A slight rise in the price of consumers' goods will so increase the value of the producers' goods which enter into their production as to lead to larger investment in producers' goods. The resulting large market for producers' goods again stimulates the production of such goods and withdraws productive energy from the creation of consumers' goods. This for the time tends to raise the price of consumers' goods still higher, and this again to stimulate further creation of producers' goods. There is no check to this tendency until the new stocks of producers' goods begin to pour upon the market an increased flow of consumers' goods. This tends to produce a fall in their value, which in turn produces a still greater fall in the value of producers' goods; and so the process goes. There seems, therefore, to be a fundamental reason for the perio dicity of industrial depression, which can only be removed by such complete knowledge and understanding of the situation as would enable the business world to foresee the tendencies and take meas ures to overcome them. 3 Psychological Factors One trade is bound to another by the fact that they are each other's customers. High profits in one line increase the demand for the products of another line, and therefore its prices and wages. In addition to this bond, the lines are bound together by psychological ties. Men on a market act as men do in a crowd; they do not make their estimates independently and scientifically, but are much influenced by the general opinion or the opinion of certain leaders; others are wholly imitative, particularly the amateur speculator. For this reason an 'event which in theory
should affect market values but slightly may actually cause rapid and wide fluctuations. Therefore overproduction in one or two lines, an event that is inevitable under our capitalistic system, followed by declining prices and security values, will occasion a bearish opinion that will infect the whole industry or market. This psychological factor not only broadens the scope and adds to the precipitancy of the panic, but it also accelerates the boom preceding a panic and holds the business world in a state of de pression sometimes for an undue period after the panic.
Periodicity of Panics Business depression is characterized by low production, dull trade, hesitant investment, hoarding, low prices, liquidation, low interest rates, and unemployment. How long the depression lasts depends upon the degree of overproduction; the rejuvenation of business cannot begin until the oversupply is consumed and the necessary readjustments have been made in production. The depression may be broken by some fortuitous event, such as a presidential election, the signing of a treaty, the favorable turn of the balance of trade, and the like. The normal time required for the cycle of boom, panic, depression, and recovery is twenty years, with minor disturbances at the end of the first ten years. A certain periodicity in panics has been frequently pointed out, and such periodicity is exemplified by the American panics of 1819, 1837, 1847, and 1857; and of 1873, 1884, and 1893, and 1903, the more severe of which occurred in the years in heavy type.