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CRISES, Economic. Crises are of financial or commercial and industrial depres sion or disturbance, distinguished by sudden and general efforts to liquidate, by scaling down of prices, by restriction of credit and by wide spread failures, insolvencies and bankruptcies. The words crisis and panic are used inter changeably, though the former is the more nearly correct term denominating the period during which industry changes from a state of prosperity to one of depression. The word panic more fittingly describes a briefer period, or an acute phase not always appearing in crises, during which the morale and judgment of the business community are seriously upset by fear of impending trouble. Lord Overstone has de scribed the sequence of phenomena known as a °business as follows: °State of quies cence, improvement, growing confidence, pros perity, excitement, overtrading, convulsions, pressure, stagnation, distress, ending again in quiescence? The period of expansion of busi ness, accompanied by increased activity in pro duction and commerce, known as °good times? is followed by a period during which, owing to rapidly advancing prices of materials and labor, some enterprises find their profits con siderably reduced. Accordingly they contract their operations, dispense with a portion of their workmen, restrict their purchases of raw materials and thus affect adversely the industries supplying the materials and encroach upon the ability of the workmen to continue their former scale of living. There is a consequent decline in the demand for general commodities and the curtailment extends in ever-widening circles until the whole business system is affected. One or two failures may force other houses to sus pend and general disaster follows, panic rules and total collapse seems imminent. The re covery is slow, a period of stagnation or depres sion follows, during which business is at its lowest ebb, and before confidence is completely restored, considerable time has elapsed. Busi ness then begins to improve and expand, prices begin to soar, activity increases, and another period of prosperity is at hand, good times pre vailing until again checked by a new crisis. A depression of business need not constitute a crisis but may be only a period during which business and commercial activities are below the normal standards; a depression may exist independently, but usually follows a crisis.

Many reasons have been advanced for crises but the actuating causes are never twice alike, one crisis being caused by the failure of some great firm or firms, another by war, another by monetary legislation, another by stock market speculation, another by bad harvests, another by over-expansion of world commerce, another by a change of a nation's political policies, which may cause investors to become timid and reluctant to loan their capital to enterprises that may not receive the protection through na tional economic policies considered necessary and adequate to their stability and success. A century or two ago local distress might have been caused by crop failures or some other calamities, and panic might have been induced by such wild-cat adventures as the South Sea and the Mississippi Bubbles (qq.v. See also Law, Joini), but these events had not the far reaching effects characterizing modern indus trial disturbances and, therefore, we may say that crises are practically 19th century phe nomena. Some assert that capital forms more rapidly than fields wherein to invest it safely and profitably and as profits decrease capitalists are liable to make investments of an unusual or hazardous nature, resulting in the total loss or destruction of capital and the consequent gen eral alarm and crisis. A theory advanced by Ricardo and elaborated by Rodbertus is the law of wages,D under which the laborer does not receive all he produces either in the commodity produced, in a commodity of corre sponding value which he may need, or in an equivalent wage, but receives a sum so small as to place him under the necessity of continuing his work reproduction in order that he may not starve, thereby maintaining the supply of labor. The capitalist takes the difference be tween the laborer's wages and the selling price of the commodity and, being unable to spend the total amount and anxious to increase his power or the earning capacity of his surplus wealth, converts it into capital through investment. Thus capital increases more rapidly than the laborer's ability to purchase, resulting • in a so-called over-production,. though the Socialists insist that this actually is an under-consump tion. Ultimately this results in an industrial disaster.

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