Atsomepointinthesystemofinvestmentandbusinessextensionwillbefoundsomebranchesofindustrywhichhavegraduallylostwhatdifferentialadvantagetheystartedoutwithwhentheyenteredontheeraofprosperity；andiftheseareinvolvedinlargecontractsandundertakingswhicharecarriedoverintothephaseofthemovementatwhichthisparticularbranchofindustryhasceasedtohaveadifferentialadvantageinthepriceofitsoutputoverthecostofitssuppliesofmaterialorlabor，thenwhatmayhavebeenaconservativecapitalizationoftheirholdingsatanearlyphase，whiletheirearning-capacityrestedonalargedifferentialadvantage，willbecomeanexcessivecapitalizationaftertheirearning-capacityhasdeclinedthroughlossoftheirdifferentialadvantage。Somebranchorbranchesandsomefirmsorclassoffirmsnecessarilyfallintothispositioninthecourseofaperiodofphenomenallybrisktimes。Abusinessconcernsoplacednecessarilybecomesadebtor，anditsliabilitiesnecessarilybecome，insomedegree，baddebts。Itisforcedbycircumstancestodeliveritsoutputatpriceswhichprecludeitsobtainingsuchamarginasitsextensionofbusinesspresupposed。Thatistosay，itscapitalizationbecomesexcessivethroughshrinkageofitsearning-capacityascountedintermsofprice。Aconcernofthisclasswhichisadebtorisprecludedfrommeetingitsobligationsoutofitscurrentearnings；andif，ascommonlyhappensinanappreciableproportionofcases，itsobligationshavealreadybeenaugmentedtotheextentwhichitsrecentearning-capacitywouldwarrant，thentheconcernisinsolventforthetimebeing。Iftheclaimsagainstitarepressed，ithasnorecoursehutliquidationthroughforcedsalesorbankruptcy。
　　Eitherexpedient，ifthecaseisoneofconsiderablemagnitude，isdisastroustothebalancedsequenceofcreditrelationsinwhichthebusinesscommunityisinvolved。Thesystemofcreditrelationsprevailingatsuchatimehasgrownuponthebasisofanearning-capacitytransientlyenhancedbyawaveofdifferentialpriceadvantage；andwhenthiswavehaspassed，evenifitleavespriceshigherallaround，thedifferentialadvantageofatleastmostconcernsispast。Thedifferentialpriceadvantagehascometotheseveralbranchesorfirmsinsuccession，andhas，inthetypicalcase，successivelylefteachwithanexcessivecapitalization，andhasleftmanywithabodyofliabilitiesoutofproportiontotheirsubsequentearning-capacity。Thissituationmay，evidently，comeaboutinthismanner，evenwithoutloweringtheaggregatepecuniary
　　earning-capacityofthebusinesscommunitytothelevelatwhichitstoodbeforethewaveofprosperitysetin。11*
　　Butwhensuchasituationhascome，allthatisrequiredtobringonthegeneralcatastropheisthatsomeconsiderablecreditorfindoutthatthepresentearning-capacityofhisdebtorwillprobablynotwarrantthecapitalizationonwhichhiscollateralisappraised，Inself-defencehemustdeclinetheextensionofaloan，andforcedliquidationmustfollow。Suchaliquidationinvolvescuttingundertherulingpricesofproducts，whichlessenstheprofitsofcompetingfirmsandthrowsthemintotheclassofinsolvents，andsoextendsthereadjustmentofcapitalization。
　　Thepointofdeparturefortheensuingsequenceofliquidationisnotinfrequentlythefailureofsomebankinghouse，butwhenthisisthecaseitisprettysuretobeabankwhosefundshavebeen“tiedup“in“unwise“loanstoindustrialenterprisesoftheclassspokenofabove。12*
　　Theabruptnessoftherecapitalizationandoftheredistributionofownershipinvolvedinaperiodofliquidationmaybegreatlymitigated，andtheincidenceoftheshrinkageofvaluesmaybemoreequablydistributed，byajudiciousleniencyonthepartofthecreditorsorbyawell-advisedanddiscreetlyweightedextensionofcreditbythegovernmenttocertainsectionsofthebusinesscommunity。Suchmeasuresofalleviationwerehad，withhappyeffect，inthecaseofarecentstringencywhichissometimesspokenofasanavertedcrisis。Butwherethesituationanswersthespecificationsrecitedabove，inrespectofalargeandwidelyprevalentdiscrepancybetweenearning-capacityandcapitalization，adrasticreadjustmentofvaluesisapparentlyunavoidable。
　　Thepointhasalreadybeenadvertedtoonceortwicethatthemostsubstantialimmediateoutcomeofsuchaliquidationasisinvolvedinacrisisisaredistributionoftheownershipofthepropertyconcernedintheliquidation，wherebycreditorsandsimilarclaimantsgainattheexpenseofthesolventdebtors。
　　Suchbeingthecase，itwouldlogicallyfollowthatthelargecreditorsshouldseeandfollowuptheiradvantagebyconcertedlypushingthebodyofdebtorstoanabruptliquidation，andsorealizingaslargeagainaspossiblewiththeleastpracticabledelay，wheneverthesituationoffers。
　　Suchmaybethelogicofthecircumstances，butsuchisnotthecoursepracticallytakenbythelargecreditorsunderthecircumstances。Forthisthereismorethanonereason。Itisnot，apparently，thathumankindnessoverrulesthecreditors’impulsetogainattheexpenseofthedebtors。Theeverrecurringobject-lessonsaffordedbyoperationsinthestockandmoneymarketenforcethebeliefthatwhenonebusinessmangetstheadvantageofanotherhewillcommonlyusetheadvantagewithouthumanitarianreserve，ifonlytheadvantageisofferedhImintermswhichhecancomprehend。Butshort-sightednessandlackofinsightbeyondtheconventionalroutineseemtobefairlyuniversaltraitsoftheclassofmenwhoengageinthelargerbusinessactivities。Sothat，whileitwouldbetotheunequivocaladvantageofthelargecreditor，inpointofmaterialgain，todrawinhisdebtor’spropertyatsuchareducedvaluationascomesinaperiodofabruptliquidation，yethedoesnotordinarilyseethematterinthatlight；becausetheliquidationinvolvesashrinkageofthemoneyvalueofthepropertyconcerned，andthebusinessman，creditorordebtor，isnotinthehabitoflookingbeyondthemoneyratingofthepropertyinquestionorbeyondthemostimmediatefuture。Theconventionalbaselineofbusinesstraffic，ofcourse，isthemoneyvalue，andarecognitionofthepatentfactthatthisbaselinewaversincontinently，andthatitmayonoccasionshiftveryabruptly，apparentlyexceedsthebusinessman’spracticalpowersofcomprehension。Moneyvalueishishabitualbench-mark，andheholdstotheconvictionthatthisbench-markisstable，inspiteofthefacts。13*
　　Itistrue，casesoccur，fromtimetotime，oftransactionsofsomeappreciablemagnitudeinwhichsomedegreeofrecognitionofthisfactismetwith。Somelargebusinessmanmayyetrisetotherequisitelevelofintelligence，andmaycomprehendandunreservedlyactuponthefactthatthemoneybaselineofbusinesstrafficatlargeisthoroughlyunstableandmayreadilybemanipulated，anditwillbeworthgoingoutofone’swaytoseethephenomenalgainsandthepicturesqueaccompanimentsofsuchaman’swork。Parentheticallyitmayberemarkedthatifsuchadegreeofinsightshouldbecomethecommonpropertyofthebusinesscommunity，businesstrafficasnowcarriedonmightconceivablycollapsethroughlossofitsbaseline。Whatisyetlackinginordertosuchaconsummationisperhapsnothingmoreseriousthanthatbusinesscapitalbereducedtoasomewhatmorethoroughstateofintangibilitythanithasyetattained，andthatdoesnotseemaremotecontingency。14*
　　Thereis，however，anotherandmoreconstrainingcircumstancewhichhindersthelargecreditorsfromwilfullypushingthedebtorstoareckoningwhenthingsareripeforliquidation。Aswasindicatedabove，thesequenceofcreditrelationsinaneraofprosperityisendlesslyramifiedthroughthebusinesscommunity；wherebyithappensthatveryfewcreditorsarenotalsodebtors，orstandinsuchrelationtodebtorsaswouldinvolvetheminsomeloss，evenifthislossshouldnotbecommensuratewiththeireventualgainatthecostofotherdebtors。Thiscircumstancebyitselfhasastrongdeterrenteffect，andwhentakeninconnectionwithwhatwassaidaboveofthehabitualinabilityofthemeninbusinesstoappreciatetheinstabilityofmoneyvalues，itisprobablysufficienttoexplaintheapparentlyshortsightedconductofthoselargecreditorstoseektomitigatetheseverityofliquidationwhentheliquidationhascomedue。
　　Theaccounthereofferedofthe“method“ofcrisesanderasofprosperitydoesnotdiffergreatlyfromaccountsusuallymetwith，exceptinexplainingthesephenomenaasprimarilyphenomenaofbusinessratherthanofindustry。Thedisturbancesofthemechanicalprocessesofindustry，whichareaconspicuousfeatureofanyperiodofcrisis，followfromthedisturbancesetupinthepecuniarytrafficinsteadofleadinguptothelatter。Whileindustryandbusinessstandinarelationofmutualcauseandeffect，inthisasinothercases，theinitiativeinsuchamovementbelongswiththebusinesstrafficratherthanwiththeindustrialprocesses。
　　Industryiscontrolledbybusinessexigenciesandiscarriedonforbusinessends。Theeffectsofawidedisturbanceinbusiness，therefore，reachtheindustrialprocessesprettydirectly，andtheconsequences，inthewayofanexpansionorcurtailmentofindustrialactivityandanenlargedorshortenedoutputofproduct，are，ofcourse，bothimmediateandimportant。
　　Asaprimaryeffect，ontheindustrialside，ofaneraofprosperity，thecommunitygainsgreatlyinaggregatematerialwealth。Thegaininmaterialwealth，ofcourse，isnotequablydistributed；mostofitgoestothelargerbusinessmen，eventuallyingreatparttothosewhocomeoutofthesubsequentliquidationonthecreditside。Tosomeextentthisaggregatematerialgainisoffsetbytheunavoidablewasteincidenttothestagnationthatattendsuponaneraofprosperity。Itisfurtheroffsetbythefactthatgoodtimescarrywiththemanexceptionallywastefulexpenditureincurrentconsumption。Also，theusualandmoreeffectualimpetustoaneraofprosperity，whenitisnotaninflationofthecurrency，issomeformofwastefulexpenditure，as，e。g。，asustainedwardemandorthedemandduetotheincreaseofarmaments，navalandmilitary，oragain，suchaninterferencewiththecourseofbusinessasiswroughtbyadifferentiallyprotectivetariff。ThelaterhistoryofAmericaandGermanyillustratesboththesemethodsofprocuringaneraofprosperity。Thesemethods，itwillbenoticed，are，intheirprimaryincidence，ofthenatureofawasteofindustrialoutputorenergy；buttheprosperityachievedis，nonetheless，toberecognizedasabeneficialoutcomeinpointofheightenedindustrialactivityaswellasinpointofincreasedcomfortfortheindustrialclasses。
　　Totheworkmenengagedinindustry，particularly，substantialbenefitsaccruefromaneraofprosperity。Thesebenefitscome，notinthewayoflargerreturnsforagivenamountofwork，butmorework，fulleremployment，atabouttheearlierrateofpay。
　　Totheworkmenitoftenmeansaverysubstantialgainiftheycangetafullerlivelihoodbyworkingharderorlonger，andaneraofprosperitygivesthemachanceofthiskind。Gradually，however，asprosperity-thatistosay，theadvancingpricelevelrisesandspreads，theincreasedcostoflivingneutralizesthegainduetofulleremployment，andaftertheeraofprosperityhasbeenunderwayforsometimethegainintheamountofworkobtainableislikelytobefairlyoffsetbytheincreasedcostofliving。Asnotedabove，muchofthebusinessadvantagegainedinaneraofprosperityisduetothefactthatwagesadvancemoretardilythanthepricesofgoods。Aneraofprosperitydoesnotcommonlybringanincreaseofwagesuntiltheeraisabouttoclose。Theadvanceofwagesinsuchacaseisnotonlyasymptomindicating。thattheseasonofprosperityispassing，butitisabusinessfactorwhichmustbyitsownpropereffectclosetheseasonofprosperityassoonastheadvanceinwagesbecomessomewhatgeneral。Increasingwagescutawaythesecurestgroundofthatdifferentialpriceadvantageonwhichaneraofprosperityruns。
　　Periodsofcrisisorofprosperityare，afterall，relativelysimplephenomenawithstronglymarkedfeatures，andapassableexplanationofthemiscorrespondinglyeasy。Theyhavealsotheadvantageofhavingreceivedmuchattentionatthehandsofthestudentsofeconomichistory。Ontheotherhand，protracteddepression，nottraceabletowidespreadhardshiporcalamityarisingfromcircumstancesoutsidetherangeofbusinesstransactions，isarelativelynewanduntriedsubjectforeconomictheory。Newer，moreobscure。withlesspronouncedfeaturesandlessdefinitelimitsthanmovementsofspeculativeadvanceorspeculativecrises，thisphenomenonhastoalessextentengagedthesteadyattentionofstudents。Aninquiryintothelifehistoryandthecausesandeffectsofdepression，fromthepointofviewofatheoryofbusiness，maythereforescarcelybeexpectedtoyieldconciseorsecureconclusions。
　　Sinceindustrywaitsuponbusiness，itisamatterofcoursethatindustrialdepressionisprimarilyadepressioninbusiness。
　　Itisinbusinessthatdepressionisfelt，sinceitisonthebusinesssideofeconomicactivitythattheseatofeconomicsensibilitymaybesaidtolie；itisalsoinbusinesspecuniarytermsthatthedepressionismeasuredwheneverameasureorestimateofthematterisattempted。Insofarasthereisanattendantderangementofthemechanicalprocessesandofthemechanicalarticulationofprocessesinindustry，thederangementfollowsfromthepecuniaryexigenciesofbusiness。