ry. The value of
everything that lasts for more than a moment is built in part upon
incomes that are not actual, but expectative, whose amount, therefore,
is a matter of guesswork, or "speculation."[10] Many unknown factors
enter into the estimate of future incomes. The universal tendency
to rhythm in motion (material or psychic) manifests itself in an
overestimate or underestimate of incomes and of every other factor in
value. This is emphasized by a psychological factor called sometimes
the "hypnotism of the crowd," and sometimes, the "mob mind." Most
men follow a leader in investment as in other things. The spirit of
speculation grows till often it becomes almost a frenzy, and people
rush toward this or that investment, throwing capitalization in some
industries far out of equilibrium with that in others.

The cause of crises immediately back of the maladjusted capitalization
thus is seen to be a psychological factor; it is the rhythmic
miscalculation of incomes and of capital value, occurring to some
degree throughout industry, but particularly in certain lines. This
subjective cause in men is given an opportunity for action only when
certain favoring objective conditions are present.

Sec. 11. #The use of credit.# Most noteworthy of these objective
conditions is the general use of credit. The credit system greatly
enhances the rhythm of price. If the value of a thing that is fully
paid for falls, the owner alone loses; but if the value of a thing
only partly paid for falls so much that the owner is forced to default
in his payment, the loss may be transmitted along the line of credit
to every one in a long series of transactions. A credit system, highly
developed, is a house of cards at a time of financial stress. Demand
liabilities are at such a time the greatest danger, so that the banks,
ordinarily the pillars of financial strength, become at such a time
the points of greatest weakness in the financial situation. If many
of the customers were not restrained by their sense of personal
obligation to the banks, by the strong pressure which the banks can
bring to bear upon them, or by the force of public opinion among
business men, from withdrawing the balances to their credit in a time
of crisis, all commercial banks would become insolvent at once in a
crisis by the very nature of their business; for all their ordinary
deposits are nominally payable on demand.

Sec. 12. #Interest rates in a crisis.# In normal ti