Close Relation Exists Between the Buying and Selling of Real Estate and Booms and Panics - Boom First Affects Personal Property, then Real Estate - Seasons of Unexampled Prosperity Indicate Impending Storm - Crises Occur in Cycles - Symptoms of Booms and Panics Vividly Portrayed - The Office and Utility of Speculation.

Sec. 158. There is a close relation between the buying and selling of real estate and the occurrence of booms and panics. When manufacturing becomes more brisk, after a season of quiescence and dull prices, speculative trading at first is confined to stocks and bonds. This sort of personal property passes from hand to hand by endorsement and delivery, and is subject to much fluctuation in value, and for these reasons is specially adapted to speculation. Legitimate enterprises, at greatly inflated values, are at first exploited by heavy operators, and the stocks of these are so readily floated, that the major portion of the investing public, under the stimulus of intense excitement and a gullible frame of mind caused by the report of large profits, becomes educated into buying almost anything that is offered, until finally some of the subsequent exploitations of the lesser operators have so little stability that exposure inevitably follows. Investors by this time have a dark brown taste in their mouths and in their deposit boxes have sufficient stock certificates, if spread out, to cover the walls of a small room, and are fortunate if they are not deprived, by means of an assessment, of whatever rights they have in such certificates.

Sec. 159. The fever of speculation in personal property having spent its force, real estate next receives the attention of the speculative investor. During the period of excitement in personal-property trading, real estate remained dormant, and the real estate dealer became a stock broker. As a stock broker and as a promoter of new enterprises, he could not always proceed with that intimate knowledge of the business so necessary to success, as more than one real estate dealer found to his sorrow when he attempted to float the stock of, and manage, an oil company during the late boom in oil stocks. When the tide turned in favor of real estate, the dealer gladly sought his former calling. So long as everyone was clamoring for stocks and bonds there was no demand for real estate, and consequently prices were low. Some one or more individuals who had passed through similar experiences, and who realized that the fever of speculation would change from one species of property to another, took note of the tendency in affairs, and purchased at a low price and on easy terms some very desirable piece of income property and the purchase was duly heralded in the newspapers. While everyone was intent on buying personal property, few improvements in the way of building had been made; the population had increased and rents were low; modern and more costly building improvements are in demand both for residence and business purposes; building commences and the new buildings are quickly occupied at remunerative rentals; investors are thus encouraged to buy and build and a movement in real estate is inaugurated. "In speculation as in most other things," says one writer, "one individual derives confidence from another. Such a one purchases or sells not because he has any particular or accurate information in regard to the state of supply and demand, but because some one else has done so before him." Close-in acreage property is next sub-divided and placed on the market, and as money is readily made in handling sub-divisions, other and more remote tracts are sub-divided until the last of them are miles from the center of the city. New improvements erected in the center of the city at the same time create a demand for properties on certain close-in streets, and prices advance rapidly, and if there is sufficient excitement attending the transfers, the movement in real estate attains the height of a veritable boom. Confidence in his own powers of judgment should render a man prudent, however, in the midst of speculation and excitement, and cause him to withdraw from the madding crowd when he realizes that prices have exceeded the limit of value and safety.

Sec. 160. Washington Irving asserts that those calm, sunny seasons in the commercial world which are known by the name of "Times of unexampled prosperity," are sure weather-breeders of traffic. "Every now and then," he says, "the world is visited by one of these delusive seasons when the 'credit system,' as it is called, expands to full luxuriance] everybody trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men are tempted to dash forward boldly, from the facility of borrowing. Promissory notes, interchanged between scheming individuals, are liberally discounted at the banks, which become so many mints to coin words into cash; and as the supply of words is inexhaustible, it may be readily supposed what a vast amount of promissory capital is soon in circulation. Every one now talks in thousands; nothing is heard but gigantic operations in trade; great purchases and sales of real property, and immense sums made at every transfer. All, to be sure, as yet exists in promise; but the believer in promises calculates the aggregate as solid capital, and falls back in amazement at the amount of public wealth, the 'unexampled state of public prosperity.' Now is the time for speculative and dreaming or designing men. They relate their dreams and projects to the ignorant and credulous, dazzle them with golden visions, and set them madding after shadows. The example of one stimulates another; speculation rises on speculation; bubble rises on bubble; everyone helps with his breath to swell the windy superstructure, and admires and wonders at the magnitude of the speculation he has contributed to produce. Could this delusion always last, life would indeed be a golden dream; but it is as short as it is brilliant. Let but a doubt enter, and the season of 'unexampled prosperity' is at an end. The coinage of words is suddenly curtailed; the promissory capital begins to vanish into smoke; a panic succeeds and the whole superstructure, built upon credit, and reared by speculation, crumbles to the ground, leaving scarce a wreck behind.