The wide vogue held by these views would justify a fuller discussion and disproof of them here, did space permit.  It must suffice to indicate merely that they have the same taint of illogicalness as the “fallacy of waste,” and the “fallacy of luxury."[9] They overlook the fact that an income, either of money or of other goods, coming even to the wealthiest, will be used in some way.  It may be used either for immediate consumption or for further indirect use in durable form.  Through miscalculation there may be, at a given moment, too many consumption goods of a particular kind, but the durable applications can find no limit until the inconceivable day when the material world is no longer capable of improvement.  At the time of a crisis, there is unquestionably a bad apportionment of productive agents, and a still worse adjustment of their valuations, but these facts should not be taken as proving that there is an excess of all kinds of economic goods.

Sec. 9. #Monetary theories of crises.# Another group of theories explains the crises as being due to money, either too much or too little.  The unregulated issue of bank notes has been assigned as the cause of crises, especially under the circumstances accompanying such crises as those of 1837 and 1857 in America, when bank note issues greatly contributed to the unsound expansion of credit.  The issue of government paper money years before, leading to inflation and speculation, was by many believed to be the cause of the crisis of 1873.  The reverse view is taken by the advocates of a cheap and plentiful money.  They say that these crises were caused, not by the expansion, but by the contraction of the money stock; for example, not by the inflation of prices through the issue of greenbacks in 1862 to 1865, but by the contraction of the currency from 1866 to 1873.

There is only a fragment of truth in these various views.  It is always lack of “money” at the moment of the crisis that causes any particular failure, and in that sense it is always lack of “money” that causes a crisis.  The question is, whether in any reasonable sense it can be said that it was lack of a circulating medium before the crisis that brought it on.  There is no support for this view, except in the rare case when the money standard is undergoing a rapid change, as in the United States from 1866 to 1873, and the statement then needs much modification and explanation.  The monetary theories of crises are a bit nearer to the truth than are those of the over-production type, for the crisis is always connected with prices and credit.  But it is clear that these rhythmic price changes occurring in the business cycle are not due to the same causes as are the general movements of the price level, due to an increasing or decreasing output of gold or again to a paper money inflation.  Statistics show that while a general price level is slowly changing like a tidal movement, the effect of the rhythmic business cycle appears now in hastening, now in retarding, the changes in the price level.