In half a dozen years we piled up against other countries a trade balance in our favor of more than $2,600,000,000, a trade balance far larger than the net trade balance had been from the beginning of our government down to the time when this remarkable expansion started.

And then we made mistakes. We were in the midst of a prosperity so great that it went beyond the experience of the most experienced. With the flood tide of this prosperity covering all of the old landmarks, it was small wonder that there were blunders made in steering the craft of business. We ran into excesses, extravagances and miscalculations. Capital made mistakes of over-capitalization; labor made mistakes of arbitrary and unwise demands; every body made mistakes of extravagance. Producers made errors in estimating the demand and made miscalculations in the multiplication of their productive capacity. Those errors of estimate were almost unavoidable. There was a surplus demand above our productive capacity, and that demand went knocking at the door of first one factory, then another and another, producing the impression on the mind of each individual manufacturer that the demand legitimately pressing upon him warranted him in doubling his plant; and when every one started to double his productive capacity, capacity soon ran ahead of demand.

The railroads were caught in much the same situation. They made huge engagements for expenditures which they felt were necessary in order to handle the traffic that was pressing on them. For the time being, far too great a portion of liquid capital was absorbed into fixed forms of investment. Directly and indirectly, bank credits which were payable on demand were, in a dangerous proportion, converted into new manufacturing plants and into new railroad tracks, equipment and terminals. Bank reserves fell until they were a danger signal pointing with certainty to the need for more conservative administration. Banks applied the financial brakes of higher interest rates. Stock market values, unduly inflated by the spirit of optimism which was all pervading, began to melt.

In 1902 this turn came. The decline which followed cut a billion dollars off the value of securities in a few months.