202 BANKING THEORIES IN UNITED STATES

Charles Francis Adams gave a similar explanation of the business
 cycle in a number of articles first published in a Boston newspaper
 on the eve of the crisis of 1837. Whenever the volume of
bank notes begins to expand, rising prices enhance business
profits and business activity increases. This in turn tends to
enlarge the demand for bank credit, further raising prices. The
increased activity results in some addition to the volume of production,
 but more largely in higher prices under the spur of
keener competitive bidding. The rise in prices in its turn reacts,
like the increase in the number of exchanges, upon the volume of
bank currency. At last, rising prices render the balance of trade
unfavorable, inducing gold exports; and contraction of bank
accommodation brings an abrupt collapse.!
Adams made an interesting suggestion in explanation of the
high profits that attend rising prices and that were admitted by
all to be an essential key to the problem of heightened business
activity. The “rising prices of products while on the road to the
consumer furnish a profit increasing perhaps in a greater ratio
than the demand for interest, and not merely supplying the means
for the payment of the rate already demanded but inciting
strongly to the borrowing more even at a higher rate.” ?
Vethake adopted the suggestions of Raguet and Adams regarding
 the origin of crises, although his statement of the doctrine is
less satisfactory. He laid considerable emphasis upon the increase

1 C. F. Adams, Reflections upon the Present State of the Currency in the United
States (1837), especially pp. 9-12. Adams apparently understood less clearly than
Raguet the importance of his theory. He later undertook to defend the banks
against the charge of causing crises. ‘‘The course of trade,” he wrote, ‘does not run
much more smooth than that which the poet has singled out to make into a proverb.
And whether credit is employed in it to a greater extent, or whether it is not, every
commercial community must calculate upon it as a fact of the highest probability,
that some periods will be periods of particular success, and others, again, will make
themselves remembered as signally disastrous.” ‘Principles of Credit,” Hunt's
Merchants’ Magazine (March, 1840), ii, 208.
For another rather able explanation of the cycle, see Rantoul’s Speech in the
Massachusetts House of Representatives (March 22, 1836), p. 10.
2 Adams, Reflections, etc. (1837), pp- 13, 14. This notion is of interest by reason
of the emphasis since placed upon it by Professor Irving Fisher. Amasa Walker
conceived of the business cycle as the accompaniment of a seven-year cycle of
interest rates. Nature and Uses of Money and Mixed Currency (1857), pp. 35, 36.