The Kinetic Theory of Economic Crises 67 



ity, and that this would be followed by a rise in the price of com- 

 modities. Stock-watering, however, while it would tend to 

 conceal the test of stock prices, would itself be an additional 

 proof of the first stage of over sanguine belief in the future. 



When it is found that certain inventions or that a new organ- 

 ization of industry are probably to be productive of increased 

 subjective values and hence of an increased rate of profit, there 

 exist few present means for the ordinary man, at least, or even 

 for the speculator to gauge the expected surplus. It is but nat- 

 ural, therefore, that these expectations should fluctuate with very 

 little reference to actual materio-technical processes. The vast 

 undertakings call for present goods, and as the latter become 

 scarcer and less and less available for immediate consumption, 

 their prices rise inordinately. The more prudent financiers re- 

 strict their operations. The less responsible push forward new 

 stock-watering combinations in the hope of standing out from 

 under before the failure of their schemes. 



The very first issues of stocks and bonds are steps in the 

 mechanism of the credit and guaranty system. Just as, in the 

 fields of business that lie closer to materialistic production, pro- 

 ducers' promises are exchanged for bankers' promises, which the 

 public receives on the bankers' guaranty primarily, so in the high- 

 est psychic conjuncture, the enterprises that are started by finan- 

 ciers are "financed" and guaranteed by combinations of under- 

 writers, consisting of other financiers, of banks at the financial 

 Centers, of international banking houses, of trust companies, etc., 

 who guarantee the organization and launching of these enterprises 

 as going concerns. In fact, we read of one set of underwriters 

 needing another set to guarantee them. 



In confirmation of this theory, the recent course of prices may 

 be consulted. The rise in the price of railroad stocks and the 

 increase in bank clearings was very marked in the financial year 

 of 1897-98 and continued rapidly during the next two years. 

 The average price of all commodities rose a little in England and 

 the United States in 1897-98, fell a little in the United States in 

 1898-99, and did not finally take its upward trend till the year 

 1899-1900. The characteristic commodity, iron, continued to fall 



67 



