Thecaseisdifferentasregardstheannualoutputofvendibleproducts，whetherforindustrialorconsumptiveuse。Inthiscase，andparticularlyasregardsthismatterofnewInvestmentsandextensionsofIndustrialequipment，theannualoutputcountsforbyfarthegreaterfactorinmakingthecurrentvalueoftheavailablesupply，ifindeeditisnottoberegardedassubstantiallytheonlyfactorthatcomesinquestionhere。
Accordingly，itisonlyunderveryexceptionalcircumstances，attimeswhenthepreciousmetalsaresuppliedwithextraordinaryfreedom，thattheincreasedoutputofthesemetalscanoffsetthetrendofbusinesstowarddepression。Ordinarilythisfactorcancountfornomorethanamitigationofthe“tendencyofprofitstoaminimum。“Andeventhismitigatingeffect，itmayberemarked，appearstobeoflessradicalconsequenceforthegeneralsituationofbusinessnowthanitwasduringtheearlierphasesofthemachineindustry’sregime。Themosttellingeffectofanincreasedsupplyofthepreciousmetalsseemstobetheincitementwhichitgivestospeculativeinflation。28*
Itwillbenotedthattheexplanationhereofferedofdepressionmakesitamaladyoftheaffections。Thediscrepancywhichdiscouragesbusinessmenisadiscrepancybetweenthatnominalcapitalizationwhichtheyhavesettheirheartsuponthroughhabituationintheimmediatepastandthatactualcapitalizablevalueoftheirpropertywhichitscurrentearning-capacitywillwarrant。Butwherethepreconceptionsofthebusinessmenengagedhave，ascommonlyhappens，ingreatpartbeenfixedandlegalizedintheformofinterest-bearingsecurities，thismaladyoftheaffectionsbecomesextremelydifficulttoremedy，eventhoughitbetruethattheselegalizedaffections，preconceptions，orwhatnot，centreuponthemetaphysicalstabilityofthemoneyunit。
Butwhileitistruethatdepressionisprimarilyabusinessdifficultyandrestsonemotionalgrounds，thatdoesnothinderitshavinggraveconsequencesforindustryandforthematerialwelfareofthecommunityoutsidetherangeofbusinessinterests。
Businessenterprise，itistrue，proceedsonmetaphysicalgroundsandisswayedbyconsiderationsofnominalwealthratherthanbyconsiderationsofmaterialserviceability；but，nonetheless，businessenterpriseandbusinessmetaphysicscontrolthecourseofindustry。
Dulltimesinbusinessmeansdulltimesinindustry，ofcourse。Butacautionisnecessaryonthishead。Theyearlyoutputdoesnotusuallyvaryextremelybetweenbriskanddulltimes，exceptasmeasuredinprice。Asmeasuredinmaterialtermsthediscrepancyinthevolumeofoutputbetweenbriskanddulltimesismuchless。Thegrossoutputasmeasuredbyweightandtaleislessindullthaninbrisktimes，otherthingsequal；butthedeficiencyasmeasuredinthesetermsismuchlessthanthepricereturnswouldindicate。Indeed，theoutputasmeasuredbyweightandtaleneednotaverageveryappreciablylessduringaprotracteddepressionthanduringaprecedingperiodofgoodtimes。29*Thevolumeofbusinessaswellasthevolumeofoutputbyweightandtaleofindustrymayincreaseduringafewyearsofdepressionatnearlyifnotquiteashigharateasduringacorrespondingperiodofgoodtimes。Atransitionfromdulltobrisktimes，however，commonlyifnotinvariablyinvolvesarapidincreaseinvalues，whileaconversetransitioninvolvesacorrespondingshrinkageofvalues，thoughcommonlyaslowershrinkage，-exceptwhereacrisisintervenes。
Theprimaryhardshipofaperiodofdepressionisapersistentlesionoftheaffectionsofthebusinessmen；thegreatestsecondaryhardshipiswhatfallsupontheworkmen，inthewayofpartialunemploymentandadeclineinwages，withconsequentprecariousnessandreductionoftheirlivelihood。30*
Forthoseworkmenwhocontinuetofindfairlysteadyemploymentduringthedepression，however，evenatreducedwages，thelossismoreapparentthanreal；sincethecheapeningofgoodsoffsetsthedeclineinwages。Indeed，thecheapeningofthemeansoflivingisapttooffsetthefallinwagesfully，forsuchworkmenashavesteadywork。Sothatinthecaseoftheworkmenalso，aswellasinthatofthebusinessmen，thedistresswhichdulltimesbringsisinsomepartaspiritual，emotionalmatter。
Totherestofthecommunity，thoseclassesthatareoutsideofbusinessenterpriseandoutsideoftheindustrialoccupationsproper，thatistosay，thosenon-industrialclasseswholiveonafixedsalaryorsimilarfixedincome，dulltimesareathinlydisguisedblessing。Theysufferintheiraffectionsfromthereflectedemotionaldetrimentofthebusinesscommunity，buttheygainintheireaseoflivelihoodandintheirsavingsbyallthedifferencebetweenthepricescaleofbriskandofdulltimes。Totheseclassesaneraofprosperitybringssubstantiallynothingbutdetriment。31*
Depressionisprimarilyamaladyoftheaffectionsofthebusinessmen。Thatistheseatofthedifficulty。Thestagnationofindustryandthehardshipssufferedbytheworkmenandotherclassesareofthenatureofsymptomsandsecondaryeffects。Anyproposedremedy，therefore，mustbeofsuchanatureastoreachthisemotionalseatofthetroubleandrestorethebalancebetweenthenominalvalueofthebusinesscapitalengagedandtheearningsofthebusiness；thatistosay，aremedy，tobeefficacious，mustrestoreprofitstoa“reasonable“rate；whichmeans，practically，thatpricesmustbebroughttothelevelonwhichtheacceptedcapitalizationhasbeenmade。Sucharemedy，tooffsetthedisastrouscheapeningofproductsthroughmechanicalimprovements，hasbeenfoundinbusinesscoalitionsandworkingarrangementsofonekindandanother，lookingtothe“regulation“ofpricesandoutput。Latterlythisremedyisbecomingfamiliartothebusinesscommunityaswellastostudentsofthebusinesssituation，anditstangible，direct，andunequivocalefficiencyincorrectingthismaininfirmityofmodernbusinessiswellrecognized。Somuchso，indeed，thatitsurgentadvisabilityhasbeenformulatedinthemaximthat“Wherecombinationispossiblecompetitionisimpossible。“Whatisrequiredisabusinesscoalitiononsuchascaleastoregulatetheoutputandeliminatecompetitivesalesandcompetitiveinvestmentwithinafieldlargeenoughtomakeupaself-balanced，passablyindependentindustrialsystem，-suchacoalitionofbusinessenterprisesasislooselycalleda“trust。“
Suchabusinesscoalition，ifitiscomprehensiveandcloselycontrolled，canadjusttheoutputofgoodsandservicestothemarketwithsomenicety，andcanmaintaInthebalanceoftherulingprices，orthepricescaleagreedupon，withsucheffectthatthereceivedcapitalizationneednotbecomeobsoleteeveninthefaceofveryradicalimprovementsintheprocessesofindustry。Itseffect，inthecaseofidealsuccess，istoneutralizethecheapeningofgoodsandserviceseffectedbycurrentindustrialprogress。Itoffsetsindustrialimprovementsinsofarastheseimprovementsaffectthecostofgoodsmorethantheyaffectthevalueofthemoneymetals。ItmightseematfirstsightthatbythIsinhibitoryeffectofthetrusttheentireadvantagederivablefromindustrialimprovementswithinthescopeofthetrustshouldinuretothegaInofthebusinessmeninthecombination，butsuchdoesnotappeartobethepracticaloutcome。Thepracticaloutcomeappearsmorenearlytobethatmaterialadvantageinurestonoonefromindustrialimprovementsunderthecontrolofthetrust，insofarasthetrustsuccessfullycarriesitspoint。Thisfeatureoftrustmanagementwillbetakenupagaininadifferentconnection。
Inadditiontoitsprimepurposeofcheckingthedeclineofearningsonpastinvestments，suchabusinesscoalitionisalsoenabledtodistributeanyunavoidableeffectoftheprogressivelyreducedcostofproductionoftheproductivegoodsemployed，somewhatequablyovertheentirefieldofindustrycomprisedinthecoalition，andsoobviatethepressureofthisuntowardindustrialprogressfallingwithexceptionalseverityatanygivenpoint。Economieseffectedareatthesametimemadetoaccruetothecollectivebusinessorganization，showingthemselvesinthewayofincreaseddividendsandincreasedeffectivemarketcapitalizationofthecoalition’sproperty，insteadofbeingdissipatedincompetitiveselling，andsogoingtothebodyofconsumersortotheindustrialsystematlarge。
Toreturntoapointtemporarilysetasideabove。Bysupposition，inwhathasjustbeensaid，anythinglikeaspeculativeinflationhasbeenexcludedfromthediscussionofbusinessdepression；andnecessarilyso，sincethetwodonotcomeatthesametime。Butatonepointthetwoshowafeatureincommon。Underbothofthesetwowidelydifferentconditionsofthebusinesssituationthereisadiscrepancybetweentheacceptedcapitalizationandtheactualearning-capacity。32*Butthetwodifferevenatthispointinthat，inthecaseofinflation，thediscrepancyisnotfeltuntiltheclimax，whenawidespreadrealizationofthediscrepancybringsonanabruptreadjustment，inthecrisiswhichfollowsinflation；whereasinaperiodofdepressionthesenseofthisdiscrepancyandtheprotestagainstitisthemoststrikingcircumstanceofthecase。
Thediscrepancybetweencapitalizationandearning-capacityinaperiodofspeculativemovementcomesofaninflationofcapitalization；whereasintimeofdepressionthediscrepancyisduetoashrinkageofearning-capacity，-bothcapitalizationandearning-capacitybeing，ofcourse，countedintermsofmoneyvalues。Aspeculativemovementoffsetsorchecksthetrendtodepressionwheneveritoccurs；andforsomeappreciabletimepast，suchspeculativemovementsappeartohavebeentheonlyforcewhichhasfromtimetotimebrokentheotherwiseuninterruptedcourseofbusinessdepression。Undertheregimeofaperfectedmachineindustryandaperfectbusinessorganization，withactivecompetitionthroughout，itisatleastprobablethatdepressionwouldnotbeseriouslyinterruptedbyanyothercause。
Butithasbeenapointofeconomicdogmainmoderntimes-
nottocallitapointoftheory，sinceitisnotheldonreasonedgrounds-thatdepressionandinflation，followedbycrisis，succeedoneanotherwitharoughperiodicity，interminablyandinthenatureofthecase。Theperiodicitywithanintervalofsometentotwelveyearsfromphasetophasehasnotbeenestablishedwithanycogentshowofevidence，exceptfortheperiodfrom1816to1873；andevenwithinthatperiodtheevidencehasnotbeenconvincingtoallstudentsofthesephenomena。Atentativeexplanationoftheperiodicity，suchastheremayhavebeenwithinthatperiod，aswellasofitsabsencebeforeandaftertheperiodinquestion，maybeofferedonthebasisoftheviewsheresetforth。keepinginmindthepointthatthedisturbance，bothinthecaseofinflationandinthatofdepression，isadiscrepancybetweencapitalizationandearning-capacity，andalsothemannerinwhichthisdiscrepancyarises，itmaybesaidthatpriortotheearlierdatementionedthemodernindustrialsystemwasnotsuchacomprehensiveandarticulateprocessthatadisturbanceinonepartoronememberofthesystemneedbetransmittedforthwiththroughthechannelsofbusinesstoalltherest。Aspeculativemovementneednotspreadforthwiththroughouttheindustrialsystem。Thegreatepisodesofspeculationandcollapsethatoccurredduringearliermodemtimeswerenotofthenatureofspeculativeinflationaffectingtheentirebusinesscommunityoccupiedwithindustry。
Theyareratherofthenatureofcommercialspeculationvergingongambling。34*Soalso，thecrisesofthatearliertime，whentheywerenotcollapsesofgamblingventures，werecommonlyproducedbysomegreatdisasterwhichbroughtanabsolutemateriallossuponthecommunity，suchascropfailures，invasions，orheavywarexpenditures。Ontheotherhand，asregardsperiodsofdepressionpriortotheearlyyearsofthenineteenthcentury，theywerealsorareifnotunknown，exceptwhenduetofailureofresourcesortheburdensofgovernment。
Theconditionsoutofwhichdepressioncouldcome，asapersistentdisturbanceofbusinessthroughadivergencebetweenthecapitalizationandtheearning-capacityofinvestments，werenothad。Thedevelopedmachinesystemwasabsent，andwithoutthisthecostofproductionofproductivegoodscouldnotbeprogressivelyloweredataratelargeenoughtosetupandmaintainapersistentdivergencebetweencapitalizationandearning-capacityinindustrialenterprises。
Atsomeuncertainpointinthefirsthalfofthenineteenthcenturythesystemofmachineindustry，andthebusinesssystembaseduponit，attainedsuchabreadthandconsistencythatbusinessdisturbancesofappreciablemagnitudeinanypartwouldaffectvaluesthroughoutthesystem。Ithadthengrownsolargeandwassocloselyarticulatedastructurethattherelationsofitsmemberstooneanotherandtothesystemasawholewereofgreatermomentforthefortunesofthesemembersandfortheorderlyprocessofthewholethanweretherelationsofthememberstoindustrialfactorslyingoutsidethesystemofthemachineindustryandthebusinesscommunity。Henceindustrialcrisesinthepropersenseofthewordseemwellathomeinthisperiod。Theyspreadwithgreatforceandfacilitywhenevertheycame；andtheyhadthetruecharacterofbusinesscrises，inthattheyranwithgreatseveritywithoutinvolvinganappreciableaggregatelossofmaterialwealth，exceptintermsofprice。Theycommonlymeantacancelmentofvalues，withoutappreciableaggregatelossofgoods。Theyseemalsotohavebeentruetothestapledefinitionofcrisesinthattheyfolloweduponaperiodofspeculativeinflationinindustrialinvestments。