Chronicdepression，however，doesnotseemtobelong，asaconsistentfeatureofthecourseofthings，inthisnineteenth-centuryperiod，priortotheeightiesorthemiddleoftheseventies。Theusualcourse，itiscommonlyheld，wasrather:
　　inflation，crisis，transientdepression，gradualadvancetoinflation，andsoonoveragain。35*
　　Ontheviewofthesephenomenaherespokenfor，anattemptatexplainingthiscircuitmaybemadeasfollows:Acrisis，underthisearlynineteenth-centurysituation，wasanabruptcollapseofcapitalizedvalues，inwhichthecapitalizationwasnotonlybroughttotheleveloftheearning-capacitywhichtheinvestmentswouldhaveshowninquiettimes，butappreciablybelowthatlevel。Theefficiencyandthereachofthemachineindustryintheproductionofproductivegoodswasnotthensogreatastolowerthecostoftheirproductionrapidlyenoughtoovertaketheshrinkageincapitalizationandsopreventthelatterfromrisingagaininresponsetothestimulusofarelativelyhighearning-capacity。Theshock-effectoftheliquidationpassedoffbeforethecheapeningofthemeansofproductionhadtimetocatchupwiththeshrinkageofcapitalizationduetothecrisis，sothataftertheshock-effecthadpassedtherestillremainedanappreciableunder-capitalizationasasequeloftheperiodofliquidation。
　　Thereforetheredidnotresultapersistentunfavorablediscrepancybetweencapitalizationandearning-capacity，withaconsequentchronicdepression。Ontheotherhand，theearning-capacityofinvestmentswashighrelativelytotheirreducedcapitalizationafterthecrisis。Actualearning-capacityexceededthenominalearning-capacityofindustrialplantsbysoappreciableamarginastoencourageaboldcompetitiveadvanceandasanguinefinancieringonthepartofthevariousbusinessmen，sosoonastheshockoftheliquidationhadpassedandbusinesshadagainfallenintosettledchannels。Butsuchaboldcompetitiveadvancemeansthebeginningofanextensionofcreditandaspeculativemovementinindustry，suchashasbeendiscussedsomepagesbackinconnectionwithcrises。Thismovementhasacumulativecharacter，afterthemannerthereindicated，anditsoutcomeisaninflationofcapitalizationandalargeextensionofcredit，whichnormallyendsinaperiodofliquidation。
　　Withintheperiodspokenof1816-1873thisliquidationisapparentlyalwaysbroughtonbysomeextraneousdisturbance。Butitseemsthatthetheorywouldrequireustosaythattheextraneousdisturbancerequisitetobringsuchaspeculativemovementtoaheadwillbeslighterthefartherthemovementhasgone；sothatintheearlierstagesofagivenperiodofinflationaliquidationcouldbebroughtononlybysomerelativelyviolentdisturbance，whereasatahigherphaseofspeculativeinflationarelativelyslightdisturbancewouldsuffice。
　　Now，ittakessometimeforsuchaspeculativemovementtobringonsolargeadiscrepancybetweencapitalizationandearning-capacityasmaynotbeadjustedbyothermeansthanawidespreadandsevereliquidation。36*Hencearoughperiodicityintherecurrenceoftheseseasonsofbuoyancyandofcollapseincapitalizedvalues。Otherfactors，andvaryingones，have，nodoubt，beenpresentineachofthehistoriccrisesofthenineteenthcentury，andtheseotherfactorswouldhavetobetakendueaccountofinanyhistoryofcrises，andeveninanytheoryofcrises，whichaimedatanythinglikeanexhaustivetreatment；butthefactorsherepointedoutseemtobethecharacteristicandconstantonesinthesequenceofcriseswithinthisperiod，atthesametimethattheyarethefactorswhichareinapeculiardegreeconnectedwiththatprocessofbusinessmanagementinmodernindustrywhichistheobjectivepointofthepresentinquiry。
　　Sincetheseventies，asanapproximatedateandasapplyingparticularlytoAmericaandinalessdegreetoGreatBritain，thecourseofaffairsinbusinesshasapparentlytakenapermanentchangeasregardscrisesanddepression。Duringthisrecentperiod，andwithincreasingpersistency，chronicdepressionhasbeentheruleratherthantheexceptioninbusiness。Seasonsofeasytimes，“ordinaryprosperity，“duringthisperiodareprettyuniformlytraceabletospecificcausesextraneoustotheprocessofindustrialbusinessproper。Inonecase，theearlynineties，itseemstohavebeenapeculiarcropsituation，andinthemostnotablecaseofaspeculativeinflation，theonenow1904apparentlydrawingtoaclose，itwastheSpanish-AmericanWar，coupledwiththeexpendituresforstores，munitions，andservicesincidenttoplacingthecountryonawarfooting，thatliftedthedepressionandbroughtprosperitytothebusinesscommunity。Iftheoutsidestimulusfromwhichthepresentprosperitytakesitsimpulsebecontinuedatanadequatepitch，theseasonofprosperitymaybeprolonged；
　　otherwisethereseemslittlereasontoexpectanyotheroutcomethanamoreorlessabruptandsearchingliquidation。
　　Whatwouldbeanadequatepitchofthestimulusmakingforprosperityis，ofcourse，noteasytosay，butitisprobablysafetosaythatinordertokeepuptheseasonofprosperityforaconsiderablenumberofyearsthestimuluswouldhavetobegraduallyincreased。Thatistosayinotherwords，theabsorptionofgoodsandservicesbyextra-industrialexpenditures，expenditureswhichasseenfromthestandpointofindustryarepurewaste，wouldhavetogooninanincreasingvolume。Ifthewastefulexpenditureslackens，thelogicaloutcomeshouldbeaconsiderableperturbationofbusinessandindustry，followedbydepression；ifthewasteonwar，colonization，provincialinvestment，andthelike，comestoanabruptstop，thelogicalconsequence，intheabsenceofothercounteractingfactors，shouldbeacrisisofsomeseverity。37*
　　Itwassaidabovethatsincetheseventiestheordinarycourseofaffairsinbusiness，whenundisturbedbytransientcircumstancesextraneoustotheindustrialsystemproper，hasbeenchronicdepression。Thefactofsuchprevalentdepressionwillprobablynotbedeniedbyanystudentofthesituationduringthisperiod，sofarasregardsAmericaand，inadegree，England。38*FortheContinentofEuropethischaracterizationwouldhavetobemateriallyqualified。ButthereplyisreadytohandthatgovernmentalinterferenceswithtradehavebeensoubiquitousontheContinent，particularlyintheGerman-speakingcommunities，thattheircaseisfairlytobethrownoutofanygeneraltheory。ItmayalsobequestionedwhethertheindustrialsystemofGermany，e。g。，throughoutthisperiodconformstotherequirementsofthetheoryinrespectofthedegreeofdevelopmentofthemachineindustrywhichsuchastateofaffairssupposes。39*
　　Theexplanationofthispersistentbusinessdepression，inthosecountrieswhereithasprevailed，is，ontheviewherespokenfor，quitesimple。Byanuncertaindatetowardthecloseoftheseventiestheadvancingefficiencyandarticulationoftheprocessesofthemachineindustryreachedsuchapitchthatthecostofproductionofproductivegoodshassincethenpersistentlyoutstrippedsuchreadjustmentofcapitalizationashasfromtimetotimebeenmade。Thepersistentdeclineofprofits，duetothisrelativeoverproductionofindustrialapparatus，hasnotpermittedaconsistentspeculativeexpansion，ofthekindwhichaboundsintheearlierhalfofthenineteenthcentury，togetunderway。Whenaspeculativemovementhasbeensetupbyextraneousstimuli，duringthislateperiod，theinherentandrelativelyrapiddeclineofearning-capacityonthepartofolderinvestmentshasbroughtthespeculativeinflationtobookbeforeithasreachedsuchdimensionsaswouldbringonaviolentcrisis。Andwhenacrisisofsomeappreciableseverityhascomeandhasloweredthecapitalization，thepersistentefficiencyandfacilebalanceofprocessesinthemodernmachineindustryhasovertakenthedeclineincapitalizationwithoutallowingtimeforrecoveryandconsequentboom。Thecheapeningofcapitalgoodshasovertakentheloweredcapitalizationofinvestmentsbeforetheshock-effectoftheliquidationhaswornoff。Hencedepressionisnormaltotheindustrialsituationundertheconsummateregimeofthemachine，solongascompetitionisuncheckedandnodeusexmachinainterposes。40*
　　Thepersistentdefectionofreasonableprofitscallsforaremedy。Theremedymaybesoughtinoneortheotheroftwodirections:1inanincreasedunproductiveconsumptionofgoods；or2inaneliminationofthat“cutthroat“competitionthatkeepsprofitsbelowthe“reasonable“level。Ifenoughoftheworkoroftheoutputisturnedtowastefulexpenditures，soastoadmitofbutarelativelyslightaggregatesaving，ascountedbyweightandtale，profitablepricescanbemaintainedontheoldbasisofcapitalization。Ifthewasteissufficientlylarge，thecurrentinvestmentinadditionalindustrialequipmentwillnotbesufficienttolowerpricesappreciablythroughcompetition。41*
　　Wastefulexpenditureonascaleadequatetooffsetthesurplusproductivityofmodernindustryisnearlyoutofthequestion。Privateinitiativecannotcarrythewasteofgoodsandservicestonearlythepointrequiredbythebusinesssituation。
　　Privatewasteisnodoubtlarge，butbusinessprinciples，leadingtosavingandshrewdinvestment，aretooingrainedinthehabitsofmodernmentoadmitaneffectiveretardationoftherateofsaving。42*Somethingmoretothepointcanbedone，andindeedisbeingdone，bythecivilizedgovernmentsinthewayofeffectualwaste。Armaments，publicedifices，courtlyanddiplomaticestablishments，andthelike，arealmostaltogetherwasteful，sofarasbearsonthepresentquestion。Theyhavetheadditionaladvantagethatthepublicsecuritieswhichrepresentthiswasteserveasattractiveinvestmentsecuritiesforprivatesavings，atthesametimethat，takenintheaggregate，thesavingssoinvestedarepurelyfictitioussavingsandthereforedonotacttolowerprofitsorprices。Expendituresmetbytaxationarelessexpedientforthispurpose；althoughindirecttaxeshavethepeculiaradvantageofkeepingupthepricesofthegoodsonwhichtheyareimposed，andtherebyactdirectlytowardthedesiredend。Thewasteoftimeandeffortthatgoesintomilitaryservice，aswellastheemploymentofthecourtly，diplomatic，andecclesiasticalpersonnel，countseffectuallyinthesamedirection。Buthoweverextraordinarythispublicwasteofsubstancelatterlyhasbeen，itisapparentlyaltogetherinadequatetooffsetthesurplusproductivityofthemachineindustry，particularlywhenthisproductivityissecondedbythegreatfacilitywhichthemodernbusinessorganizationaffordsfortheaccumulationofsavingsinrelativelyfewhands。Thereisalsothedrawbackthatthewasteoftimeinvolvedinmilitaryservicereducesthepurchasingpoweroftheclassesthataredrawnintotheservice，andsoreducestheamountofwastefulconsumptionwhichtheseclassesmightotherwiseaccomplish。43*
　　Solongasindustryremainsatitspresentlevelofefficiency，andespeciallysolongasincomescontinuetobedistributedsomewhatafterthepresentscheme，wastecannotbeexpectedtoovertakeproduction，andcanthereforenotchecktheuntowardtendencytodepression。Butifthebalancecannotbemaintainedbyacceleratingwastefulconsumption，itmaybemaintainedbycurtailingandregulatingtheoutputofgoods。
　　“Cutthroat“competition，thatistosay，freecompetitiveselling，canbedoneawayby“poolingtheinterests“ofthecompetitors，sosoonasalloraneffectivemajorityofthebusinessconcernswhicharerivalsinthemarketcombineandplacetheirbusinessmanagementunderonedirectivehead。Whenthisisdone，bywhatevermethod，sellingofgoodsorservicesatcompetitivelyvaryingpricesisreplacedbycollectiveselling“collectivebargaining“atpricesfixedonthebasisof“whatthetrafficwillbear。“Thatistosay，pricesarefixedbyconsiderationofwhatscaleofpriceswillbringthelargestaggregatenetearnings，dueregardbeinghadtotheeffectofalowerpriceinincreasingsalesaswellastothereductionofcostthroughtheincreaseofoutput。Theoutcome，asregardsthescaleofprices，mayeasilybeareductionofthepricetoconsumers；butitmayalso，andequallyreadily，beanincreaseoftheaverageprice。Butthepricesoftheoutputwhichisinthiswaybroughttoamonopolybasisarenearlycertaintorunmoreeventhanpricesofthelikeoutputwhilesoldcompetitivelybyrivalconcerns。
　　Whathasbeensaidinthelastparagraphsupposesthatthecombinationofbusinessenterprisesissocomprehensiveastoplacetheresultingcoalitioninapositionofpracticalmonopoly。Sucharesultisnotalwaysattained，however，especiallynotintheearlierattemptsatcoalitioninanyparticularbranchofindustry；althoughtheendeavoriscommonlyrelateduntilatlastavirtualmonopolyisachieved。Butevenwherenoeffectivemonopolyisachieved，acoalitionofthiskindhasasalutaryeffect，atleasttemporarily。Inalmostallcasesaconsolidationofthiskindisabletoeffectconsiderableeconomiesinthecostofproduction，aspointedoutinanearlierchapter，andsucheconomiesbringreliefthroughenablingthecombinedindustrialventurestoearnareasonableprofitatalowerpricefortheirproductthanbefore。Theyarethereforeabletogoononascaleofpriceswhichwasnotremunerativewhiletheystoodontheiroldfootingofseveralty。Butthereliefwhichcomesofsuchmeasures，solongascompetitivesellinggoesoninrivalrywithconcernsstandingoutsidethecoalition，isonlytransient。Thedecliningcostofproduction，andtheconsequentcompetitiveinvestmentandextensionintheindustry，presentlycatchesupwiththegainineconomy；themarginofadvantageinthecompetitionislost，anddepressionagainovertakestheconsolidatedenterprisesontheirnewfooting。Theremedyagainisawidercoalition，makingpossiblefarthereconomies，andmakingsomeapproachtoapositionofsecuremonopoly。