs to a greater extent in the former countries, and hence a 

 longer time is required to relieve the overstocked market and 

 create a rise in prices. The difference between France and the 

 other two countries would probably not be so marked if the data 

 for France included the later crises, as, it will be observed, during 

 the earlier period in the United States and England, prices re- 

 sponded more readily to the increase in loans than in the later 

 crises. If the interpretation given be correct, overproduction is, 

 therefore, a more pronounced phenomenon of the later crises. 



If inflation takes place through the extension of bank loans 

 and discounts, it is well to ask what are the factors influencing 

 bank expansion. It is, of course, the legitimate business of the 

 bank to furnish a generalized purchasing power to the public, 

 and the bank can prosper financially only in so far as it has that 

 business to do. It, then, is willing to make loans whenever the 

 paper offered it is sound enough, in the estimation of the bank, 

 to warrant it in assuming the position of guarantor. However, 

 it can not, generally speaking, persuade the public to bring paper 

 to the bank for discount, but must wait until the business world 

 sees fit to come of its own accord. After a crisis has been ex- 

 perienced, timidity in all lines of business ventures is the pre- 

 vailing feature. Business men do not care to give their notes in 

 exchange for goods lest they be unable to meet the obligations 

 when they shall fall due ; the holders of goods do not wish to ac- 

 cept notes in payment for goods because they also fear that the 

 obligations will not be met. Exchanges are thus reduced to a 

 minimum, and the deadlock remains until something occurs to 

 inspire business men with a belief that conditions in the future 

 will be such that they will be able to meet newly contracted obli- 

 Sfations as thev fall due. This stimulus mav assume various 



49 



