mes there is always
outstanding a great mass of short-time, commercial loans.[11] The
motive of the borrower, in most cases has been to hire more labor and
to buy more materials for use in his business. Ordinarily these loans
can and are renewed without difficulty or are replaced by others,
based on the security of new business transactions in unbroken
succession. Now at the time of a crisis a general contraction of
credit occurs, and all borrowers with maturing obligations are faced
with bankruptcy. The effort of the business man at such a time is not
to make a positive profit, but to save what he can from the threatened
wreck. The demand for short-time loans, therefore, in such times
of stress, fluctuates rapidly, and exceedingly high interest rates
prevail in these loan markets for a few days or a few weeks, rates
which have only a remote relationship with the usual capitalization of
most agents.

The distress of the business man is magnified by the fact that it
is just at such times that both the equipment he has bought and the
products he has made become temporarily almost unsaleable at prices as
high as he paid for them when he bought them with the borrowed money.
He may know that prices will soon be higher, but he cannot wait.
Various courses are open to him in this emergency; he may borrow the
money at a very high rate of interest, holding the goods for better
prices; or he may sell the goods under the unfavorable conditions; or
he may sell other capital such as stocks and bonds. The end sought
is the same--to get ready money; and the methods are not essentially
unlike--the exchange of greater future values for smaller present
values. The sacrifice sale thus reveals the merchant's high estimate
of present goods in the form of money. The purchaser of some kinds
of property in times of depression is securing them at a lower
capitalization than they will later have. The rise in value may be
foreseen as well by seller as by buyer, but the low capitalization
reflects the high interest rate temporarily obtaining. A.T. Stewart,
once the most famous New York merchant, is said to have laid the
foundation of his fortune when, being out of debt himself, he bought
up the bankrupt stocks of his competitors in a great financial panic.
The high interest at such times is but the reflection of the high
premium on present purchasing power.

The worst of the evils of crises are confined to the markets where the
greatest numbers