At the•end-of the Civil War in 1865 general prices had
risen from 100 to 216. The Americans had to choose between violent deflation and a policy of not merely ignoring their debt but of deliberately adding to it. The argument for running further into debt was-that the future of the country depended entirely upon the revival of trade and that trade could never revive under a system of high taxation and tight money. This apparently risky policy was adopted and justified itself. There was a slow and orderly fall of prices to 1896, except for the years 1871-73, when the country was already showing symptoms of the great financial panic of 1873.. Ewen during those three years prices did not rise, but were steady, and thenceforward they resumed the downward movement. The panic itself, we believe, may be traced much less to dangerous financial expedients than to a bad system of banking The panic did not begin in America, but in Austria and Germany.
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