besideswhichitis，practically，verydifficulttoeffectsuchanavowedrecapitalizationasappliedtothestockofincorporatedcompanies，particularlyinthecaseofthosewhosestockisostensiblythecapitalizedvalueoftheirplant。
　　Suchareadjustmentofnominalvaluetoactualvalueasshownbythefactsofearning-capacityiscontinuallygoingon，insomemeasure；butitdoesnotcovertheentirerangeoffactsinvolved，anditisnearlyalwaysofthenatureofareluctantconcession，followingonlyaftertheneedofithasbecomesomewhatpressing。Itcan，therefore，inthecommonrunofcases，notcatchupwiththeprogressivedifficultywhichitisdesignedtomeet，insofarasthedifficultyisofaprogressivecharacter。
　　Adiscrepancybetweenacceptedcapitalizationandcurrentearning-capacity，similartothediscrepancydiscussedabovebutofaprogressivecharacter，arisesundermodernconditionsapartfromafallintherateofinterest。Thediscrepancypointedoutandprovisionallydisposedofabove，duetoafallininterestrates，isadiscrepancybetweenthenominalvalueacceptedcapitalizationoftheolderestablishments，computedontheirearlierearning-capacityorontheoriginalcostoftheirequipment，ontheonehand，andtheirpresentactualvalueontheotherhand，computedontheircurrentearning-capacityincompetitionwithrivalsthathavetheadvantageofalowercostofequipment，or，inotherwords，alowerinterestchargeperunitofearning-capacity。Undertheregimeofthelater，morefullydevelopedmachineproduction，adiscrepancyhavingasimilareffectarisesoutofapersistentdivergencebetweenthepastcostofproductionofagivenequipmentandthecurrentcostofalikeorequivalentequipmentatanysubsequentdate，-
　　supposingthatthereintervenesnoinflationofpricesandnoextraneouscausemakingforaspeculativeadvance。22*
　　Supposepricesoffinishedgoodstobestableortovarybyinconsequentialfluctuations，negligibleforpurposesoftheargument，andsupposetherateofinteresttobeinasimilarlynegligibleposition。Inotherwords，supposesuchaconditionasthebusinesscommunitywouldrecognizeasordinary，normal，sound，withoutgroundforpronouncedhopesorfears。Undermoderncircumstances，dominatedasthemodernsituationisbythemachineindustry，suchastateofaffairsisunstable，evenapartfromanydisturbanceofanextraneouskind。Itisunstablebyvirtueoftheforcesatworkinitsownprocess，andtheseforces，onthewhole，makeforaprogressivechangein。thedirectionofdepression。
　　Ithasappearedabovethatthedepressingeffectwhicharelativelylowdecliningrateofinteresthasuponindustrialbusinessisduetoitssettingupadiscrepancybetweentheacceptedcapitalizationofolderestablishmentsandthecostofnewestablishmentsofanequivalentearning-capacity。Now，underthecircumstancesofthemorefullydevelopedmachineindustry，suchasithasstoodforacoupleofdecadespast，asimilardiscrepancyresultsfromthegradualbutuninterruptedprogressiveimprovementsofindustrialprocesses。“Thestateoftheindustrialarts，“astheoldereconomistsareinthehabitofcallingit，isnolongertobeconceivedasstationary，evenforthetimebeing。No“statical“theoryoftheindustrialartsorofbusinessprosperityistenable，evenforthepurposesofa“statical“theoryoftheindustrialsituation。Progressivelyincreasingefficiencyoftheprocessesinuseisapervadingtraitoftheindustrialsituation。Notwosuccessiveyearsarenowonthesame，orvirtuallythesame，planeinrespectoftheefficiencyoftheindustrialarts；indeed，the“periodofproduction“cannolongersafelybeconstruedtobeginandendonthesamelevelinthisrespect。Atthesametimetheprogressivelywiderandmoreclose-knitarticulationoftheseveralindustriesinacomprehensiveprocessisalsogoingforward，andthisalsoaffectsallbranchesofindustrialbusinessinsomedegreeandinthesamedirection，aswillappearpresently。
　　Theitemsoftheequipmentplant，materials，andinameasureevengood-willinwhichanyindustrialenterpriseinvests，andbytheuseofwhichthebusinessmeninindustryturnouttheiroutputofvendiblegoods，arethemselvesproductsofthemachineindustry。Machineprocesses，everincreasinginefficiency，turnoutthemechanicalappliancesandmaterialswithwhichtheprocessesarecarriedon，ataneverdecreasingcost；
　　sothatateachsuccessivesteptheresultisaprocesshavingahigherefficiencyatalowercost。23*Thisisnownolongerasporadiceffectofingeniouscontrivanceshavingalocalandlimitedapplication，tobehandledastradesecretsandexploitedasanenduringdifferentialadvantage。
　　Thecostofproductionof“capitalgoods“issteadilyandprogressivelylowered，ascountedintermsoftheprocessesinvolvedintheirproduction。Inacompetitivemarketthisisreflected，withgreaterorlesspromptitude，inthepricesofsuchcapitalgoodstoallbuyers。Butthebuyerswhosepurposesthislowerscaleofpricesparticularlysubservesarechieflythenewinvestorswhogointobusinessinthewayofnewindustrialestablishmentsorextensionsoftheold。Eachnewventureorextensiongoesintothecompetitivetrafficofproducingandsellinganylineofstaplegoodswithadifferentialadvantage，asagainstthosethathavegonebeforeit，inthewayofalowerscaleofcosts。Asuccessivelysmalleraggregatevalueofnewequipmentwillturnoutagivenvolumeofvendibleproduct。Insofarasthereisnocollusivecontroloftheoutputortheprices，thismeansthatthenewcomerswillcutunderthescaleofpricesatwhichtheirpredecessorshavebeencontenttosupplythegoods。Therunofcompetitivepricesislowered；whichmeansthatatthenewcompetitiveprices，andwiththeiroutputremainingonitsoldfootingasregardsexpensesofproduction，theolderestablishmentsandprocesseswillnolongeryieldreturnscommensuratewiththeoldacceptedcapitalization。24*Fromtheinherentcharacterofthemachineindustryitself，therefore，itfollowsthattheearning-capacityofanyindustrialenterpriseentersonadeclinefromtheoutset，andthatitscapitalization，basedonitsinitialputativeearning-capacity，growsprogressivelyantiquatedfromthestart。Theefficiencyofthemachineprocessinthe“instrumentalindustries“setsupadiscrepancybetweencostandcapitalization。Sothataprogressivereadjustmentofcapitalizationtocorrespondwiththeloweredearning-capacityisrequiredbythenatureofthecaseItisalso，inthenatureofthecase，impracticable。
　　Insofarastheprocessofinvestmentandbusinessmanagementinvolvestheuseofcredit，inthewayofinterest-bearingsecuritiesorloansequivalenttosuchsecurities，thiselementofcreditretardsthereadjustmentbyforceofthefixedchargeswhichitinvolves。Thisretardationaidedasitisbythereluctanceofbusinessmentolowertheircapitalizationisofsufficienteffecttohinderrecapitalization，onthewhole，fromovertakingtheprogressiveneedofit，withtheresultthatafairor“ordinary“rateofprofitsonindustrialinvestmentsisnotpermanentlyattainableinthefieldofopencompetition。Inorderthattherateofinterestshouldeffectuallyfurtherbusinessdepressioninthisway，therefore，itisnotnecessarythattherateshouldriseorfall，orthatitshouldberelativelyhighorlow，orthatitshouldbeuniformoverthefield，butonlythatthereshouldbearateofinterestineachcase，andthatthereshouldbesomeappreciablevolumeofcreditinvolvedinindustrialinvestments。
　　Creditis，infact，aubiquitousfactorinmodernindustrialbusiness，anditseffectsinthewayindicatedarethereforetobecountedinasaconstantforceinthesituation。
　　However，evenapartfromthepresenceofthisubiquitouscreditelement，asimilareffectwouldprobablyresultfromtheprogressiveenhancementofindustrialefficiencywhenthisenhancementproceedsatsucharateashasbeenthecaseforsometimepast。Ashasbeenshowninanearlierchapter，businessmenkeepaccountoftheirwealth，theiroutgoandtheirincome，intermsofmoneyvalue，notintermsofmechanicalserviceabilityorofconsumptiveeffect。Businesstrafficandbusinessoutcomearestandardizedintermsofthemoneyunit，whiletheindustrialprocessanditsoutputarestandardizedintermsofphysicalmeasurementsmechanicalefficiency。Inthecurrenthabitsandconventionsofthebusinesscommunity，theunitofmoneyisacceptedanddealtwithasastandardmeasure。Thestabilityofthestandardunitcannotbeeffectuallyquestionedwithinthescopeofbusinesstraffic。Accordingtothepracticalmetaphysicsofthebusinesscommunity，themoneyunitisaninvariablemagnitude，whatevermaybetrueofitinfact。Amanimbuedwiththesebusinessmetaphysicsandnotgiventofine-spunreflection，asbusinessmencommonlyarenot，isricherorpoorerinhisownapprehension，accordingashisbalancesheetshowsagreaterorlessnumberofthesestandardunitsofvalue。Investment，expenses，vendibleoutput，earnings，fixedcharges，andcapitalizationrunintermsofthisvalueunit。Areductionofearningsorofcapitalization，asratedintermsofthevalueunit，isfeltasanimpoverishment。Thereductionofcapitalizationinthesetermsis，therefore，ahardship，whichisonlyreluctantlyandtardilysubmittedto，evenifitcarriesnohardshipinthewayofareducedcommandoverthematerialmeansofproduction，oflife，orofcomfort。Abusinessman’sratinginthebusinesscommunitylikewiserestsonthepecuniarymagnitudeofhisholdingsandhistransactions，notonthemechanicalserviceabilityofhisestablishmentorhisoutput；andthisbusinessratingisalargepartofthebusinessman’severydayambition。Anenhancementofitisasourceofsecuregratificationandself-respect，andareductionofithasaverysubstantialcontraryeffect。25*Areductionofthepecuniaryshowingissubmittedtoonlyreluctantlyandtardily，afterithasbecomeunavoidable，andonlytotheleastfeasibleextent。
　　Butunderconditions，suchasnowprevail，whichinvolvetherequirementofaprogressivereratingofthiskind，thisreluctantconcessionneverovertakestheneedofreadjustment，-
　　andthediscrepancybetweencapitalizationandearning-capacityisthereforechronicsolongasnoextraneouscircumstancescomeintemporarilytosetasidethetrendofbusinessaffairsinthisrespect。Itmay，therefore，besaid，onthebasisofthisview，thatchronicdepression，moreorlesspronounced，isnormaltobusinessunderthefullydevelopedregimeofthemachineindustry。26*
　　Thisdeplorabletrendgiventobusinessbytheexcessiveprevalenceandefficiencyofthemachineindustrycan，however，besetasidebyseveralfactorsmoreorlessextraneoustotheindustrialsystemproper。Evenwithinthemechanicalsystemofindustrythereisatleastonefactorofsomeconsequencethatconsistentlyactstomitigatethetrendindicated，andthatmayevenputitinabeyancefromtimetotime。Ashasbeenpointedoutabove，questionsofbusinessarefundamentallyquestionsofprice。Adeclineofpriceswhichwidelytouchesbusinessinterestsbringsdepression。Conversely，anappreciableadvanceinprices，fromwhatevercause，meansimprovementinbusiness。
　　Suchanadvanceinpricesmaycomeofaspeculativemovement；
　　whichinturnmayarisefromavarietyofcircumstances，forthemostpartcircumstancesextraneoustotheindustrialprocess。Forthepresent，however，thequestionofaspeculativemovementisbestleftononeside。Anotherfactortouchesthecasemoreintimately。Ashasmorethanoncebeenthecase，pricesmaybeadvancedthroughafreersupplyofthepreciousmetals，orbyaninflationofthecurrency，oramorefacileuseofcreditinstrumentsasasubsidiarycurrencymechanism。Now，thegrowingefficiencyofindustryhasaneffectinloweringthematerial
　　costofproductionofthepreciousmetalsandsoincreasingtheeasewithwhichtheyaresupplied，afterthesamemannerasitaffectsthesupplyofgoodsforindustrialorconsumptiveuse。
　　Buttheincreasedsupplyofthepreciousmetalshas，ofcourse，aneffectuponpricescontrarytothatexertedbytheincreasingsupplyofgoods。Insofarasthiseffectishad，itactstocorrectormitigatethetrendofbusinesstowardchronicdepression。27*
　　Butcertaincircumstancescomeintoqualifythesalutaryeffectofaloweredcostofthepreciousmetals。Improvementsintheindustrialprocessesaffecttheindustrialcostofproductionofthepreciousmetalsinalessdegreethanthecostofothergoods；atleast，suchseemstohavebeenthecaserecently。Butbeyondthis，andofgraverconsequence，isapeculiarityaffectingthevalueofthemoneymetals。Theannualproductofthemoneymetalsisnotannuallyconsumed，nornearly。
　　Theuseofthemasmoneydoesnotconsumethemexceptincidentallyandveryslowly。Themassofthesemetalsinhandatanygiventimeisveryconsiderableandisrelativelyimperishable，sothattheannualaccretionisbutasmallfractionoftheaggregatesupply。Theloweredcostoftheannualsupplyhasthereforebutarelativelyslighteffectupontheaggregatevalueoftheavailablesupply。