Loans cause a depression when there is plenty. A farmer takes a loan when the price of wheat is $2 a bushel. But the economy improves, there is plenty of wheat

Loans cause a depression when there is plenty. A farmer takes a loan when the price of wheat is $2 a bushel. But the economy improves, there is plenty of wheat for everybody, so the price of wheat halves. The farmer can't react to it by growing less wheat, he has a loan to pay, he may even need to increase his production to be able to pay even with the reduced prices. This is happening to everybody. Any time money is made, part gets used to pay off debts, and isn't spent on goods that others produced, which further drives the prices down. You will soon reach a point when nobody will buy any more wheat for any price. You go bankrupt, and the bank gets your farm, but the farm is worthless, nobody's going to buy a farm in such an economy from the bank. The bank now has no money to fulfill its obligations. The money it lent you, and which was lost, is still on other people's accounts, so the bank can't give them their money when people demand to withdraw it. Nothing about it can be fixed by giving further loans - loans for consumption only create more debt in the process, and there is no opportunity for bussiness lians, as there is already too much of everything.