[32 THE WORK OF THE STOCK EXCHANGE

diverted into collateral loans made for speculative purposes,
which serve no useful economic purpose.
Naturally, in an active period on the Exchange, when speculation
 is comparatively heavy and prices are high, more money
's borrowed on collateral loans than in a dull period when speculation
 is comparatively light and prices are low. But usually
the same thing may be said of practically all other commodities.
In the old-fashioned economic cycle which resulted in a money
stringency, heavy speculation on the Stock Exchange has usually
 been only the first wave of a vast tide of speculation which
sweeps through all markets, and which soon produces rising
prices and extensive one-sided speculation in the unorganized
markets. Such great speculative impulses are imparted to business
 by profound economic world forces which the Stock Exchange
 could not possibly either evoke or terminate. But at
the first suggestion of an actual impending shortage of money,
the securities market at once begins almost automatically to put
its house in order to meet it. Prices on the Stock Exchange
decline and collateral loans invariably experience a marked
decrease, long before the crisis arrives.” Meanwhile, however,
the speculative “boom” in the unorganized markets continues.
Greater and greater sums of bank credit become tied up in loans
on farm land, real estate, illiquid raw materials, and general
merchandise. At a time when Stock Exchange loans are
dwindling in number and total amounts, loans for the speculative
 carrying of commodities for which no organized markets
exist, increase rapidly—and then the crash comes. This was
plainly the case in the crisis of 1919—20.
The crisis of 1929 was comparatively unique in that it was
not attended by any actual and necessary shortage of credit.
But the ensuing crash in commodity prices proved very disllusioning
 to those who had thought that these had been mysteriously
 stabilized by credit control and the new technique of
low commercial inventories.®

7 See Appendix XI.
8 See Chapter III, p. 75.