Sec. 7. #General features of a crisis.# Altho irregular in time of occurrence and unlike in their immediate occasions, financial crises show certain general features.  They are a part of the larger movement here outlined as the business cycle.  Some have thought this cycle to be normally a period of ten years, divided into one year of crisis, three years of depression, three years of recovery, and three years of unusual prosperity.  This succession of events occurs pretty regularly, though not in the regular intervals of time.  Crises are more severe in countries with more extensive use of money and credit, but still more severe where the credit system is more loosely administered and less efficiently cooerdinated.  They are harder in the United States and England than in Germany, harder in Germany than in France, harder in western Europe than in eastern Europe, harder in Christendom than in heathendom.  They are less severe in rural districts, where prosperity depends more on crop conditions, and business has in it less of financial speculation.  Their effects are least felt in the staple industries, for when hard times come people economize on the less essential things.  The glove-factory, the silk-factory, the golf-club-factory are more likely to close than the flour-mill.  In a crisis wages and salaries are less affected than are profits, but wageworkers suffer in the loss of employment.  Those money lenders who have eliminated chance as far as possible and have taken a low rate of interest lose little; the risk-takers who draw their incomes from dividends on stock or from bonds of a less stable kind, often lose much.

Sec. 8. #"Glut” theories of crises#.  Many explanations of the causes of financial crises have been offered.[7] Nearly all of these belong to the general group of “glut” theories, of which genus there are two species, under-consumption and over-production theories.  These are, in truth, but two aspects of the same idea.[8] The one view is that too many goods are produced, the other that too few are consumed.  The over-production theorist seeing that in a crisis warehouses are filled with goods that cannot be disposed of for what they cost (or at best, not so as to give a profit), and that factories are shut down and men are out of employment for lack of demand, declares that productive power has grown too great.  The under-consumption theorist, seeing the same facts, says that the trouble is lack of purchasing power.  He observes that there are some people who would like to buy more of some of these things, but that such people lack income with which to buy.  Usually he asserts that this is because production grows faster than wages, wages being fixed, as he believes, by the minimum of subsistence—­a theory akin to the iron law of wages.  In both over-production and under-consumption theories, the inequality of demand and supply is looked upon as a general one.  There is supposed to be not merely an unequal and mistaken distribution of production, but a general excess of productive power.