CREDIT AND CRISES 
7901 
grant loans. When the period of increasing inflation is allowed AD Js 
to continue too long, some unlooked-for incident may force 
the banks to reconsider their position, and suddenly refuse to 
continue the accommodation they have been giving to mer- 
chants and manufacturers. Asa consequence, some traders, 
who are really quite solvent, may have great difficulty in ob- 
taining money with which to pay their way, and will be forced 
either to realise their stocks at great loss, or to suspend 
payment. The bills of such a firm will at once become dis- 
credited, and those who hold them will have increased difficulty 
in discharging their own obligations, so that one firm after 
another may be dragged into the vortex and go down. 
Illustrations of the manner in which political changes 
affected the state of commercial credit have already been 
given in connection with the over-trading which occurred, on 
the cessation of hostilities with the American colonies in 
1782, and again after the years of rapid progress which were 
suddenly checked by the outbreak of the Revolutionary War 
in 1793. The ‘short and feverish peace’ of 1803 did not last 
long enough to allow of a serious development of speculative 
trading, but the conditions of business in 1809-10 lured many 
merchants to disaster. The high range of prices in England 
gave an unhealthy impulse to importation, and there was also 
a development of speculative trading with South Americal. 
The sudden closing of the Baltic trade seems to have been 
the chief incident which brought about the actual collapse, 
which was extraordinarily severe, and from which there was 
little opportunity to recover. It is, of course, true that the 
alternations of peace and war were not the only causes at 
work in producing these results; the bad times in 1793 and 
1797 were connected with the progress of the industrial 
revolution. The sinking of capital in factories and machinery 
and the making of canals® caused an internal drain on the 
reserve of the banks’; these years were in some ways an 
anticipation of the troubles caused by the railway mania‘; 
still the political storms were the most important factors im 
bringing about sudden fluctuations in trade and credit. 
1 Tooke, History of Prices, 1. 276, 303. 2 Macpherson, Annals, 1v. 226. 
® Nicholson, Principles of Political Economy, 11. 210. 
+ See p. 826 below. 
There was 
frequent 
temptation 
‘fo over- 
rading, 
14