Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

486 Money, Bank Credit, and Economic Cyclesand steel industries underwent intensive development.Expansion spread to the rest of the world and in Europe therewas tremendous stock market speculation in which industrialsector securities soared. Crisis hit first on the Continent inMay of 1873 and following the summer in the United States,when recession had become obvious and one of the greatAmerican banks, Jay Cook & Co., failed. Notably, France, havingabstained from the prior credit expansion, escaped thispanic and the serious depression which followed.8. The Crisis of 1882. Credit expansion resumed in 1878 inthe United States and France. In the latter the issuance ofindustrial shares soared and an ambitious public works programwas introduced. Banks played a very active role inattracting family savings and in the massive granting of loansto industry. The crisis erupted in 1882 with the failure of theUnion Générale. Also on the verge of failure, the Crédit Lyonnaisfaced a massive withdrawal of deposits (around half). Inthe United States over 400 banks (from a total of 3,271) failed,and unemployment and crisis spread mostly to the industriesfurthest from consumption.9. The Crisis of 1890–1892. Credit expansion spreadthroughout the world in the form of loans directed mainly toSouth America. Shipbuilding and heavy industry developedrapidly. The crisis arose in 1890, and the depression lasteduntil 1896. The usual bankruptcies of railroad companies, collapseof the stock market, crisis in the iron and steel industries,and unemployment made a violent appearance, as is typicalin all depression years following a crisis.10. The Crisis of 1907. In 1896 credit expansion was againinitiated and lasted until 1907. In this case the new loan funds(created ex nihilo) were invested in electric power, telephone,subways, and shipbuilding. Electricity took on the leadingrole previously played by the railroads. Moreover for the firsttime the chemical industry took advantage of bank loans andthe first automobiles appeared. In 1907 the crisis hit. It wasparticularly severe in the United States and many banksfailed.