第22章

Inbrisktimestheuseofcreditislarge；itmaybeasacauseoraneffectoftheaccelerationofbusiness；mostcommonlyitseemstobebothacauseandaneffect。Noappreciablebusinessaccelerationtakesplacewithoutanextensionofcredit，atleastintheformofcontractsofpurchaseandsaleforfutureperformance，ifnotalsointheformofloans。Intimesofprotracteddepressiontheuseofcreditseemsonthewholetobesomewhatrestricted，atleastsuchisthecurrentapprehensionofthecaseamongbusinessmen。Still，itcannotconfidentlybesaidthatseasonsofprotracteddepressionareduesolelytoanabsenceofcreditrelationsortoanunwillingnesstoenterintocreditrelations。Acomparisonofthecourseofinterestrates，e。g。，doesnotwarrantthegeneralizationthatthereadinesswithwhichloanscanbenegotiatedneedbeappreciablydifferentinbriskandindulltimes。(6*)Thereadinesswithwhichcontractsofpurchaseandsalearenegotiatedisappreciablygreaterinbrisktimesthanintimesofdepression；that，indeed，istheobviousdifferencebetweenthetwo。 Ofthethreephasesofbusinessactivity，depression，exaltation，andcrisis，thelastnamedhasclaimedthelargerandlivelierattentionfromstudents，asitisalsothemorepicturesquephenomenon。Anindustrialcrisisisaperiodofliquidation，cancelmentofcredits，highdiscountrates，fallingpricesand“forcedsales，“andshrinkageofvalues。Ithasasasequel，bothsevereandlasting，ashrinkageofcapitalizationthroughoutthefieldaffectedbyit。Itleavesthebusinessmencollectivelypoorer，intermsofmoneyvalue；butthepropertywhichtheyholdbetweenthemmaynotbeappreciablysmallerinpointofphysicalmagnitudeorofmechanicalefficiencythanitwasbeforetheliquidationsetin。Itcommonlyalsoinvolvesanappreciablecurtailmentofindustry，moreseverethanlasting； buttheeffectswhichacrisishasinindustryproperarecommonlynotcommensuratewithitsconsequencesinbusinessorwiththeimportanceattachedtoacrisisbythebusinesscommunity。Itdoesnotcommonlyinvolveanappreciabledestructionofpropertyoralargewasteofthematerialarticlesofwealth。Itleavesthecommunityatlargepoorerinpointofmarketvalues，butnotnecessarilyintermsofthematerialmeansoflife。Theshrinkageincidenttoacrisisischieflyapecuniary，notamaterial，shrinkage；ittakesplaceprimarilyintheintangibleitemsofwealth，secondarilyinthepriceratingofthetangibleitems。Apartfromsuchreratingofwealth，themostsubstantialimmediateeffectofacrisisisanextensiveredistributionoftheownershipoftheindustrialequipment，asnotedinspeakingoftheuseofcredit。 Theplayofbusinessexigencieswhichleadtosuchaperiodofliquidationseemstorunsomewhatasfollows:Manyfirmshavelargebillspayablefallingdueatneardates，atthesametimethattheyholdbillsreceivablealsoinlargeamounts。Tomeetthedemandoftheircreditorstheycallupontheirdebtors，whomayintheirturnhavebillsreceivableormayholdloansoncollateral。Theinitialmoveinthesequenceofliquidationmaybethecallinginofacallloan，oracallforadditionalcollateralonacallloan。Atsomepoint，earlierorlater，inthesequenceofliabilitiesthedemandfallsupontheholderofaloanoncollateralwhichis，intheapprehensionofhiscreditor，insufficienttosecurereadyliquidation，eitherbyashiftingoftheloanorbyasaleofthecollateral。Thecollateraliscommonlyablockofsecuritiesrepresentingcapitalizedwealth，andtheapprehensionofthecreatormaybeformulatedasadoubtoftheconservativecharacteroftheeffectivecapitalizationonwhichitrests。Inotherwords，thereisanapprehensionthatthepropertyrepresentedbythecollateralisover-capitalized，astestedbythecurrentquotations，orbytheapprehendedfuturequotations，ofthesecuritiesinquestion。Themarketcapitalizationofthecollateralhastakenplaceonthebasisofhighpricesandbrisktradewhichprevailinsuchaperiodofbusinessexaltationasalwaysprecedesanacutecrisis。Whensuchacallcomesuponagivendebtor，thecallispassedalongtothedebtorsfartheralonginthesequenceofliabilities，andthesequenceofliquidationstherebygetsunderway，withtheeffect，notoriousthroughunbrokenexperience，thatthecollateralallalongthelinedeclinesinthemarket。Thecrisisistherebyinaction，andthefurtherconsequencesfollowasawellknownmatterofcourse。Allthisisfamiliarmatter，knowntobusinessmenandstudentsbycommonnotoriety。 Theimmediateoccasionofsuchacrisis，then，isthattherearisesapracticaldiscrepancybetweentheearliereffectivecapitalizationonwhichthecollateralhasbeenacceptedbythecreditors，andthesubsequenteffectivecapitalizationofthesamecollateralshownbyquotationsandsalesofthesecuritiesonthemarket。Butsincetheearliercapitalizationcommonly，inthenormalcase，comesoutofaperiodofbusinessprosperity，thepointofinquiryisastothegroundandmethodofthiseffectivecapitalizationofcollateralduringtheperiodofprosperitythatgoesbeforeacrisis，andthis，inturn，involvesthequestionofthenatureandcausesofaperiodofprosperity。 Themannerinwhichthecapitalizationofcollateral，andtherebythediscrepancybetweentheputativeandactualearning-capacityofcapital，isincreasedbyloancreditduringaneraofprosperityhasbeenindicatedinsomedetailinChapterVabove。Butitmayservetoenforcetheviewtheretaken，ifitcanbeshownonsimilarlinesthataperiodofprosperitywillbringonalikediscrepancybetweenputativeandactualearning-capacity，andthereforebetweenputativeandeventualcapitalizationofcollateral，evenindependentlyoftheexpansioneffectedbyloancredit。 Aperiodofprosperityisnomoreamatterofcoursethanacrisis。Ithasitsbeginninginsomespecificcombinationofcircumstances。Ittakesitsrisefromsometraceablefavorabledisturbanceofthecourseofbusiness。Insuchaperiodthepotentfactwhichservesasincentivetotheaccelerationofbusinessisariseofprices。Thisriseofpricespresentlybecomesgeneralasprosperityprogressesandbecomesanhabitualfact，butittakesitsstartfromsomespecificinitialdisturbanceofprices。Thatistosay，pricesrisefirstinsomeoneindustryorlineofindustries。(7*) Bynewinvestments，aswellasbyextendingtheoperationsoftheplantsalreadyemployed，businessmenforthwithendeavortotakeadvantageofsucharise。Theendeavortomarketanincreasedsupplyofthethingsforwhichthereisanenlargeddemand，bringsonanincreaseddemandandanadvanceofpricesinthoselinesofindustryfromwhichtheconcernsthathadtheinitialadvantagedrawtheirsupplies。Inpartbyactualincreaseofdemandandinpartthroughalivelyanticipationofanadvanceddemand，aggressivebusinessenterpriseextendsitsventuresandpushesuppricesinremoterlinesofindustry。Thistransmissionofthefavorabledisturbanceofbusiness(substantiallyapsychologicalphenomenon)followsverypromptlyundermodernconditions，sothatanydifferentialadvantagethataccruesattheoutsettotheparticularlineofindustryuponwhichtheinitialdisturbancefallsispresentlylostorgreatlylessened。Inthemeantimeextensivecontractsforfutureperformanceareenteredintoinalldirections，andthisextensiveimplicationofthevariouslinesofindustryserves，ofitself，tomaintaintheprosperityforthetimebeing。Iftheoriginalfavorabledisturbanceofdemandandprices，towhichtheprosperityowesitsrise，fallsofftotheearlierlevelofdemand，theeraofprosperityhastherebyatermsettoitsrun； althoughthedateofitsterminationisalwaysatsomedistanceinthefuture，beyondthetimewhentheoriginaldemandhasceasedtoact。Thereasonforthisretardation，wherebythecloseofaneraofprosperityisalwaysdelayed，otherthingsequal，beyondthelapseofthecausefromwhichithasarisen，is(1) thehabitofbuoyancy，orspeculativerecklessness，whichgrowsupinanybusinesscommunityundersuchcircumstances，(2)thecontinuedlifeofaconsiderablebodyofcontractsforfutureperformance，whichactstokeepupthedemandforsuchthingsasarerequiredinordertofillthesecontractsandtherebykeepsuppricesinsofar。Ingeneralitmaybesaidthatafterthefailureofthefavorablepricedisturbancetowhichitisdue，aneraofprosperitywillcontinueforthat(indefinite)furtherperiodduringwhichthefringeofoutstandingcontractscontinuestodominatethebusinesssituation。Somefurther，newcontractswillalwayscontinuetobemadeduringthisperiod，andsomeunfilledcontractswillalwaysbeleftstandingoverwhentheliquidationsetsin；but，broadlyspeaking，thewind-upcomes，notwhenthisbodyofoutstandingcontractshaverunoutorbeenfilled，butwhenthebusinessoffillingthemandoffillingtheorderstowhichtheygiverisenolongeroccupiestheattentionofthebusinesscommunityingreatermeasurethantherestofcurrentbusiness。 Therunofbusinessexigenciesonwhichaneraofprosperitygoesforwardmaybesketchedinitsgeneralfeaturessomewhatasfollows:Increaseddemandandenhancedprices，withthelargecontractswhichfollowfromsuchastateofthemarket，increasetheprospectiveearningsoftheseveralconcernsengaged。Theseprospectiveearningsmayeventuallyberealizedinfullmeasure，ortheymayturnouttohavebeenputativeearnings，only。thatislargelyaquestionofhowfarinthefuturetheliquidationlies。Thebusinesseffectofincreasedprospectiveearnings，however，ismuchthesamewhethertheeventprovestheexpectationofincreasedearningstohavebeenwellgroundedornot。Theexpectationineithercaseleadsthebusinessmentobidhighforequipmentandsupplies。Therebytheeffective(market) capitalizationisincreasedtoanswertotheincreasedprospectiveearnings。Thisrecapitalizationofindustrialproperty，onthebasisofheightenedexpectation，increasesthevalueofthispropertyascollateral。Theinflatedpropertybecomes，ineffect，collateralevenwithoutaformalextensionofcreditinthewayofloans；because，ineffect，thecontractsenteredintoareacreditextension，andbecausethepropertyofthecontractingpartiesisliabletobedrawnintoliquidationincaseofnon-fulfilmentofthecontracts。Butduringthefreeswingofthatbuoyantenterprisethatcharacterizesaneraofprosperitycontractsareenteredintowithasomewhateasyscrutinyofthepropertyvaluesavailabletosecureacontract。 Sothatasregardsthispointnotonlyisthecapitalizationoftheindustrialpropertyinflatedonthebasisofexpectation，butinthemakingofcontractsthemarginofsecurityislesscloselylookedafterthanitisinthemakingofloansoncollateral。 Thereresultsadiscrepancybetweentheeffectivecapitalizationduringprosperityandthecapitalizationasitstoodbeforetheprosperitysetin，andtheheightenedcapitalizationbecomesthebasisofanextensiveramificationofcreditinthewayofcontracts(orders)；atthesametimethevolumeofloancredit，insetform，isalsogreatlyincreasedduringaneraofprosperity。(8*) Aneraofprosperityisaneraofrisingprices。Whenpricesceasetoriseprosperityisonthewane，althoughitmaynotpromptlyterminateatthatjuncture。Thisfollowsfromthefactthattheputativeincreaseofearningsonwhichprosperityrestsisinsubstanceanapprehendeddifferentialgaininincreasedsellingpriceoftheoutputovertheexpensesofproductionoftheoutput。Onlysolongasthesellingpriceoftheoutputrealizessuchadifferentialgainovertheexpensesofproduction，istheputativeincreasedrateofearningsrealized； andsosoonassuchadifferentialadvantageceases，theeraofprosperityentersonitsclosingphase。 Suchadifferentialadvantagearisesmainlyfromtwocauses: (1)Thelinesofindustrywhichareremote，industriallyspeaking，fromthepointofinitialdisturbance，-fromwhich，thatistosay，thelinesofindustryfirstandchieflyaffectedbytherisedrawsuppliesofonekindoranother，-theseremotelinesofindustryarelesspromptlyandlessacutelyaffectedbythefavorabledisturbanceofthepricelevel；thisretardationofthedisturbanceaffordstheindustriesnearertheseatofdisturbanceadifferentialadvantage，whichgrowslessthefartherremovedthegivenenterpriseisfromthepointofinitialdisturbance。(9*)(2)Thechiefandmostsecuredifferentialadvantageinthecaseisthatduetotherelativelyslowadvanceinthecostoflaborduringaneraofprosperity。Wagesordinarilyarenotadvancedatallforaconsiderableperiodaftersuchaneraofprosperityhassetin；andsolongastheeventualadvanceofwagesdoesnotovertaketheadvanceinprices(whichinthecommonrunofcasesitneverdoesinfullmeasure)，solong，ofcourse，adifferentialgaininthesellingpriceaccrues，otherthingsequal，tovirtuallyallbusinessenterprisesengagedintheindustriesaffectedbytheprosperity。 Thereare，further，certain(outlying)linesofindustry，as，e。g。，farming，whichmaynotbedrawnintothemovementinanyappreciabledegree，andthepriceofsuppliesdrawnfromtheseoutlyingindustriesneednotrise；particularlytheyneednotadvanceinadegreeproportionatetotheadvanceinthepricesofthegoodsintowhichtheyenterasanelementoftheirexpensesofproduction。Toanuncertainbutcommonlyappreciableextentthereisalsoaprogressivecheapeningoftheprocessesofproductionduringsuchanera，andthischeapening，particularlyinsofarasitaffectstheproductionofthegoodscontractedfor，ascontrastedwiththeappliancesofproduction，servesalsotomaintainthedifferentialadvantagebetweenthecontractedsalepriceandtheexpensesofproductionofthegoodscontractedfor。 Intheordinarycourse，however，thenecessaryexpensesofproductionpresentlyovertakeornearlyovertaketheprospectivesellingpriceoftheoutput。Thedifferentialadvantage，onwhichbusinessprosperityrests，thenfails；therateofearningsfallsoff。theenhancedcapitalizationbasedonenhancedputativeearningsprovesgreaterthantheearningsrealizedorinprospectonthebasisofanenhancedscaleofexpensesofproduction；thecollateralconsequentlyshrinkstoapointwhereitwillnotsupportthecreditextensionrestingonitinthewayofoutstandingcontractsandloans；andliquidationensues，afterthemannerfrequentlysetforthbythosewhohavewrittenonthesesubjects。(10*)