296 NATURE OF CAPITAL AND INCOME [Cmar. XVI

in the values of the products or property in which they
speculate.
The evils of speculation are particularly acute when,
as generally happens with the investing public, the forecasts
are not made independently. Were it true that each
individual speculator made up his mind independently
of every other as to the future course of events, the errors
of some would probably be offset by those of others. But,
as a matter of fact, the mistakes of the common herd are
usually in the same direction. Like sheep, they all follow
a single leader. How easily they are led is shown by
the effect on the stock market in the year 1904, when
Thomas Lawson published scare-head advertisements in
the newspapers advising the public to sell certain securities.

A chief cause of crises, panics, runs on banks, etec., is
that risks are not independently reckoned, but are a mere
matter of imitation. A crisis is a time of general and
forced liquidation! In other words, it differs from any
other period in two particulars, viz. that the liquidations
are more numerous, and that they are for the most part
forced upon the debtors by the creditors because of threatened
 or actual bankruptcy. Neither of these conditions
could exist unless there had been at a prior time a general
miscalculation of the future. Both creditors and debtors
must have made a wrong forecast when their ill-fated agreements
 were entered into. Hence a crisis is the penalty
which must be paid when a previous general error in prediction
 is discovered. Such a general error may be due to
the coincidence of a number of independent mistakes of
individuals; but it almost always is due to lack of independence,
 — to the principle of imitation. The error,
whatever it is, when committed by a person of influence, is
like an infection; it is caught by hundreds of others and

1 See Juglar, Des Crises Commerciales, Paris, 2d edition, 1889,
Chapter I.