200 BANKING THEORIES IN UNITED STATES

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the business cycle as any other business men — it is their common
‘““overaction” that brings on crises.! This position showed failure
to appreciate the distinctive importance of bank notes and deposits,
 as compared with private instruments of credit, by virtue
of their action, as a part of the currency, upon prices.

Between the views that banks cause crises and that they play
an entirely passive part, there were all shades of opinion. Some
of those who regarded banks as the principal cause of commercial
crises, conceived of them as arbitrarily altering the volume of
media of payment (and, therefore, the general level of prices)
according to their own caprice. Such a notion was especially
prominent in the earliest days of our banking experience, and
again in the eighteen-thirties, when to damn banks or defend
them became largely a matter of political faith. Not a few held
that banks wilfully expand and contract the currency in their
own interests; others seem to have regarded them as equally
victims of their own power to do evil.
Again, there were critics who, while still attributing crises
chiefly to banks, held the more moderate view that they begin to
expand only when merchants and speculators have already given
impulse to greater business activity. These writers differed only
in degree from those who, like Dew, insisted that banks play a
passive part in the period of inflation, but conceded that, after
credit expansion has once received the initial impulse from prospering
 trade, the increased volume of bank currency in turn
becomes a causal force.
At the hands of a few writers this doctrine of the mutual reaction
 upon each other of bank credit, trade, and prices, was so
stated as to trace commercial crises primarily to the banking
system, while still giving its due to the objection that banks are
governed in their operations by the state of business activity.
The result was a fairly complete general theory of self-generating
cycles. Condy Raguet, whose writings deserve far more attention
than they have received, seems to have been the first to formulate
1 See, for example, J. S. Ropes, “Currency, Banking, and Credit,” Bankers’
Magazine (1839), xiv, 171, 176, 275.