Chapter LXXV: Section CCXVII: Commercial Crises in General

All these allegations are undoubtedly true, in so far as the whole world is considered one great economic system, and the aggregate of all goods, including the medium of circulation, is borne in mind. The consolation which might otherwise lie herein is made indeed to some extent unrealizable by these conditions. It must not be forgotten in practice that men are actuated by other motives than that of consuming as much as possible.[217-1] As men are constituted, the full consciousness of this possibility is not always found in connection with the mere power to do, to say nothing of the will to do.[217-2] There are, everywhere, certain consumption-customs corresponding with the distribution of the national income. Every great and sudden change in the latter is therefore wont to produce a great glut of the market.[217-3] The party who in such case wins, is not wont to extend his consumption as rapidly as the loser has to curtail his; partly for the reason that the former cannot calculate his profit as accurately as the latter can his loss.[217-4]

Thus laws, the barriers interposed by tariffs, etc., may hinder the too-much of one country to flow over into the too-little of another. England, for instance might be suffering from a flood of manufactured articles and the United States from an oppressive depreciation in the value of raw material; but the tariff-laws places a hermetic dike between want on one side and superfluity on the other. Strong national antipathies and great differences of taste stubbornly adhered to may produce similar effects; for instance between the Chinese and Europeans. Even separation in space, especially when added to by badness of the means of transportation may be a sufficient hinderance especially when transportation makes commodities so dear that parties do not care to exchange. In such cases, it is certainly imaginable that there should be at once a want of proper vent or demand for all commodities; provided, we look upon each individual class of commodities the world over as one whole, and admit the exception that in individual places, certain parts of the whole more readily find a market because of the general crisis.

Lastly, the mere introduction of trade by money destroys as it were the use of the whole abstract theory.[217-5] So long as original barter prevailed, supply and demand met face to face. But by the intervention of money, the seller is placed in a condition to purchase only after a time, that is, to postpone the other half of the exchange-transaction as he wishes. Hence it follows that supply does not necessarily produce a corresponding demand in the real market. And thus a general crisis may be produced, especially by a sudden diminution of the medium of circulation.[217-6] And so, many very abundant harvests, which have produced a great decline in the value of raw material, and no less so a too large fixation of capital which stops before its completion,[217-7] may lead to general over-production. In a word, production does not always carry with itself the guaranty that it shall find a proper market, but only when it is developed in all directions, where it is progressive and in harmony with the whole national economy. To use Michel Chevalier's expression, the saliant angles of the one-half must correspond to the re-entrant angles of the other, or confusion will reign everywhere. Even in individual industrial enterprises, the proper combination of the different kinds of labor employed in them is an indispensable condition of success. Let us suppose a factory in which there are separate workmen occupied with nothing but the manufacture of ramrods. If these now exceed the proper limits of their production and have manufactured perhaps ten times as many ramrods as can be used in a year, can their colleagues, employed in the making of the locks or butt-ends of the gun, profit by their outlay? Scarcely. There will be a stagnation of the entire business, because part of its capital is paralyzed, and all the workmen will suffer damage.[217-8] [217-9]

[Footnote 217-1: As _Ferguson_, History of Civil Society,
says, the person who thinks that all violent passions are
produced by the influence of gain or loss, err as greatly as
the spectators of Othello's wrath who should attribute it to
the loss of the handkerchief.]

[Footnote 217-2: If all the rich were suddenly to become
misers, live on bread and water, and go about in the
coarsest clothing, etc., it would not be long before all
commodities, the circulating medium excepted, would feel the
want of a proper market--all, including even the most
necessary means of subsistence, because a multitude of
former consumers, having no employment, would be obliged to
discontinue their demand. Over-production would be greater
yet if a great and general improvement in the industrial
arts or in the art of agriculture had gone before. Compare,
_Lauderdale_ Inquiry, 88. This author calls attention to the
fact that a market in which the middle class prevails must
put branches of production in operation very different from
those put in operation where there are only a few over-rich
people, and numberless utterly poor ones: England, the
United States--the East Indies, and France before the
Revolution. (Ch. 5, especially p. 358.)]

[Footnote 217-3: If England, for instance, became bankrupt
as a nation, the country would not therefore become richer
or poorer. The national creditors would lose about
£28,000,000 per annum, but the taxpayers would save that sum
every year. Now, of the former, there are not 300,000
families; of the latter there are at least 5,000,000. Hence,
the loss would there amount to £100 a family per annum, and
the gain here to not £6 per family. We may therefore assume
with certainty that the two items would not balance each
other as to consumption. The creditors of the nation, a
numerous, and hitherto a largely consuming class, now
impoverished, would be obliged to curtail their demand for
commodities of every kind to a frightful extent; while a
great many taxpayers would not feel justified in basing an
immediate increase of their demand on so small a saving.
Other revolutions, more political in character, may operate
in the same direction by despoiling a brilliant court, a
luxurious nobility or numerous official classes of their
former income.]

[Footnote 217-4: The above truth has been exaggerated by
Malthus and his school into the principle that a numerous
class of "unproductive consumers," who consume more than
they produce, is indispensable to a flourishing national
economy. From this point of view, the magnitude of England's
debt especially has been made a subject of congratulation.
Compare _Malthus_, Principles, II, ch. 1, 9. Similarly
_Ortes_, E. N., III, 17, to whom even the _impostori
mezzani_ and _ladri_ seem to be a kind of necessity. (III,
23.) _Chalmers_, Political Economy, III ff. If it was only
question of consumption here, all that would be needed would
be to throw away the commodities produced in excess. Those
writers forget that a consumer, to be desirable, should be
able to offer counter-values.]

[Footnote 217-5: _Malthus_, Principles, II, ch. 1, 3.]

[Footnote 217-6: Let us suppose a country which has been
used to effecting all its exchanges by means of
$100,000,000. All prices have been fixed, or have regulated
themselves accordingly. Let us now suppose that there has
been a sudden exportation of $10,000,000, and under such
circumstances as to delay the rapid filling up of the gap
thus created. In the long run, the demand of a country for a
circulation may be satisfied just as well with $90,000,000
as with $100,000,000; only it is necessary in the first
instance that the circulation should be accelerated or that
the price of money should rise 10 per cent. But neither of
these accommodations is possible immediately. In the
beginning, sellers will refuse to part with their goods 10
per cent. cheaper than they have been wont to. But so long
as those engaged in commercial transactions have not become
completely conscious of the revolution which has taken place
in prices, and do not act accordingly, there is evidently a
certain ebb in the channels of trade, and simultaneously in
all. Demand and supply are kept apart from each other by the
intervention of a generally prevailing error concerning the
real price of the medium of circulation, and there must be,
although only temporarily, buyers wanted by every seller,
except the seller of money. In a country with a paper
circulation, every great depreciation of the value of the
paper money not produced by a corresponding increase of the
same, may produce such results. _Say_ is wrong when he says
that a want of instruments of exchange may be always
remedied immediately and without difficulty.]

[Footnote 217-7: Suppose a people, the country population of
which produce annually $100,000,000 in corn over and above
their own requirements, and thus open a market for those
engaged in industrial pursuits to the extent of
$100,000,000. And suppose that in consequence of three
plentiful harvests, and because of an inability to export,
the market should grow to be over-full, to such an extent
that the much greater stores of corn have now (§ 5, 103) a
much smaller value in exchange than usual. The latter may
have declined to $70,000,000. Hence the country people now
can buy from the cities only $70,000,000 of city wares. The
cities, therefore, suffer from over-production. That people
dispensing with the use of money should establish an
immediate trade between wheat and manufactured articles, in
which case the latter would exchange against a large
quantity of the former, is not practicable, because no one
can extend his consumption of corn beyond the capacity of
his stomach, and the storage of wheat with the intention of
selling it when the price advances is attended with the
greatest difficulties.]

[Footnote 217-8: If, for instance, there are too many
railroads in process of construction, all other commodities
may in consequence lose in demand, and when the further
construction begins to be arrested on account of a
superfluity of roads, the new rail factories, etc. are
involved in the crisis.]

[Footnote 217-9: On the special pathology and therapeutics
of this economic disease, compare _Roscher_, Die
Productionskrisen, mit besonderer Rücksicht auf die letzen
Jahrzente in the Gegenwart, Brockhaus, 1849, Bd., III, 721
ff., and his Ansichten der Volkswirthschaft, 1861, 279 ff.]