Chronicdepression，however，doesnotseemtobelong，asaconsistentfeatureofthecourseofthings，inthisnineteenth-centuryperiod，priortotheeightiesorthemiddleoftheseventies。Theusualcourse，itiscommonlyheld，wasrather:
inflation，crisis，transientdepression，gradualadvancetoinflation，andsoonoveragain。35*
Ontheviewofthesephenomenaherespokenfor，anattemptatexplainingthiscircuitmaybemadeasfollows:Acrisis，underthisearlynineteenth-centurysituation，wasanabruptcollapseofcapitalizedvalues，inwhichthecapitalizationwasnotonlybroughttotheleveloftheearning-capacitywhichtheinvestmentswouldhaveshowninquiettimes，butappreciablybelowthatlevel。Theefficiencyandthereachofthemachineindustryintheproductionofproductivegoodswasnotthensogreatastolowerthecostoftheirproductionrapidlyenoughtoovertaketheshrinkageincapitalizationandsopreventthelatterfromrisingagaininresponsetothestimulusofarelativelyhighearning-capacity。Theshock-effectoftheliquidationpassedoffbeforethecheapeningofthemeansofproductionhadtimetocatchupwiththeshrinkageofcapitalizationduetothecrisis，sothataftertheshock-effecthadpassedtherestillremainedanappreciableunder-capitalizationasasequeloftheperiodofliquidation。
Thereforetheredidnotresultapersistentunfavorablediscrepancybetweencapitalizationandearning-capacity，withaconsequentchronicdepression。Ontheotherhand，theearning-capacityofinvestmentswashighrelativelytotheirreducedcapitalizationafterthecrisis。Actualearning-capacityexceededthenominalearning-capacityofindustrialplantsbysoappreciableamarginastoencourageaboldcompetitiveadvanceandasanguinefinancieringonthepartofthevariousbusinessmen，sosoonastheshockoftheliquidationhadpassedandbusinesshadagainfallenintosettledchannels。Butsuchaboldcompetitiveadvancemeansthebeginningofanextensionofcreditandaspeculativemovementinindustry，suchashasbeendiscussedsomepagesbackinconnectionwithcrises。Thismovementhasacumulativecharacter，afterthemannerthereindicated，anditsoutcomeisaninflationofcapitalizationandalargeextensionofcredit，whichnormallyendsinaperiodofliquidation。
Withintheperiodspokenof1816-1873thisliquidationisapparentlyalwaysbroughtonbysomeextraneousdisturbance。Butitseemsthatthetheorywouldrequireustosaythattheextraneousdisturbancerequisitetobringsuchaspeculativemovementtoaheadwillbeslighterthefartherthemovementhasgone；sothatintheearlierstagesofagivenperiodofinflationaliquidationcouldbebroughtononlybysomerelativelyviolentdisturbance，whereasatahigherphaseofspeculativeinflationarelativelyslightdisturbancewouldsuffice。