66 W. G. Langivorthy Taylor 



speculation to assume a perfectly even tenor would be a most 

 unnatural thing in view of the mechanism described. Thus, after 

 the crisis of 1882-84 we find the inception of a new speculative 

 era over the whole world, except Austria and France. The year 

 1888 was not so brilliant; 1889 saw a perfect fever of specula- 

 tion which culminated in 1890 in the preliminary crisis of that 

 year. Then there was a calm for a year, attempted renewals of 

 speculation in 1892 and finally, in 1893, the final catastrophe took 

 place, with the United States and Australia as its principal 

 theaters. 



Fortunately the Austrian economist, von Bohm-Bawerk, has 

 furnished us with a psychological theory of speculation which 

 allows us to obtain a better insight into the action of the specu- 

 lative mind in making its time-discounts. The general principles 

 are the following: Anything enters into the present market in 

 which people choose to trade and on which they put a value. The 

 most common commodities besides present goods are future goods. 

 That goods are not yet produced is no hindrance to trading in 

 them, and in fact such trading is the common phenomenon known 

 as credit operations. Now the value of the present and future 

 goods in terms of one another must be such in the gross that the 

 future product will be equal to the present product plus interest 

 and profit. If the expectation of the gross future value is very 

 large it will cause a high rate of interest, attract investment, and 

 raise the price of present goods. If the price of present goods 

 were not raised, they would be exhausted by the demand for them 

 as means of future production, and a period of dearth would in- 

 tervene before the future products themselves ripened into present 

 goods. "Now the constant presence of the agio on present goods 

 is like a self-acting drag on the tendency to extend the production 

 period." 1 Of course if this warning of the rise in the price of 

 present goods is not heeded, a catastrophe must ensue. The 

 warning never is heeded ; and this is undoubtedly the most funda- 

 mental cause of the crisis. 



We would expect then that the rise in the price of stocks .would 

 be the first phenomenon following the return of industrial activ- 



l Positive Theory of Capital, p. 335. 



66 



