"When a man of business, therefore, hears on every side rumors of fortunes suddenly acquired; when he finds banks liberal and brokers busy; when he sees adventurers flush of paper capital and full of scheme and enterprise; when he perceives a greater disposition to buy than to sell; when trade overflows its accustomed channels and deluges the country; when he hears of new regions of commercial adventure; of distant marts and distant mines swallowing merchandise and disgorging gold; when he finds joint stock companies of all kinds forming; when he beholds the streets glittering with new equipages, palaces conjured up by the magic of speculation, tradesmen flushed with sudden success and vying with each other in ostentatious expense; in a word, when he hears the whole community joining in the theme of 'unexampled prosperity/ let him look upon the whole as a 'weather-breeder,' and prepare for the impending storm."

Sec. 161. Observers who have made a study of the matter, claim that booms and panics occur in cycles. Professor Levi says: "The most confident advocates of the theory of periodicity assign to these cycles a definite or nearly equal duration of ten or twelve years. According to John Stewart Mills, this cycle is divided as follows: After each panic or crisis the first three years will witness diminishing trade, lack of employment, falling prices, a lowering rate of interest and very considerable distress. Then will be three years of active trade, slightly rising prices, fair employment, improved credit. Then will come three years of unduly excited trade, in which speculation will be rife, prices will rise rapidly, and an unusual number of new enterprises will be begun. The tenth year will be one of crisis, followed by three years of depression." - (Burton's Financial Crises.)

Sec. 162. The following is from a paper read by Mr. L. M. Holt before the Editorial Association of Southern California, and sets forth in striking language the leading features of booms and panics:

A boom is a convalescent panic. A panic is a bursted boom. The business interests of the country are always either on the up grade or on the down grade. The credit system for the transaction of business is responsible for both the boom and the panic. If all business was done on a cash basis, there could be no panics; neither could there be any booms. A boom is a speculative condition of the market during advancing prices. A panic is the condition of the market after prices have reached the highest point possible, and have begun to recede. If no one was in debt for his property - real or personal - at the time that prices began to drop there could be no panic, for each individual would still own his own property and it would make no difference to him whether is was worth one thousand or five thousand dollars. If, however, he owned property valued at five thousand dollars and was in debt for it to his neighbor to the extent of three thousand dollars, and its market value should drop to two thousand dollars, it would require the entire property and an additional one thousand dollars to pay the neighbor, and the man's interest in the property would be entirely wiped out. This would be a panic for the man - in fact it would be pretty near a panic for both of them.

Panics and booms are governed by the law of supply and demand. During a boom, the demand exceeds the supply; during a panic, the supply exceeds the demand.

There is a general feeling, however, when prices are very low and times are hard and there seems to be no bottom to the market, that the world has reached a point in its history where prices can never come up again. And then again when prices are up and continually advancing and there is a veritable boom, the feeling is very general that good times will always continue and that hard times will never come again. Both positions are wrong. Prosperous times are always followed by panics, and panics are always followed by prosperous times again.

After every panic, there is a time when prices of all kinds of property reach bedrock. It does not require any great amount of wisdom to convince a man that then is the time for him to buy property; for prices must advance. Prices advance because everybody thinks that it is.a good time to buy and many commence buying; therefore, the demand for property is great. This demand causes a further advance in prices and the further advance in prices causes a still greater demand. This condition of affairs continues until prices reach a point beyond which they cannot go higher. The higher prices go, the faster they advance, and the faster they advance, the higher they go. This is a boom.

Finally the climax is reached and everybody knows it. Each individual thinks he is smarter than anyone else. He ha9 discovered that the climax is reached, and he proposes to sell at top prices before any one else finds out the real condition of the market. In fact, in order to be sure of success in this position, he proposes to sell at a shade less than the real market price. He suddenly discovers, however, that he cannot sell on that basis. Others are trying to do the same thing. Each one begins to cut the price still more and more in his vain effort to sell, and the more they cut the price the more they cannot sell. The supply exceeds the demand. This is a panic.

Panics and booms are the result of laws governing trade. An individual cannot make a panic; neither can he stop one. He might just as well attempt to manufacture a Kansas cyclone, or stop such a cyclone when he sees it coming. Such a cyclone is the result of laws over which human beings have absolutely no control. So is a panic.

After a panic, when prices have reached the lowest point possible, and they begin to advance again, it is strange how long it takes the general public to realize the fact that an advance is really being made. The recovery from a panic is slow; the convalescence is gradual; it comes like a thief in the night - or like the falling of the gentle dew.

When the climax of high prices is reached and prices begin to drop again, there is no ambiguity as to the real condition of the case. The drop comes with a dull, sickening thud - like a thunder clap out of a clear sky.

During the period of business activity preceding a boom, speculation is at first confined to all kinds of personal property. Fortunes are made in stocks. Millionaires are made in a day. Great combinations of capital are formed. The heavy operators are the first to take advantage of the situation. Smaller operators come next and finally the general public conclude that any one can make money by speculating and not half try. All that is needed is a little money, some credit and unlimited nerve. Real estate is the last thing to be affected by a speculative period. After real estate speculation, comes the deluge. When real estate speculation has reached a giddy height, it is time for the cautious citizen to build his ark.

Sec. 163. In closing, the views of writers on economic subjects are given as to the office and utility of speculation.

"Speculation is the warfare of science, equipped with the knowledge of known forces, against the barbaric dominion of chance." (Cohn.)

"Speculation, though at first pursuing its own interests, has contributed more than any prince, minister, philosopher or philanthropist to provide Europe with the means of communication, to regulate commerce, to give more solid and real character to business, to keep down the rate of interest, to extend and consolidate credit, to limit usury, and to make fraud more uncommon." (F. A. Lange.)

"Knowledge of the future is profitable for trade, and is of supreme importance for the public good. To secure this profit and advantage is the aim of speculation." (Faucher.)