CRISES AND INDUSTRIAL DEPRESSIONS § 1. Mischance, special and general, in business. Definitions. A feature of a money economy. European crises. § 5. American crises. ¢ 6. A business cycle. § 7. General features of a crisis. § 8. The use of credit. § 9. Interest rate's in a crisis. I 10. dynamic conditions and price readjustments. § 11. Tariff changes and business uncertainty. § 12. Rhythmic changes in weather and in crops. "Glut" theories of crises. Monetary theories of crises.
§ 1. Mischance, special and general, in business. Every separate business enterprise is subject to chances that sud denly 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 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 mer chants 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 mod ern community, as a whole, "general business," moves along 1 On the way these affect private profits see Vol. I, pp. 340, 341 (and references there given in note), 348 ff. and 361 ff. There are thus good reasons for discussing crises in connection with profits, as well as with money and banking.
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.
A financial crisis is that brief period in which the gen eral rise of prices culminates and a general fall begins which shatters the credit of some banks, brokers, merchants, and manufacturers. Every crisis is marked by much con fusion and loss and by hasty efforts of individuals and in stitutions to meet their pressing obligations. Sometimes this process of liquidation goes on quietly; when it becomes a wild scramble, each one trying to save himself, it is called a financial panic. An industrial depression is the period of hard times that usually follows a financial crisis. A business cycle is the period from one crisis to another within which occurs the complete series of price and business changes above and below the average.
§ 3. A feature of a money economy. Financial crises, by their very nature, are confined to communities in which the money economy prevails and where there is a developed state of industry. The periods of industrial hardship in the Middle Ages were connected usually not with the collapse of prices but with political oppression, famine, wars, pesti lence, and scourges of nature. Throughout the lands money was little used and there was no development of credit and of credit prices. The money economy began, as has been noted, in the cities. As the use of money spread, as larger commercial enterprises were undertaken, as borrowing and the payment of interest became common, there began to ap pear in city trading circles, on a small scale, the phenomena of the modern § 4. European crises. In Europe financial crises date from 1763 and have occurred at more or less regular intervals since. The common statement that the cycle of a crisis is run in a period of ten years finds only partial support in his tory. The chief crises of the eighteenth century occurred in 1763, 1783, 1793, these dates marking the close of wars of some magnitude. The crises were not widespread or general, but were more marked in England, which was at that time farther developed industrially and in its money economy than other countries. Likewise, thereafter, the crises were of unequal force in various European countries, usually be ing more severe in England, where they occurred in 1803, 1825, 1838, 1847, 1857, 1864-66, 1875, 1890, 1900, 1907, and 1914. These have been attributed to various causes: that of 1825 to over-trading abroad; that of 1847 to railroad-build ing; while that of 1864-66 was attributed to the severe disturbance of the cotton trade and of commerce by the Civil War in America. While in many parts of England the crisis of 1864 was unusually severe, in other countries it was of little moment. Germany, after several years of great speculative prosperity, had a most severe crisis in 1875; while France, although prostrated by the war of 1870-71, losing a large amount of wealth and paying a thou sand millions of dollars to Germany as a war indemnity, es caped a commercial crisis almost entirely at that time.
with London, the leading loan market of Europe, have been such that every crisis in either England or America has extended its effects to the other country. But the disturb ances are so modified by the particular conditions (of crops, politics, and speculation) that the phenomena never corres spond exactly in time of occurrence, in duration, or in in tensity. The first notable crisis in America occurred about 1817 in the very violent readjustment of trade after the re sumption of commerce with Europe in 1816.$ In 1837-39 came in quick succession two crises, not quite distinct from each other, the second similar to the relapse of a fever patient. The conditions were rapid westward expansion, over speculation in lands, reckless state internal improvements, great issues of state bank-notes, and the financial measures of Andrew Jackson, which included the dissolution of the Second Bank of the United States in The crisis of 1857 followed a period of great prosperity marked by rising gold production and prices and a great increase in foreign trade. The crisis of 1873, possibly the severest in our his tory, followed great speculation, especially in the direction of railroad-building on an unexampled scale after the war. The blow, when it fell, was intensified by the relative con traction of currency then in progress, leading to the return to a specie basis and lower The crisis of 1884, a com paratively slight one, occasioned (rather than caused) by the discussion of the money question, was followed by some years of noticeable depression. The years 1889 to 1892 witnessed prosperity, only slightly interrupted in 1890, that culminated in a crisis in May, 1893 (likewise generally explained as due to the unsettled state of our monetary system), followed by a period of great depression lasting until 1897. A rapid growth of business in America was checked but little in 1900, when a crisis was occurring in Europe, especially severe in • See ch. 14, $ 6, on the tariff legislation at this time. 4 See ch. 8, $ 1.
Germany. In November, 1902, began in America what has been called the "rich man's panic" of 1903, in which for a year many securities were sold by holders probably because European creditors were recalling their loans. Although building operations were somewhat checked, American busi ness slackened but little. General prices, which had been moving upward since 1897, remained almost unchanged in 1903 and 1904, and then continued upward until 1907. In the period from September to November of that year occurred a severe crisis both in Europe and in America. The indus trial depression following this was marked in 1908, slowly growing less. The crisis at the outbreak of the war in August, 1914, was quite exceptional, being due to the sudden demand of Europe upon New York for funds. Within a couple of months it was over, and soon prices were again rising as the result of large exports of merchandise followed by gold imports.
The rise in war prices, slightly checked at the beginning of 1919, reached its peak in America, as we have seen," in May, 1920, and within about a month of the same time in most of the leading countries. The average fall of whole sale prices in the next year (from 272 to 151) was the most rapid that has ever been experienced in America.
§ 6. A business cycle. Let us now sketch in broad out line a business cycle bearing in mind that this series of changes does not repeat itself with unvarying regularity, but that it is fairly typical in the modern business world. The period leading up to a crisis is one of relative prosperity ; then occurs a crisis in which prices fall, at first rapidly, and afterward for a while going slowly lower. When prices are at the lowest point many factories are closed and much labor is unemployed. Let us start at that point. Conditions are worse in some industries than in others. General econ omy and great caution prevail ; few enterprises are under See ch. 6, § 9; ch. 9, § 13.
taken. For those persons having available funds this is a good time to buy, and property begins to change hands. Then hoarded money begins to come out of its hiding-places. Money and credit flow in from other countries, particularly if business conditions are better abroad than here, for when prices are lower than they have been, relative to those of other countries, a country is a good place in which to buy. At the same time that the money in circulation thus increases, there is a general return of confidence that increases credit. Not only are there more dollars, but each does more work. Then old enterprises are resumed and new ones are under taken. The purchase of materials in larger quantities causes a rapid rise in the prices of many raw materials and of all kinds of industrial equipment. The less efficient laborers and others that have been out of work begin to find employ ment, and then, more tardily, wages begin to rise. As a result, the costs of many products begin to rise rapidly. The only classes not sharing in this improvement are the receivers of fixed incomes. As prices rise, the purchasing power of their incomes correspondingly falls.
At length prices begin to go up less rapidly, and the ques tion tion arises in many minds whether the movement can con tinue, and if not, when it will cease. Men wish to hold on for the last profits, and are willing to risk something to gain them. When prices rise not only as compared with former domestic prices, but as compared with current foreign prices, foreign imports are stimulated and exports fall. This cans for a new equilibrium of money, and requires at length large and continued exportation of specie. This checks prices, and, reducing the specie reserves of the banks, com pels them to be more cautious. At the same time the increase of costs in many industries begins to reduce profits. The fall in the value of many stocks and securities held by the banks forces many brokers and speculators to convert their resources into ready money. This is the moment of danger; weak enterprises find their foundations crumbling, and there are many failures.' The falling prices, the shattered credit, and the financial losses force many factories to close, and many workmen are thrown out of employment. This period of beginning collapse is the crisis. It is followed by another period of low prices and of small output, and therefore of profits small or negative in many industries. Business must again enter upon a period of retrenchment, for it has com pleted another cycle.
Fig. 1, Chapter 10 shows the great similarity in the changes of gen eral prices in England and in the United States from 1790-1920, both in respect to the larger movements and levels, and to the minor fluctua tions. It shows also that this relationship has become much closer since 1870. See also Figure 1, Chapter 5.
§ 7. General features of a crisis. Although 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 un usual prosperity. This succession of events occurs pretty 7 See diagram of business failures, 1800-1914, in Vol. I, p. 384.
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 co Fig. 2, Chapter 10, on Business Cycles, shows the rhythmic movement that occurs in various business and financial conditions. Taking the curve of commodity prices as the central fact, it is seen that its peak has been preceded in time successively by peaks of bank reserves, loans, and clearings, and by stock prices (which always speculatively anticipate higher dividends) and is soon followed by declining divi dends, by the peak of discount rates, and by failures; then bank re serves gradually being built up, the cycle is repeated. This diagram, hitherto unpublished, was prepared by Professor G. R. Davies, Univer sity of North Dakota, to whose courtesy we are indebted for permis sion to use it here. The data are plotted so as to show the variations above and below the averages, eliminating the absolute growth due to increasing population, business, etc.
ordinated. As a rule they have been 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 finan cial speculation. Their effects are least felt in the staple in dustries, 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 is the flour mill. In a crisis wages and salaries are less quickly affected than are profits, but wageworkers suffer in the loss of employ ment. 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 staple kind often lose much.
§ 8. The use of credit. The general use of credit is, as we have observed, an essential condition to the occurrence of a financial crisis, so that, indeed, a crisis might be called a disease of the credit system. The use of credit greatly en hances the rhythm of price. If the value of a thing that is fully paid for falls, the owner alone loses; but if the value of a thing only partly paid for falls so much that the owner is forced to default in his payment, the loss may be transmitted along the line of credit to every one in a long series of trans actions. A credit system, highly developed, is a house of cards at a time of financial stress. Demand liabilities are at such a time the greatest danger, so that the banks, ordi narily the pillars of financial strength, become at such a time the points of greatest weakness in the financial structure. If many of the customers were not restrained by their sense of personal obligation to the banks, by the strong pressure that the banks can bring to bear upon them, or by the force of public opinion among business men, from withdrawing the balances to their credit in a time of crisis, all commercial banks would become insolvent at once in a crisis by the very nature of their business; for all their ordinary deposits are nominally payable on demand.
§ 9. Interest rates in a crisis. In normal times there is always outstanding a great mass of short-time commercial The motive of the borrower, in most cases, has been to hire more labor and to buy more materials for use in his business. Ordinarily these loans can and are renewed with out difficulty, or are replaced by others, based on the security of new business transactions in unbroken succession. Now, at the time of a crisis a general contraction of credit occurs, and borrowers with maturing obligations would face bank ruptcy if they could not renew their loans. The effort of the business man at such a time is not to make a positive profit, but to save what he can from the threatened wreck. The demand for short-time loans, therefore, in such times of stress, fluctuates rapidly, and exceedingly high interest rates may prevail in these loan markets for a few days or a few weeks, rates that have only a remote relationship with the usual capitalization of most agents.
The distress of the business man is magnified by the fact that it is at just such times that both the equipment he has bought and the products he has made become temporarily almost unsalable at prices as high as he paid for them when he bought them with the borrowed money. He may know that prices will soon be higher, but he cannot wait. Various courses are open to him in this emergency: he may borrow the money at a very high rate of interest, holding the goods for better prices; or he may sell the goods under the unfavor able conditions; or he may sell other capital such as stocks and bonds. The end sought is the same—to get ready money ; and the methods are not essentially unlike—the exchange of greater future values for smaller present values. The sacri fice sale thus reveals the merchant's high estimate of present goods in the form of money. The purchaser of some kinds of 8 See Vol. I, p. 304.
property in times of depression is securing them at a lower capitalization than they will later have. The rise in value may be foreseen as well by seller as by buyer, but the low capitalization reflects the high interest rate temporarily ob taining. A. T. Stewart, once the most famous New York merchant, is said to have laid the foundation of his fortune when, being out of debt himself, he bought up the bankrupt stocks of his competitors in a great financial panic. The high
.interest at such times is but the reflection of the high premium on present purchasing power.
The worst of the evils of crises are confined to the markets where the greatest numbers of short-time loans are made. Most of the long-time loans do not fall due in such seasons of stress, and the great mass of slowly exchanging wealth alters little and slowly in price. Such long-term loans as fall due can generally be renewed at rates little higher than usual, the market for long-Thlie and slOrt-time loans be ing in large measure independent of each other. But they are not quite independent, and some lenders take whatever sums they can collect on maturing long-time obligations and lend them on short terms at high rates of interest, or buy goods, whole enterprises, bonds, and stocks, at the unusually low prices temporarily prevailing. The effect of this is to raise somewhat the interest rate on long-time paper to accord with the new conditions.
§ 10. Dynamic conditions and price readjustments. A condition favorable to large and rapid shifts in prices and credits is a dynamic economic society. The past century has opened up new fields for investment on an unexampled scale. Investment has advanced both intensively and extensively in a series of great waves. New machinery and processes have given undreamed of opportunities for enterprise in the older countries, and the physical frontier of investment has moved outward with the march of millions of immigrants to people the fertile wilderness. Such factors disturb the equilibrium of prices both in time and space, give a powerful impulse toward higher values in the older lands, and stimulate the hopes of all investors. When the balance between the prices and profits in various industries and between the incomes of the various periods proves to be false, the inevitable read justment causes suffering and loss to many, but particularly in the inflated industries. But, because of the mutual re lations of men in business, few even of those who have kept freest from speculation can quite escape the evils.
Among the dynamic conditions in industry are changes in the general price level, whether due to changes in the produc tion of the standard money commodity (relative to popula tion) or to changing methods of doing business. if the price level is falling (i. e., the standard unit is appreciating), the burden of the great mass of outstanding debts is growing heavier upon the debtors. Sooner or later some of them break down under its weight. At such times many attempt to shift their capital from active investments, such as stocks, to passive investments, such as bonds. When the price level is rising, the opposite conditions prevail. But such adjust ments proceed uncertainly and unevenly in different indus tries, with much speculation in shifting from one type of business to another, and with mucn accompanying miscalcula tion.
§ 11. Tariff changes and business uncertainty. Another variable influence in American business has been the tariff. Every tariff revision, whether the rates go upward or down ward, shifts somewhat the relative opportunities and profit ableness of different industries. Some of these call for far reaching readjustments of investments and of productive forces. Some persons gain and some lose by every such change. It has been contended that a reduction of tariff rates has a more disturbing effect upon business than does an increase. If this is true it may be because the industries injured by a lowering of tariffs in America are those most fully within the circle of the credit system; whereas most of the consumers adversely affected by a rise of tariff rates are outside the commercial circles where short-time credit is com mon and where the rapid readjustment of investment leads to a financial crisis. It never has been convincingly shown, however, that there is any large measure of correspondence in time (not to say causal relation) between tariff revisions and § 12. Rhythmic changes in weather and in crops. The periodic though not quite regular recurrence of crises has suggested the thought that they may be causally related with some one dominating force such as is found in the conditions of nature. The English economist Jevons attempted toward the end of the nineteenth century to show statistically a re lationship between financial crises and the variation in sun spots. This idea has usually been treated as whimsical, but the continued efforts of physicists to discover a causal relation between sun-spots and the weather suggests that a real causal relation between the physical and the economic phenomena may yet be found. The alteration, of seasons of poor with seasons of good harvests, "lean years with fat years," follows a tine strikingly suggestive of the curve of the business cycle. Some reasons for this relationship are apparent. For example, in America, since about 1865, farm products have constituted the larger part of our exports, so that a succession of large harvests has usually acted to stimu late exports (one of the features of a period of prosperity), to give us a larger credit balance in international trade, and to reduce the rate of exchange. Large harvests of the staple agricultural crops in America have been shown to be closely related to the amount of rainfall in the three most important growing months. Recently it has been shown that the rainfall of the Ohio Valley occurs in cycles of about eight years, and in a larger cycle of thirty-three years, and that the cycle of yield per acre of the nine principal crops corresponds closely with the cycle of pig-iron production 9 See on tariff legislation and business crises, ch. 18, f 13.
(one of the best single indices of growing business and of an upswing in the business cycle) dated from one to two years later. There is found what is called in statistics a high degree of correlation (.719 in the former and .800 in the latter case), indicating that there is that percentage of proba bility that there is some causal relation between the two sets of figures. As the cycles of rainfall and of harvests are not coincident in different countries, it will require further study to adjust to these observations the fact of the world-wide extent of the great financial crises. But a bet ter understanding of objective conditions of this kind will give fuller meaning to the interpretation of the financial and the psychological features of crises.
§ 13. "Glut" theories of crises. Many explanations of the causes of financial crises have been Nearly all of these belong to the general group of "glut" theories, of which genus there are two species, under-consumption and over-pro duction theories. These are, in truth, but two aspects of the same ideals 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 io In the first annual report of the United States Commissioner of Labor is given a long catalog of theories that have been suggested, many of them quite fantastic.
ii See Vol. I, ch. 38, on abstinence and production. Believers in the glut theory usually condemn efforts to encourage frugality among the masses, calling it the "fallacy of saving." grows faster than wages, wages being fixed, as he believes, by the minimum of subsistence—a theory akin to the iron law of wages. The Marxian socialist's theory of crises is a more complex variety of this type, being connected with the "theory of surplus value," in which the capitalist class is conceived of as gradually appropriating the surplus value produced by the workers until there is no longer enough purchasing power left in the workers' hands to purchase the products of the capitalists' factories.
These views have wide vogue, but they have the same taint of illogicalness as the "fallacy of waste" and the "fallacy of luxury." 12 Both in over-production and in under-con sumption 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. Such theories 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 direct consumption or for further indirect use in durable form. Through miscal culation there may be, at a given moment, too many con sumption goods of a particular kind, but the durable applica tions could find no limit until the material world became incapable of improvement; but that day is inconceivable. At the time of a crisis, there is unquestionably a bad appor tionment 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.
§ 14. Monetary theories of crises. Another group of theories of crises connects them with the supply of money, either too great or too small. The unregulated issue of bank notes has been assigned as the cause of crises, especially such as those of 1837 and 1857 in America, when bank-note issues 12 See Vol. I, ch. 37, 6 and 9.
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 con traction 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. If it may be said to be "lack of money" at the moment of a crisis that is the immediate cause of particular failures and losses, it is "money" only in the figurative sense of credit and immediately available purchasing power. 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 explana tion. The monetary theories of crises are a bit nearer to the truth than are those of the over-production type, for a 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 in flation. 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.
§ 15. Capitalisation theory of crises. Here, as repeat edly above, we verge upon a different type of explanation of the crisis—one of a psychological nature. The quantity of money, we have seen, affects prices more or less, according as credit is more or less used in connection with it. Money plus confidence has a larger power of sustaining prices than money without, or with less, confidence. And throughout the busi ness cycle the amount of confidence, expressed in such ways as the readiness to grant credits and in the easy extension of the time of collection, is constantly changing. Over-con fidence at one time is suddenly followed by widespread lack of confidence. This has led some to say that lack of con fidence is the cause of crises. This is true, but does not ex plain what is the real cause of this lack of confidence, which, when the crisis comes, is not mere unreasoning fear that needs only to ignore the danger to banish it. Might it not just as truly, if not more truly, be said that the cause is over-confidence in the period preceding the crisis? The essential characteristic of a crisis is the forcible and sudden movement of readjustment in the mistaken capitaliza tion of productive agents. Capitalization runs through all industry. The value of everything that lasts for more than a moment is built in part upon incomes that are not actual, but expectative, whose amount, therefore, is a matter of guess work, or "speculation." 13 Many unknown factors enter into the estimate of future incomes. The universal tendency to rhythm in motion (material or psychic) manifests itself in an overestimate or underestimate of incomes and of every other factor in value. This is emphasized by a psychological factor called sometimes the "hypnotism of the crowd" and sometimes the "mob mind." Most men follow a leader in investment, as in other things. The spirit of speculation grows until often it becomes almost a frenzy, and people rush toward this or that investment, throwing capitalization in some industries far out of equilibrium with that in others.
The cause of crises immediately back of the maladjusted capitalization thus is seen to be a psychological factor ; it is the rhythmic miscalculation of incomes and of capital value, occurring to some degree throughout industry, but particu 13 See, e. g., Vol. I, pp. 271, 335, 365-367.
larly in certain lines. This subjective cause in men is given an opportunity for action only when certain favoring objective conditions are present. This rhythmic movement as it appears in the capitalization of enterprises is favored and magnified by the wide use of credit and by the constantly changing tech nical and physical conditions of industry. These call for constant revaluations of the sources of incomes, thus destroy ing customary and habitual valuations. Some of the new dynamic forces, such as inventions and growth of population, are distributed pretty regularly along the line, so that their influences are nearly equalized. But occasionally some large impulse may serve to start a swing, and if this impulse is somewhat regularly repeated, it may serve to keep up the rhythmic motion. But, the lack of coincidence in the im pact of various influences which occur accidently, such as political changes, wars, and the rapid opening of new routes of transportation, serve to hasten or to retard, perhaps for a time quite to alter, what would otherwise be the rhythm of the cycle.
§ 16. Remedies for crises. The financial crisis must be looked upon as an economic disease which brings many evils in its train. The need is not merely to mitigate the severity of the brief period of crisis, but also to smooth out the curve of the business cycle, so as to reduce periodic unemployment, the lottery element in profits, and the number of unmerited failures in business. Several measures may aid toward this end. In the recent past the crisis has been more severe in America than in Europe because of certain well-recognized defects which now have been remedied in the Federal Reserve Act." The provision whereby any one may get credit on good commercial assets should make it difficult if not impossible for a crisis to degenerate into a panic. It provides springs to reduce the jolt of the change from a higher to a lower level of prices.
Probably other improvements may be made in our banking laws. Competent students of the subject have urged that the payment of interest on deposits not subject to notice before withdrawal should be made unlawful, because demand de posits constitute the greatest danger at critical times. In principle this objection is sound, though experience may show that this evil has been practically remedied by other features of the Federal Reserve Act. Moreover, bankers could, by pursuing a more conservative policy, discourage speculative methods of enterprise. The strong public disap proval of stock-market speculation on margins may some day be able to express itself effectively in ways that will not in jure healthy business. Greater stability in our tariff policy would remove a constantly disturbing factor in prices, as would likewise the stabilizing of the standard of deferred payments. In the attempt to remedy the great evil of un employment, public works of every kind might be planned and distributed in time so as to better equalize the demand for labor and materials. Finally, much better commercial sta tistics are needed, and for collecting them and reporting the outlook government organization is required comparable in range and methods to the Weather Bureau.
It cannot be expected, however, that financial crises, in the sense of general readjustments of prices downward from time to time, ever can be completely abolished. There will always be changes in general industrial conditions calling for re evaluation of the existing sources of income; and in this process there will always be a tendency to rhythmic swing like that of a river, which carries the stream of prices now on this side of the valley, now on that. But this fluctuation of general prices surely can be so greatly moderated in mag nitude and in evil results as to make the word "crisis" almost a misnomer. It is toward the attainment of this irreducible minimum of uncertainty and disaster in business that efforts should be directed.