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。Thistransmissionofthefavorabledisturbanceofbusinesssubstantiallyapsychologicalphenomenonfollowsverypromptlyundermodernconditions，sothatanydifferentialadvantagethataccruesattheoutsettotheparticularlineofindustryuponwhichtheinitialdisturbancefallsispresentlylostorgreatlylessened。Inthemeantimeextensivecontractsforfutureperformanceareenteredintoinalldirections，andthisextensiveimplicationofthevariouslinesofindustryserves，ofitself，tomaintaintheprosperityforthetimebeing。Iftheoriginalfavorabledisturbanceofdemandandprices，towhichtheprosperityowesitsrise，fallsofftotheearlierlevelofdemand，theeraofprosperityhastherebyatermsettoitsrun；
　　althoughthedateofitsterminationisalwaysatsomedistanceinthefuture，beyondthetimewhentheoriginaldemandhasceasedtoact。Thereasonforthisretardation，wherebythecloseofaneraofprosperityisalwaysdelayed，otherthingsequal，beyondthelapseofthecausefromwhichithasarisen，is1
　　thehabitofbuoyancy，orspeculativerecklessness，whichgrowsupinanybusinesscommunityundersuchcircumstances，2thecontinuedlifeofaconsiderablebodyofcontractsforfutureperformance，whichactstokeepupthedemandforsuchthingsasarerequiredinordertofillthesecontractsandtherebykeepsuppricesinsofar。Ingeneralitmaybesaidthatafterthefailureofthefavorablepricedisturbancetowhichitisdue，aneraofprosperitywillcontinueforthatindefinitefurtherperiodduringwhichthefringeofoutstandingcontractscontinuestodominatethebusinesssituation。Somefurther，newcontractswillalwayscontinuetobemadeduringthisperiod，andsomeunfilledcontractswillalwaysbeleftstandingoverwhentheliquidationsetsin；but，broadlyspeaking，thewind-upcomes，notwhenthisbodyofoutstandingcontractshaverunoutorbeenfilled，butwhenthebusinessoffillingthemandoffillingtheorderstowhichtheygiverisenolongeroccupiestheattentionofthebusinesscommunityingreatermeasurethantherestofcurrentbusiness。
　　Therunofbusinessexigenciesonwhichaneraofprosperitygoesforwardmaybesketchedinitsgeneralfeaturessomewhatasfollows:Increaseddemandandenhancedprices，withthelargecontractswhichfollowfromsuchastateofthemarket，increasetheprospectiveearningsoftheseveralconcernsengaged。Theseprospectiveearningsmayeventuallyberealizedinfullmeasure，ortheymayturnouttohavebeenputativeearnings，only。thatislargelyaquestionofhowfarinthefuturetheliquidationlies。Thebusinesseffectofincreasedprospectiveearnings，however，ismuchthesamewhethertheeventprovestheexpectationofincreasedearningstohavebeenwellgroundedornot。Theexpectationineithercaseleadsthebusinessmentobidhighforequipmentandsupplies。Therebytheeffectivemarket
　　capitalizationisincreasedtoanswertotheincreasedprospectiveearnings。Thisrecapitalizationofindustrialproperty，onthebasisofheightenedexpectation，increasesthevalueofthispropertyascollateral。Theinflatedpropertybecomes，ineffect，collateralevenwithoutaformalextensionofcreditinthewayofloans；because，ineffect，thecontractsenteredintoareacreditextension，andbecausethepropertyofthecontractingpartiesisliabletobedrawnintoliquidationincaseofnon-fulfilmentofthecontracts。Butduringthefreeswingofthatbuoyantenterprisethatcharacterizesaneraofprosperitycontractsareenteredintowithasomewhateasyscrutinyofthepropertyvaluesavailabletosecureacontract。
　　Sothatasregardsthispointnotonlyisthecapitalizationoftheindustrialpropertyinflatedonthebasisofexpectation，butinthemakingofcontractsthemarginofsecurityislesscloselylookedafterthanitisinthemakingofloansoncollateral。
　　Thereresultsadiscrepancybetweentheeffectivecapitalizationduringprosperityandthecapitalizationasitstoodbeforetheprosperitysetin，andtheheightenedcapitalizationbecomesthebasisofanextensiveramificationofcreditinthewayofcontractsorders；atthesametimethevolumeofloancredit，insetform，isalsogreatlyincreasedduringaneraofprosperity。8*
　　Aneraofprosperityisaneraofrisingprices。Whenpricesceasetoriseprosperityisonthewane，althoughitmaynotpromptlyterminateatthatjuncture。Thisfollowsfromthefactthattheputativeincreaseofearningsonwhichprosperityrestsisinsubstanceanapprehendeddifferentialgaininincreasedsellingpriceoftheoutputovertheexpensesofproductionoftheoutput。Onlysolongasthesellingpriceoftheoutputrealizessuchadifferentialgainovertheexpensesofproduction，istheputativeincreasedrateofearningsrealized；
　　andsosoonassuchadifferentialadvantageceases，theeraofprosperityentersonitsclosingphase。
　　Suchadifferentialadvantagearisesmainlyfromtwocauses:
　　1Thelinesofindustrywhichareremote，industriallyspeaking，fromthepointofinitialdisturbance，-fromwhich，thatistosay，thelinesofindustryfirstandchieflyaffectedbytherisedrawsuppliesofonekindoranother，-theseremotelinesofindustryarelesspromptlyandlessacutelyaffectedbythefavorabledisturbanceofthepricelevel；thisretardationofthedisturbanceaffordstheindustriesnearertheseatofdisturbanceadifferentialadvantage，whichgrowslessthefartherremovedthegivenenterpriseisfromthepointofinitialdisturbance。9*2Thechiefandmostsecuredifferentialadvantageinthecaseisthatduetotherelativelyslowadvanceinthecostoflaborduringaneraofprosperity。Wagesordinarilyarenotadvancedatallforaconsiderableperiodaftersuchaneraofprosperityhassetin；andsolongastheeventualadvanceofwagesdoesnotovertaketheadvanceinpriceswhichinthecommonrunofcasesitneverdoesinfullmeasure，solong，ofcourse，adifferentialgaininthesellingpriceaccrues，otherthingsequal，tovirtuallyallbusinessenterprisesengagedintheindustriesaffectedbytheprosperity。
　　Thereare，further，certainoutlyinglinesofindustry，as，e。g。，farming，whichmaynotbedrawnintothemovementinanyappreciabledegree，andthepriceofsuppliesdrawnfromtheseoutlyingindustriesneednotrise；particularlytheyneednotadvanceinadegreeproportionatetotheadvanceinthepricesofthegoodsintowhichtheyenterasanelementoftheirexpensesofproduction。Toanuncertainbutcommonlyappreciableextentthereisalsoaprogressivecheapeningoftheprocessesofproductionduringsuchanera，andthischeapening，particularlyinsofarasitaffectstheproductionofthegoodscontractedfor，ascontrastedwiththeappliancesofproduction，servesalsotomaintainthedifferentialadvantagebetweenthecontractedsalepriceandtheexpensesofproductionofthegoodscontractedfor。
　　Intheordinarycourse，however，thenecessaryexpensesofproductionpresentlyovertakeornearlyovertaketheprospectivesellingpriceoftheoutput。Thedifferentialadvantage，onwhichbusinessprosperityrests，thenfails；therateofearningsfallsoff。theenhancedcapitalizationbasedonenhancedputativeearningsprovesgreaterthantheearningsrealizedorinprospectonthebasisofanenhancedscaleofexpensesofproduction；thecollateralconsequentlyshrinkstoapointwhereitwillnotsupportthecreditextensionrestingonitinthewayofoutstandingcontractsandloans；andliquidationensues，afterthemannerfrequentlysetforthbythosewhohavewrittenonthesesubjects。10*