demand obligations against investment securities. The means of
liquidating such securities are the profits of the enterprises in
which the investments were made and in the nature of the case several
years are required for the accomplishment of this end. Meantime the
demand obligations of the banks issued against them in the form of
balances on checking accounts or notes must be met and, the funds
regularly deposited with them as a result of the operation of such
enterprises being inadequate, other means must be found. The only one
available is the sacrifice, at forced sales, of the property in which
the investment was made or of some other property in the possession of
the persons responsible to the bank.

The banks usually protect themselves against such forced liquidation
by the requirement that the paper they discount shall mature at short
intervals, usually not to exceed four to six months, and accept the
long-time securities, such as bonds, stocks, and mortgages, only as
collateral. By this means they are able to force the liquidation on
their customers. Otherwise they would be obliged themselves to endure
it, with the result that their capital and surplus funds would be
impaired and perhaps exhausted; and, if they should prove inadequate,
failure would be inevitable.

The evil involved in the forced sales of property caused by inflation
is the readjustment of prices through which it is accomplished, and
the depression and, sometimes, panic which follow. When the prices of
many kinds of property must be greatly depressed in order to induce
their transfer to other hands, the machinery of commerce and industry
is thrown out of adjustment and is sometimes rendered temporarily
useless. This result is due to the fact that the relations between
costs of production and the returns from the sale of finished products
are so changed that profits are reduced or annihilated, and many
persons are financially ruined. Readjustments of the prices of raw
products, labor, and finished goods, and the transfer of plants to new
hands, are, therefore, necessary before industry, commerce, and
agriculture can again operate in a normal way, and during the period
of readjustment some enterprises must entirely stop operations, and
all must slow down. At such times many laborers are thrown out of
employment, many more work part time only, the wages of nearly all
are lowered, and most other classes of income are cut down. Depression
and, in