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when confidence is weak. But even in times of high confidence the extension of credits to reliable customers must keep some relation to available cash reserves.

The last consideration plays a critical part in the cycle of industrial activity. For after a period of trade expansion with rising prices and good profits has gone on for some time, the keen classes of general business men, merchants and bankers, etc., recognise that the upward movement cannot continue much longer, and that a conservative policy requires the curtailment of orders for future delivery, with the corresponding reactions upon production and employment. But why, it may be asked, should merchants come to this conclusion? What is the meaning of the upward movement 'having run its course'? What happens is not an irrational collapse of confidence. When trade activity has reached a certain height, the difficulty of finding a remunerative market for all the product at current or even lower prices becomes apparent. In other words, markets are visibly over-stocked and the capacity exists to go on over-stocking them. It is the knowledge of these facts that makes the merchant draw in his orders and the banker his credits.

If bankers have been over sanguine in their estimates of the strength and duration of the boom, they may close down with such promptitude as to bring about a financial and commercial crisis. This applies particularly to countries where, as in Germany and America, the bank financing of industry and commerce has been most fully developed, and where credit