第24章

Depressionandindustrialstagnationfollowonlyincasethepecuniaryexigenciesofthesituationareofsuchacharacterastoaffectthetrafficofthebusinesscommunityinaninhibitoryway。Butbusinessisthequestofprofits，andaninhibitionofthisquestmusttouchtheseatofitsvitalmotives。Industrialdepressionmeansthatthebusinessmenengageddonotseetheirwaytoderiveasatisfactorygainfromlettingtheindustrialprocessgoforwardonthelinesandinthevolumeforwhichthematerialequipmentofindustryisdesigned。Itisnotworththeirwhile，anditmightevenworkthempecuniaryharm。Commonlytheirapprehensionofthediscrepancywhichforbidsanaggressivepursuitofindustrialbusinessisexpressedbythephrase“overproduction。“Analternativephrase，intendedtocoverthesameconcept，butlessfrequentlyemployed，is“underconsumption。“(15*) Thecontroversialquestionastothetenabilityofanygiven“overproduction“doctrinemay，forthepresentpurpose，beleftononeside；itliesoutsidethetheoryofbusinessandithasnomeritsordemeritsforthepurposesofatheoryofbusiness。Thepointofinteresthereisratherthegroundofitsacceptationamongbusinessmenandthemeaningwhichthisnotionhasforthem；thatistosay，itischieflyofinterestheretoinquireintothehabitsofthoughtwhichgivecogencyandeffecttothedogmaof“overproduction“aspracticallyheldbythebodyofbusinessmen，-whatitpracticallymeans，whythedogmaisheld，andwhatisitseffectonthecourseofbusinessenterprise。 “Overproduction，“or“underconsumption，“asitismetwithintheviewsofbusinessmen，isneitheravacantdogmanorashiftyapologywherewithtocovertheirowndelinquencies，butaveryconcretelyrealstateofaffairs。Itisastateofaffairsthatprevailswhenbusinessispersistentlydull；andtheconceptcoveredbythetermcomprisesthesufficientcauseofthedulness，intheapprehensionofthebusinesscommunity，eventhoughtheymaynotalwaysspeakofthedifficultybythatname。 Itmaybeworthwhile，evenattheriskoftedium，topointoutthatthisconceptof“overproduction“applies，nottothematerial，mechanicalbearingofthesituation，buttoitspecuniarybearing。Thenotionisneverseriouslyentertainedthatthereisormaybeanembarrassingexcessofgoods，oroftheappliancesfortheirproduction，abovewhatwouldbeofsomehumanuseifthebusinesssituationpermittedthemtobeturnedtouse。 (1)Thesupplyofconsumablegoodsis，practically，nevergreaterthanthecommunity’scapacityforconsumingthem。Anembarrassingexcessinanylineispracticallyaremotecontingencyatthemost。(16*)Therearemanyeloquentpassagesintheeconomicmanualswhichmaybecalledinwitnessofthistruism，wheremuchpainsistakentoshowthathumanwantsare，inthenatureofthecase，indefinitelyextensible。Nothingstandsintheway，wearetold，but“difficultyofattainment“ofthegoodswithwhichtosatisfythesewants。(2)Intimesofdepression，or“hardtimes，“thereis，underthemodernindustrialsystematleast，nooverproductioninthesenseofaproductionsolargeastoovertaxtheworkingcapacityoftheindustrialappliancesandprocessesemployed，norsolarge，even，astoovertaxthenormalpowersoftheforceofworkmenorrequirethemtoworkovertimeandholidays。Quitethecontrary。 Thatsortofthinghappensonlyinbrisktimes，whenthereisnooverproduction。Seriouslytorecitesuchplatitudesasthesemayseemlikeatriflingwiththepatienceoftheprinter，oritmaybetakenforalight-headedexcessof“wissenschaftlicherMethode“；butthesetwoformulationsappeartocoveralltheconceivablewaysinwhichoverproductionmayoccur，solongasthetermisconstruedfromthepointofviewofthemechanicalfactsofthecase。Seenfromthissideaperiodofdepressionisaperiodofunderproduction；millstunonhalftimeornone，andthesupplyofgoodsthatfindsitswayintothehandsofconsumersissensiblyscantforthedemandsofcomfort。 Thedifficultyis，ofcourse，apecuniaryone，andthephraseisusedbybusinessmeninthatpecuniarysenseinwhichithasanimmediatebearingonbusiness。“Excessivecompetition“isanalternativephrase。Thereisanexcessofgoods，orofthemeansofproducingthem，abovewhatisexpedientonpecuniarygrounds，-abovewhatthereisaneffectivedemandforatpricesthatwillrepaythecostofproductionofthegoodsandleavesomethingappreciableoverasaprofit。Itisaquestionofpricesandearnings。Thedifficultyisthatnotenoughofaproductcanbedisposedofatfairpricestowarranttherunningofthemillsattheirfullcapacity，orrunningthemataratenearenoughtotheircapacitytoyieldafairprofit。Or，toturnthepropositionabout，asbusinessmenareinthehabitofdoing，thereismoreofanoutputofferedthanwillbecarriedoffatafairprice，suchapriceaswillaffordfairorordinaryprofitsontheinvestmentandtherunningexpenses。Thereistoolargeaproductivecapacity；thereare，toomanycompetitiveproducersandtoomuchindustrialapparatustosupplythemarketatreasonableprices。Thematterreducesitselftoaquestionoffairpricesandordinaryprofits。(17*) Ifthereisalargevolumeofoutstandingcreditobligations，thatwillcomplicatethesituation。Thereisalwaysaconsiderableamountofinterestbearingsecuritiesoutstanding，andtheclaimsofthesesecuritieshavetobesatisfiedbeforedividendscanbepaidonstock，orbeforeprofitsaccruetoindustrialventureswhichhaveissuedtheSecurities。Thesefixedcharges，togetherwithothersofalikekind，narrowthemarginfromwhichprofitsarederivedandincreasethehandicapwhichaseasonofdulltimesbringstothebusinessmeninchargeofindustry。Atthesametimefixedchargesprecludeshuttingdown，exceptatasureandconsiderableloss。Thebusinessmeninvolvedareconstrainedtogoon，andintheabsenceofwidecombinationsinindustrytheyareconstrainedtogoonatsuchcompetitivepricesastoprecludereasonableprofits。 Thequestionoffairpricesandreasonableprofitshassomereferencetocurrentratesofinterest。A“fair“rateofprofitsissucharateasbearsareasonablerelationtothecurrentrateofinterest，althoughthisrelationofprofitstointerestratesdoesnotappeartobeastrictone。Still，thereundoubtedlyissomereferencetothecurrentrateofinterestasasortofzerolinetowhichprofitsshouldnotdecline。Newinvestmentsaremadeonthebasisofcurrentratesofinterestandwithaviewtosecuringthedifferentialgainpromisedbytheexcessofprospectiveprofitsoverinterestrates。 Inaperiodofdepressiontheaggregateindustrialequipmentis，notoriously，notrunningatitsfullcapacity；therearemanyidleandhalf-idleplantsandmanyidleworkmen。Theconcernsinquestionfindthemselvesunabletodoafullrunofbusinessatreasonableprofits。Still，unlessthedepressionisofexceptionallyshortduration，thereisalwayssomenewinvestmentgoingon。Moreorlessofnewcapitalcontinuestofinditswayintoindustrialbusinessincompetitionwiththeconcernsthatarealreadyinthefield。(18*)Incaseofaprotracteddepressiontheaggregateofnewinvestmentssomademay，inthecourseofyears，amounttoaveryconsiderableadditiontotheindustrialoutfit，andtheproductionofthenewestablishmentsmayveryappreciablyincreasetheaggregateoutput。Indeed，theoutputofthenewestablishmentsisanotablefactorinswellingthesupplyandkeepingdownprices。Butthenewinvestmentsmadeduringthedepressionareprofitable，atleastatthestart。Orevenifthisshouldbequestionedwhenstatedinthisbroadway，itwillatleastholdtruethattheyarecommonlyentereduponwithawell-advisedexpectationoftheirbeingprofitableifthesituationdoesnotmateriallychangebetweenthetimewhenthenewventurewasentereduponandthetimewhenthenewequipmenthasgotunderway。Iftheintervalbetweentheinceptionofthenewenterpriseanditscompletionisalongone，thesituationmaysochangeinthemeantimeastoleaveitunprofitableevenifithasbeenconservativelyplanned。Therearealso，ofcourse，fraudulententerpriseswhicharenotexpectedbytheirpromoterstopayaprofitontheinvestment；andthereareprobably，also，alwayssomeventuresentereduponduringdulltimeswithaviewtobeingbeforehandinpreparationforbettertimes。Butafterallhasbeensaidinqualificationofthemainproposition，itremainstruethatsomenewinvestmentisgoingonwithawell-advisedexpectationofreasonableprofitsonthebasisofcurrentcosts，prices，andratesofinterest。(19*)Therateofinterestintimesofdepressionmaybeunsatisfactorytolenders； itmaybediscouragingbycomparisonwiththecustomaryrangeofinterestratesduringbettertimes。Still，theobstacletobusinessisnottobesoughtinaneffectualdiscouragementoflenders，forinpointoffactmoneyisreadilytobehadongoodsecurityduringanyprotracteddepression。(20*) Thereisalsothefactthatinvestmentiscontinuallygoingon，whicharguesthatthedifficultyisneitherthatcapitalcannotbefoundforinvestment，northatinvestmenthasnoprospectofreasonableprofits。Practically，noexceptionalamountoffluentfundsiswithheldfromthemarket，-exceptintimeofpanic，whichisanothermatter。Itmaybeaddedthattherateofinterestneednotbenotablylowintimeofdepression，justas，ontheotherhand，aperiodofbusinessexaltationisnotuniformlyaccompaniedbyanotablyhighrateofinterest。 Butalowordecliningrateofinterestiseffectiveinthewayofdepressingthebusinesssituation，eventhoughadepressionmaygoonwithoutit。Thelineofitsbearinguponbusinessdepression，oratleastoneline，isasfollows: Establishedbusinessconcerns(particularlycorporations)engagedinindustryhavesomeappreciablefixed(interest)chargestomeet-onleases，mortgages，andinterest-bearingsecurities(preferredstockandbonds)。Theseoutstandingobligationsandsecuritiesmayhavebeennegotiated，“floated，“atanearlierperiodofhigherinterestratesandhigherprofits，ortheymayhavebeencarriedoverthroughaperiodofhigherinterestrates。 Intheformercasetheseinterestchargesareexcessivelyhighascomparedwiththepresentcapitalizedvalueofthepropertyonwhichtheyrest，computingthecapitalizationonthebasisofthepresentcostofreplacingthispropertyandthepresentinterestchargewhichthiscostofreplacementwouldbear。Inthelattercasetheoriginalcapitalizationofthecorrespondingitemsofpropertywillhaveundergoneapractical(effective) recapitalizationatalowerfiguretocorrespondwiththehigherrateofinterestprevalentduringtheintervalinquestion；andinthesubsequentperiodoflowinterest，thefixedchargeonthisrecapitalizationisexcessivelyhighascomparedwiththecurrenteffectivecapitalizationoftheproperty。Theliabilitiesareexcessive，inrespectoftheirinterestcharges，ascomparedwiththepresentearning-capacityofthepropertyrepresentedbythem。(21*) Whatgiveseffecttothisdrawbackforthebusinessenterpriseswhichhavesuchfixedinterestchargestomeetisthefactthatthenewinvestments，andthoseconcernsthathavegoneintobankruptcyorreceivers’hands，comeintocompetitionwiththeold。Theseneworrejuvenatedconcernsarenotcommittedtoascaleoffixedchargescarriedoverfromahigherinterestlevel； andthesearethereforecarryingonlysuchinterestchargesasthecurrenteffectivecapitalizationoftheirpropertywillwarrant，whethereffectivecapitalizationbetakentomeancostofproductionoftheequipment，earning-capacityoftheconcern，ormarketquotationofitssecurities。Theseunincumberedcompetitorsarepresumedtobemakingreasonableprofitsatcurrentprices，andtheirpresenceinthecompetitivemarketthereforeprecludesanadvanceofpricestosuchascaleaswouldaffordareasonableprofittotheotherestablishmentsafterpayingtheirinterestchargesonwhatis，ineffect，over-capitalizedproperty。 Thistentativeexplanationofdepressionappliesonlysofarastheperiodofdepressionisatimeofrelativelylowratesofinterest。Butdepressiondoesnotuniformlycoincidewithlowinterestrates；besideswhich，thereareotherfactsinthecasewhichlimittheapplicabilityoftheexplanationformulatedabove。Toexplainprotracteddepression，e。g。，thislineofargumentwouldbeconvincingonlyonthesuppositionofaprogressivelyfallingrateofinterest，-aconditionnotcommonlymetwithinaprotractedperiodofdepression。 Butthisexplanation，applicablewithinalimitedrangeofthephenomenathatmakeupaperiodofdepression，pointsthewaytoanotherclassofconsiderationsthatgofartowardexplainingtherest。Itappearsthatthephaseofthedifficultycoveredbythisexplanationistraceabletoadiscrepancybetweentheacceptedcapitalization，theinterestcharges，andtheearning-capacity。Anditappearsequallyplainthattheonlyremedyapplicabletothecase(barringaspeculativeexaltationofbusiness)isarecapitalizationoftheconcernsaffectedonalowerbasis，tofittheloweredcostofproductionoftheequipmentanditsloweredearning-capacity。Butunderexistingconditionsoflawsucharemedycannotbeappliedtotheinterestbearingsecurities，-exceptbyprocessofinsolvency，-anditisveryreluctantlyappliedtoothercapitalizedwealth；