Infiitcnce of Credit on Prices 19 



In 1900 in England the decline assumes the simplest form: 

 stock exchange prices begin to decline first ; this, as shown above, 

 decreases the amount of possible collateral, and loans are con- 

 tracted ; the contraction of loans decreases the purchasing 

 power available for the commodity market, and the prices of 

 goods fall. This movement is simply the reverse of that which 

 takes place when the transition from depression to boom times 

 occurs. The situation is practical!}' the same in the crises of 1857 

 and 1890 in England and 1903 in the United States: stock ex- 

 change prices fall first and the contraction of loans and com- 

 modity prices follows in the same year. 



It is of no less interest, however, to inquire what takes place 

 when the above order is not followed as, for example, in the crisis 

 of 1866 in England, when the order of fall is commodity prices, 

 stock exchange prices, and loans. The relation between the fall 

 of stock exchange prices and the contraction of loans is doubtless 

 the same as in the crisis of 1900 already discussed. The remain- 

 ing question is. Why do prices fall before there is a contraction 

 of loans ? The answ^er that is applicable to this instance will also 

 meet the similar cases presented in table XL The reason that 

 prices fall at any time is because the supply of g'oods on the 

 market is relatively greater than the amount of purchasing power 

 offered for the goods. But in boom times, when stock exchange 

 values are high and loans upon this kind of collateral are easily 

 secured, there is no apparent reason why loan extension should 

 not keep pace with or even increase more rapidly than the pro- 

 duction of goods so that prices would keep on rising indefinitely. 

 There is theoretically only one limitation to an indefinite expan- 

 sion of credit, and that is the requirement of guaranty funds in 

 the form of the metals. These, of course, being materialistic, 

 are limited in quantity. But generally, before this natural limita- 

 tion is reached, the desire for goods has been greatly lessened. 

 Many new enterprises have proved disappointing in returns in 



reached their highest point first. They therefore receive first rank. Com- 

 modity prices and loans reached maximum points during the same year. 

 The remaining ranks 2 and 3 are therefore divided equally between these 

 two classes, giving each a rank of 2V2. The same principle is carried out 

 in tlie later tables where a large number of groups are ranked. 



59 



