FINANCIAL INSTITUTIONS-- OTHER DEVELOPMENTS
Panics and the Business Cycle. In the account of the economic development during this period there has been frequent mention of the recurrent periods of boom, panic, and depression which swept over the business life of the country. This phenomenon in the widening scope and growing intensity of its reactions was comparatively new. In colonial times there were occasions when certain sections suffered from a depression, generally owing to the fact that some important staple of the region was very low in price, as in the case of the tobacco-growing region. In other instances the outbreak of war, by interfering with some general pursuit and deranging the usual economic life, brought a similar reaction, often more widespread in effect, as seen in the depression following the Seven Years' War. Although similar causes were operative in the nineteenth century, it is clear that other factors must have entered in to bring about the marked development of this phenomenon that characterized that century of our history. Some explanation of these factors is therefore necessary.
At the start it must be stated that the phenomenon of the business cycle is none too well understood even today and there conflicting theories as to its chief causes. Still it is possible to point out certain developments in the organization of industrial society and certain characteristics of our economic life which help to explain the rise of this disturbing phenomenon. Among the developments in the organization of industrial society that played a part in this result possibly first place may be given to those in the field of monetary and banking institutions which have been described in the preceding chapter. The use of money and credit in the business life of the country was rapidly increasing in importance; hence anything that seriously affected the soundness and stability of these instruments wrought all the greater disturbance. Proper control of them--an extremely delicate and difficult problem--has not even yet been attained, and the abuses that resulted greatly accentuated the troubles that created the business cycle.
Another important cause was found in those changes in the organization of industry that made it more difficult to adjust supply and demand at a profitable price level. In a frontier household economy no such prob-