[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 spec- 
ulation is comparatively heavy and prices are high, more money 
's borrowed on collateral loans than in a dull period when specu- 
lation 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 usu- 
ally 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 busi- 
ness by profound economic world forces which the Stock Ex- 
change 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 specula- 
tive 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 dis- 
llusioning to those who had thought that these had been mys- 
teriously stabilized by credit control and the new technique of 
low commercial inventories.® 
7 See Appendix XI. 
8 See Chapter III, p. 75.