the eighties or the middle of the seventies. The usual course, it is commonly held, was rather: inflation, crisis, transient depression, gradual advance to inflation, and so on over again.'
On the view of these phenomena here spoken for, an attempt at explaining this circuit may be made as follows : A crisis, under this early nineteenth-century situation, was an abrupt collapse of capitalized values, in which the capitalization was not only brought to the level of the earning-car pacity which the investments would have shown in quiet times, but appreciably below that level. The efficiency and the reach of the machine indusI try in the production of productive goods was not then so great as to lower the cost of their producI tion rapidly enough to overtake the shrinkage in ; capitalization and so prevent the latter from rising 'again in response to the stimulus of a relatively high earning-capacity. The shock-effect of the liquidation passed off before the cheapening of the means of production had time to catch up with the shrinkage of capitalization due to the crisis, so that after the shock-effect had passed there still remained an appreciable undercapitalization as a