Page:The Economics of Unemployment.djvu/67

facilities are apt to be unduly strained. But everywhere the recognition of the signs of declining trade will induce bankers to try to call in credits and stiffen their terms for further advances. This policy, however judiciously applied, means a cramping of industry and a fall of prices, first in the region of raw materials and afterwards of commodities. If sharply applied, this curtailing of credit may precipitate a crisis, forcing holders of stocks of goods purchased at high prices to realise upon a falling market whose fall is quickened by this very process, and spreading bankruptcy and ruin far and wide. Cautiously applied, it substitutes a longer, slower process of price-fall and depression, leaving large quantities of frozen credits to be liquidated by a gradual marketing of the frozen goods which are the economic counterparts, and which, if the process be sufficiently prolonged, may realise prices not so ruinously low as would be the case if sharper action had been taken by the banks. It is interesting to observe that criticism of the banks generally turns upon the related charges, viz. that they are too lax in checking the over-confidence and over-trading of their customers in the high reaches of a boom, and too stringent in their refusal of credits to support trade when prices begin to fall and a slump appears on the horizon. So far as this criticism is valid, it implies that bankers who ought to know better, share and even encourage by their easy credits in times of good trade the excessive confidence of their customers that prices and volume of trade will go on rising, or at any rate will stand firm on a high level, and that, when this faith is falsified by trade