68 W. G. Langworthy Taylor 



during the years 1897-98. In 1898-99 it rose a little, and it was 

 not until 1899- 1900 that it took its great upward soar. The 

 metals as a whole did not rise at all until 1898-99 and railroad 

 freight rates did not rise till after 1899-1900. 1 



Of course, disproportionate production (partial overproduc- 

 tion) may have some influence in causing crises. Doubtless some 

 producers find to their sorrow that they have miscalculated the 

 market, but in general it is not in this direction that we must 

 look for the cause of widespread failure. It is hardly probable 

 that if the laboring classes are receiving less pay, producers would 

 keep on producing the same amount for sale to them, as one 

 theory maintains ; and the same is true of overproduction along 

 other lines. It is not necessary in order to cause a crisis that 

 the final products of industry should be so disproportioned that 

 they would not be salable against one another, were the condi- 

 tions of personal obligation otherwise static. It is the fact that 

 the great productive organizations have promised more than they 

 can carry out in the way of returns to investment which is the 

 great cause of crises. This analysis offers the explanation of the 

 abnormal credit, 2 which characterizes crises. 



When at last the exhaustion of present goods reaches an acute 

 stage, and the inability of the new concerns to make good their 

 promises becomes manifest, all hands turn attention towards 

 liquidation. The whole structure of stock, bond, and note prom- 

 ises becomes valueless, and to a large extent even for the purposes 

 of set-off. Stocks and bonds can not be set off against stocks 

 and bonds in payment of debt, for they are not negotiable; nor 

 can individual notes be set off against each other, for since they 

 have become generalized in the form of bank credits, the holders 

 of notes against each other can not be brought together nor would 

 they accept attornment if that were possible. In other words, the 

 public holds notes and accounts against the banks, and the banks 

 hold notes against individuals ; but the public will not accept the 

 private notes held by the banks, but demands fulfilment of the 



1 Bureau of Economic Research (Ed. Professor John R. Commons), Nol, 

 July, 1900. Diagrams, pp. 30-34. 



^Professor J. Laurence Lau'ghlin, "Credit," University of Chicago Decen- 

 nial Publications, sees. 6, 7. 



68 



