A discrepancy between accepted capitalization and current eaming-capacity, similar to the discrepancy discussed above but of a progressive character, arises imder modern conditions apart from a fall in the rate of interest. The discrepancy pointed out and provisionally disposed of above, due to a fall in interest rates, is a discrepancy between the nominal value (accepted capitalization) of the older establishments, computed on their earlier eaming-capacity or on the original cost of their equipment, on the one hand, and their present actual value on the other hand, computed on their current eaming-capacity in competition with rivals that have the advantage of a lower coat of equipment, or, in other words, a lower interest charge per unit of eaming-capacity. Under the regime of the later, more fully developed machine production, a discrepancy having a similar effect arises out of a persistent divergence between the past cost of production of a given equipment and the current cost of a like or equivalent equipment at any subsequent date, — suppoa-
THE THEORY OF MODERN WELFARE 227
ing that there intervenes no inflation of prices and no extraneous cause making for a speculative advance.'
Suppose prices of finished goods to be stable or to vary by inconsequential fluctuations, negligible for purposes of the argument, and suppose the rate of interest to be in a similarly negligible position. In other words, suppose such a condition as the business community would recognize as ordinary, normal, sound, without ground for pronounced hopes or fears. Under modem circumstances, dominated as the modem situation is . by the machine industry, such a state of affairs ia 1 unstable, even apart from any disturbance of an extraneous kind. It is unstable by virtue of the forces at work in its own process, and these forces, on the whole, make for a progressive change in the direction of depression.