2. In the next place, it is plain that on the side of their receipts bankers are passive; in respect of their advances, the causes which act on banks are mainly of their own making. Deposits are determined by the state of the nation's wealth: a banker cannot make them larger or smaller; but it is his clear duty (and how many bankers are aware of it?) to watch closely the forces which are swelling or diminishing those surpluses of commodities which enable each depositor to sell more than he buys. The banker who desires to be prepared for a crisis ought to know that the loss of wealth which weakens deposits may arise from two causes: positively, from an actual destruction of wealth; or negatively, from a failure in its ordinary rate of accumulation. One form of this destruction of wealth is full of danger for him, and it is incomparably the most prolific parent of crises; yet it is seldom understood by bankers. Most persons are satisfied if an undertaking is sound in character; if it is no bubble, but a solid investment. They press it forward, and preach to bankers that they are safe, or even patriotic, in promoting such enterprises. Such are works of drainage, railways, docks, canals, and the like. No doubt they are all highly productive of wealth. The growth of a nation largely turns upon the prosecution of such works. But no one stops to reflect that such operations destroy wealth and impoverish until they are capable, not only of yielding profits, but also of replacing what the making of them has consumed. Nothing enriches a country like a well-planned railway; yet the construction of railways is nothing but a gigantic destruction of wealth. A railway is said to have cost ten millions of pounds, and there the mind is apt to stop. But money is no part of its cost; it moved money about, but there was as much money at the end as there was at the beginning of its construction. Its cost is something radically different from money. The making of a railway employed a vast amount of labour. That is, it fed and clothed a vast body of men for a long time; it used up huge quantities of iron and other materials, the making of which consumed food and clothing; and the result is only a line of rails, tunnels and embankments - a mere change in the surface of the land. No one doubts that if the labourers, instead of constructing a railway, had been set to dig holes in the ground and to fill them up again, a flood of poverty would have spread over the country. In what respect, for the time, does a railway differ from such holes? If all this labour had been employed in manufacturing iron and calico, and exchanging it in America for corn and bacon, the wealth of the nation would have suffered no diminution; whilst everything consumed directly and indirectly in constructing a railway, until replaced by goods, by actual commodities, by other wealth, is a dead loss, a real infliction, so far, of poverty. New works of solid and enriching character, but of long replacement of capital consumed, are the very raw material of a crisis.

The distinctive characteristic of a true crisis is that it is the consequences of a previous destruction of wealth. This great feature, in spite of its immense importance for preventive action, scarcely any one notices; yet it is the fact which gives its real significance to a crisis. The expression panic denotes well the agitation which sets in upon the banking world, when losses are discovered and wild suspicion awakened, and general terror is excited, as to who is safe and who not: but the crisis which is the cause of the panic has a far earlier origin. There may be great losses in the money market, many premiums may have turned into discounts, many persons grievously hurt, yet there is not necessarily a panic. What one man loses another man has gained: banking resources need not generally be reduced by the commotion, even though a bank or two may have its credit, or even its existence compromised. The discounting of commercial bills may, on the whole, find lending power undiminished. Again, great losses may occur in a particular trade and yet no crisis spring up. The cotton famine brought heavy disaster on Lancashire, many fortunes passed away, yet at no period of this paralysis of a vast trade did a crisis set in. The calamity came on slowly: bankers, merchants, manufacturers, every one foresaw it, and shaped their conduct accordingly. There was no surprise, no sudden and rapid plunge from prosperity into adversity, no unexpected revelation that men who stood in high repute were undermined and falling, no agony agitating bankers and creditors as to who was able to pay and who not, no hurricane bursting on discount and loans. It is often said in the press that a country has not recovered a monetary crisis for years, but this is inaccurate language. A country cannot be long injured by the mere fact that some banks and mercantile houses have been brought to a stoppage. Gold, notes, banks, commercial firms, are mere machinery: they are not the wealth of a nation. They may fall into disorder, but if that is all, the national wealth remains intact and trade will soon right itself. But it is true nevertheless that the effects of a crisis last for a long time, but that happens - and this is the great truth to remember - because a crisis is only the culminating point of a long-continued destruction of capital which has preceded. Thus in 1825 some thirty millions had been lent to the States of South America, which had left England - as public loans always do - not in money but in goods. The wealth of England was reduced by goods worth that sum of money. Bankers too had largely speculated in mines and other venturesome undertakings, and had encouraged others to speculate. But speculation is not mere betting, for then the country would be none the poorer - the speculation was of a different kind. It set in movement vast applications of labour. Wages were given, which means that food and clothing were consumed: materials were bought with labour - that is again, with the destruction of the things consumed by the makers: the returns made to the capital destroyed were poor, wealth was diminished, banks failed, and losses fell upon depositors. So again in 1847, the potatoe disease had caused a gigantic destruction of wealth. The cotton crop had failed in America, rendering cotton dear, thus diminishing English trade with foreign countries, and impoverishing English consumers. Above all, the construction of railways had been carried on to an extent far exceeding the savings of the country. They could not be completed by those who had committed themselves to the shares. They could not meet the calls. The resources of the banks were crippled. The shareholders had emptied out their accounts, and borrowed, when they could, from the banks instead of bringing in deposits. Shares were unsaleable, except at ruinous loss. But the fact to grasp in all this disorder is that the shareholders had expended their property in setting labourers to work, who consumed the wealth and made diverse constructions on the ground, which did not act as wealth, and were not wealth at all till they proceeded to work in making wealth. In 1857 a similar excess of railway construction had been carried on in America, which compromised much English wealth, and disturbed one of the most important of English trades. France, too, experienced a similar derangement, and then a sharp though short crisis was rapidly developed. In 1866 the civil war in America had overthrown the production of cotton, a crop as truly English as if it had been grown in England. The Americans lost the power of buying English goods. English capital - always in the form of English goods - had been sent to India, to Egypt, and to other regions, to promote the growth of cotton in order to make up the deficiency of the American supply. Houses like the Gurneys had built ships at Millwall and equipped great fleets in Galway with much consumption of wealth: they were not wanted, and were nearly pure waste. Mills and factories had been built far beyond the means of trade to give them employment; the capital consumed by the workmen in building was for the time a dead loss. Abroad towns had been enlarged and beautified with English capital: industries had been opened out in the colonies in countless numbers, whilst at home numerous railway projects had been commenced: the destruction of food and clothing by the workmen was not replaced by unfinished lines: not one shilling's worth of wealth had been produced in return.