Influence of Credit on Prices 13 



pal reason for the expansion of deposits (bank credit-accounts) 

 and the accompanying expansion of loans (commercial paper 

 held by banks) is to be found in the great movement which has 

 been the significant feature in financial affairs of the last -half 

 dozen years — the movement to aggregate industrial establish- 

 ments into single great corporate units and to convert the evi- 

 dence of ow^nership into corporate securities which have entered 

 actively into the stream of financial operations. Vast amounts 

 of new securities have been created in these half-dozen years, 

 based in a large measure upon properties which were before held 

 as fixed investments by individuals, or, if standing in the form of 

 corporate property, the securities of these corporations were more 

 closely held, and in but small measure entered into the financial 

 operations of the day. This movement — tending to convert evi- 

 dences of ownership of a great amount of fixed property into a 

 form which has been considered a bank collateral, and which has 

 been made the basis of loans and of corresponding increases or 

 deposits — is undoubtedly the most important single cause for the 

 increase of more than four billion dollars in bank deposits [bank 

 accounts] and bank loans [commercial paper] of the country in 

 the space of three or four years." 



The stock exchange has, therefore, a very immediate connec- 

 tion with commodity prices through increasing the collateral 

 which is available for securing loans. It is no mere coincidence 

 that the rise of stock exchange prices occurs simultaneously with 

 or prior to the increase in loans. The order of improvement for 

 both England and the United States is: (i) stock exchange 

 prices, (2) loans, and (3) commodity prices. 



53 



