74 W. G. Lan&zvorthy Taylor 



The unlocking of hoards, the importation of gold, and its fre- 

 quent use in transactions and in financial centers where the highly 

 developed stato-normal credit system had entirely dispensed with 

 it outside the guaranty or reserve fund, characterize the period as' 

 one of lower psychic tone. On the other hand, these periods of 

 reverses are not simple, direct retrogressions. The instruments 

 of the earlier environments are used for the distinct purpose of 

 clearing the ground for a new advance. The temporary regress 

 is merely a device in the grand plan of progress. The psychic 

 credit system preserved the guaranty fund down from the days 

 when money was the sole medium of exchange for the express 

 purpose of avoiding complete repudiation and disarrangement. 

 By means of it, individuals are enabled to make good their prom- 

 ises, but slowly and at sacrifice. Abnormally low prices evidence 

 the same helpful conditions. They encourage the use of gold and 

 help on liquidation and the starting afresh with individual obli- 

 gations more in accord with the technique of the materialistic 

 conjuncture. 



The lowest level of prices is reached in those communities 

 where gold imports do not penetrate, owing to poverty or to a 

 chronic state of indebtedness. In those communities there is no 

 accumulation of wealth that can be used to pay debts or to pur- 

 chase gold. They are accustomed to transact their current busi- 

 ness in the evidences of indebtedness arising within wealthier 

 communities. Lacking these, they must perforce fall back upon 

 barter or extemporize a local currency of their own. 1 



The expression "overcapitalization" is used in two senses, that 

 of stock-watering and that of too large a proportion of fixed 

 compared with circulating capital. Confusion of these terms is 

 not greatly to be wondered at, since the practice of the former 

 encourages the latter : the attempt to create great profits leads to 

 a too hasty conversion of present into future (capital) goods, 

 thus raising the price of the former, as so well described by von 

 Bohm-Bawerk. Some writers have gone off on a side track : 

 they ascribe the fall of profits to the "competition of capital," and 

 explain the conquest of wide markets as an attempt at compen- 



1 John De Witt Warner, The Currency Famine 0/1893, Sound Currency, 

 vol. II, no. 6. 



74 



