44 I't'CL Ryner 



haps the bankers might have mitigated the effects of the crisis 

 by refraining from a policy of contraction, but that is about all 

 that can be said for Gibbons' theory. 



What was the real cause which prompted the bankers in the 

 interests of self-protection to contract their loans? If there was 

 a sole cause it was the excessive construction of railways. As 

 pointed out before, the number of miles constructed was beyond 

 the needs of the times. An action of the government greatly 

 aggravated this evil. -From 1850 to 1856 the government granted 

 20,000,000 acres of land as subsidies to aid the construction of 

 railways in the West and South.^ The result was that railways 

 were constructed where they were not needed, for the purpose 

 of getting the subsidies. All the circulating capital was absorbed 

 where there already existed but an insufficient supply, and an 

 excessive abuse of the credit system sprang up, particularly in 

 the West and South. 



To supply the increased demand for capital for rai-lway con- 

 struction, new banks were created and old banks increased their 

 loans. According to Gibbons, in New York alone there were 

 twelve banks formed in 1851, six in 1852, and nine in 1853.^ 

 Extension of railways called for more banks, and more banks 

 permitted further railway extension. Thus an endless chain was 

 formed. And so it was with other enterprises, private and public. 



In conclusion, a thorough and comprehensive treatment of the 

 subject of crises has not been attempted. We have simply out- 

 lined very briefly what seems to be a logical method of studying 

 them with the view of ascertaining the causes. To apply 

 this method we have taken three crisis periods and have gathered 

 from them such facts as are accessible to the ^ordinary reader and 

 fitted them into the framework of our method. How far these 

 facts have been assimilated into the method without violation of 

 accepted economic law the reader may judge. 



* Dunbar, Economic Essays, 272. 



"Gibbons, Banks of New York and the Panic of 1857, 370. 



186 



