[Footnote 12:  Several other features of the law well merit description.  Among these features are measures for developing bankers’ acceptances, open market operations, the gold clearing system of the Federal Reserve Board, and the clearing of checks and parring of exchange.]

CHAPTER 10

CRISES AND INDUSTRIAL DEPRESSIONS

Sec. 1.  Mischance, special and general, in business.  Sec. 2.  Definitions.  Sec. 3.  A feature of a money economy.  Sec. 4.  European crises.  Sec. 5.  American crises.  Sec. 6.  A business cycle.  Sec. 7.  General features of a crisis.  Sec. 8.  “Glut” theories of crises.  Sec. 9.  Monetary theories of crises.  Sec. 10.  Capitalization theory of crises.  Sec. 11.  The use of credit.  Sec. 12.  Interest rates in a crisis.  Sec. 13.  Dynamic conditions and price readjustments.  Sec. 14.  Tariff changes and business uncertainty.  Sec. 15.  Rhythmic changes in weather and in crops.  Sec. 16.  Remedies for crises.

Sec. 1. #Mischance, special and general, in business.# Every separate business enterprise is subject to chances which suddenly decrease its profits and the prosperity of its owners; such are fire, flood, illness of its owners, unfavorable changes in prices of materials or of the products.[1] The interests of many other persons in the neighborhood may be so bound up with an enterprise that its losses may mean unemployment, lower wages to workingmen, and bankruptcy to local merchants and to banks.  Sometimes misfortune and disaster affect whole communities.  The lack of cotton while the Civil War was in progress compelled the factories of Manchester to close in 1864, and the earthquake and fire in San Francisco in 1906 left a quarter of a million people homeless.

But a change of business conditions is constantly occurring that is of wider extent, that is of less accidental and of more rhythmic nature, and that appears to be the effect of slowly working and more general causes.  The enterprise of a modern community, as a whole, “general business,” moves along, in a wavelike manner, going through a somewhat regular series of changes that is called a business cycle.  We are now to study the nature of these cycles.

Sec. 2. #Definitions.# Crisis means, generally, a decisive moment or turning point.  The word crisis suggests a brief period, a moment, something that is sudden, severe, and soon over.  In medical usage it is the period when the disease must take a turn for better or for worse.  As used in economics, the term, however, implies a sudden change of business conditions for the worse, a collapse of prosperity.  What precedes has not the appearance of disease, but rather that of exuberant health.  Crises in economics may be distinguished as industrial, speculative, and financial, according as one or another influence seems to be more potent, but all are essentially financial.  The change that occurs always is connected in some way with the use of money and credit.