The Kinetic Theory of Economic Crises 73 



orthodox theories, such as the proposition that a man produces 

 his own income, now takes full possession of the economic scene. 

 How to set exchange in motion becomes the great problem of the 

 hour. A halt is called for liquidation, while persons who hold 

 titles to property, such as land or goods, must hold their breath, 

 as it were ; they are lucky if they obtain daily necessaries and pay 

 taxes. The period of decline asserts the social solidarity with 

 even more emphasis than the period of inflation. The rich are in 

 mental distress, while levelling agitators find ready ears among 

 the half-employed poor. It is remarkable that so few are in a 

 position to take advantage of low prices in a time of crisis in 

 order to speculate. 



There is a partial reversion toward a lower environment, or at 

 least conjuncture. The leadership of the psychic classes has 

 failed ; the extended processes have not come up to expectation ; 

 the rate of profit on the actual investment, while high, is not 

 sufficient to pay a normal rate on the mass of stock-water. It 

 may be said that the amount of stock was an experiment in the 

 field of psychic conjuncture. When put to the test of the mate- 

 rialistic conjuncture, the experiment fails. New companies must 

 be formed on a basis of stock compatible with the returns actually 

 experienced or old companies pass through a painful reorganiza- 

 tion, involving a scaling down of stock and bonds. 1 When the 

 new concerns are formed, there exist the conditions for a new 

 period of prosperity ; but the scaling down of stock and bonds has 

 been a drastic operation. It must not be thought that there is an 

 actual standstill of production during liquidation. Most concerns 

 continue to produce, upon reduced scale and in the hands perhaps 

 of court receivers. The great mistakes have not been those in 

 technique, nor even those in anticipation of relative demand and 

 relative consumption (as is claimed by most theories in the face 

 of the very patent fact of a general liquidation), but the mistakes 

 of the quasi-independent psychic classes in failing correctly to 

 forecast total social values. 2 



1 Edward Sherwood Meade, The Reorganization of Railroads, Annals of 

 the Am. Acad, of Pol. and Soc. Science, vol. XVII, p. 205. 



2 Besides the writings of Patten and Clark, passim, cf. the writer's Values, 

 Positive and Relative, Annals of the Am. Acad, of Pol. and Soc. Science, 

 vol. IX, no. 1, p. 81 sqq. 



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