CAUSES OF CRISES AND CYCLES 203
of the velocity of circulation of money attending the period of
expansion, as, indeed, several previous writers had done, but not
in connection with as good a theory of the cycle as that of
Vethake.! Gouge observed in 1833 that “Anything that excites
the spirit of enterprise, has a tendency to increase the amount
of Bank issues. . . . As the wild spirit of speculation has in most
cases its origin, and in all its aliment, in Banking transactions,
these various causes operate in a circle.” 2 In 1842 he went into
greater detail, following Raguet. A speculative demand for
goods, however incited, raises prices, and at the same time
“leads to the creation of a large amount of new business paper.
This is discounted by the bankers, and then prices undergo an
additional rise, through the additions made to the currency.
This leads to a new speculative demand, which causes the creation
of more business paper, and that in its turn a fresh issue of bank
notes”; and thus things go on until prices are raised so high that
an adverse balance of trade calls a halt.
Stephen Colwell, so firm a believer in the thesis that paper
money issued by banks against real commercial paper cannot
become redundant that he would do away with the restraint of
convertibility, gave an excellent statement of the principles explained
 by Raguet. He sought to reconcile this with his general
system by asserting that the initial impetus to the cycle is given,
not by the banks, but by speculating business men.*

The notion of general overproduction, or glutting of the
market, in explanation of commercial crises and cycles, played
little part in the American discussion. Gouge indicated that
complaint was sometimes made of “all branches of trade being
overdone,” and he disposed of the matter rather ably. It is true,
he asserted, that as contraction of the currency, by diminishing
' Henry Vethake, Principles of Political Economy (1838), p. 177.
* Gouge, Short History of Paper Money, etc. (1833), p. 64.
' Idem, “Free Banking,” Journal of Banking (1842), p. 388. Gouge had started
out as an intensely hostile critic of banks of issue. At this time he seemed to be
vacillating between the position that notes issued against real commercial paper
cannot be overissued and the doctrine which we have just studied in the text.
t Colwell, Ways and Means of Payment (1850), pp. 534, 535, 567-560.