procuring an era of prosperity. These methods, it will be noticed, are, in their primary incidence, of the nature of a waste of industrial output or energy; but the prosperity achieved is, none the less, to be recognized as a beneficial outcome in point of heightened industrial activity as well as in point of increased comfort for the industrial classes.
To the workmen engaged in industry, particularly, substantial benefits accrue from an era of prosperity. These benefits come, not in the way of larger returns for a given amount of work, but more work, fuller employment, at about the earlier rate of pay. To the workmen it often means a very substantial gain if they can get a fuller livelihood by working harder or longer, and an era of prosperity gives them a chance of this kind. Gradually, however, as prosperity - that is to say, the advancing price level rises and spreads, the increased cost of living neutralizes the gain due to fuller employment, and after the era of prosperity has been under way for some time the gain in the amount of work obtainable is likely to be fairly offset by the increased cost of living. As noted above, much of the business advantage gained in an era of prosperity is due to the fact that wages advance more tardily than the prices of goods. An era of prosperity does not commonly bring an increase of wages until the era is about to close. The advance of wages in such a case is not only a symptom indicating. that the season of prosperity is passing, but it is a business factor which must by its own proper effect close the season of prosperity as soon as the advance in wages becomes somewhat general. Increasing wages cut away the securest ground of that differential price advantage on which an era of prosperity runs.
Periods of crisis or of prosperity are, after all, relatively simple phenomena with strongly marked features, and a passable explanation of them is correspondingly easy. They have also the ad vantage of having received much attention at the hands of the students of economic history. On the other hand, protracted depression, not traceable to widespread hardship or calamity arising from circumstances outside the range of business transactions, is a relatively new and untried subject for economic theory. Newer, more obscure. with less pronounced features and less definite limits than movements of speculative advance or speculative crises, this phenomenon has to a less extent engaged the steady attention of students. An inquiry into the life history and the causes and effects of depression, from the point of view of a theory of business, may therefore scarcely be expected to yield concise or secure conclusions.
Since industry waits upon business, it is a matter of course that industrial depression is primarily a depression in business. It is in business that depression is felt, since it is on the business side of economic activity that the seat of economic sensibility may be said to lie; it is also in business (pecuniary) terms that the depression is measured whenever a measure or estimate of the matter is attempted. In so far as there is an attendant derangement of the mechanical processes and of the mechanical articulation of processes in industry, the derangement follows from the pecuniary exigencies of business. Depression and industrial stagnation follow only in case the pecuniary exigencies of the situation are of such a character as to affect the traffic of the business community in an inhibitory way. But business is the quest of profits, and an inhibition of this quest must touch the seat of its vital motives. Industrial depression means that the business men engaged do not see their way to derive a satisfactory gain from letting the industrial process go forward on the lines and in the volume for which the material equipment of industry is designed. It is not worth their while, and it might even work them pecuniary harm. Commonly their apprehension of the discrepancy which forbids an aggressive pursuit of industrial business is expressed by the phrase "overproduction." An alternative phrase, intended to cover the same concept, but less frequently employed, is "underconsumption."123
The controversial question as to the tenability of any given "overproduction" doctrine may, for the present purpose, be left on one side; it lies outside the theory of business and it has no merits or demerits for the purposes of a theory of business. The point of interest here is rather the ground of its acceptation among business men and the meaning which this notion has for them; that is to say, it is chiefly of interest here to inquire into the habits of thought which give cogency and effect to the dogma of "overproduction" as practically held by the body of business men, - what it practically means, why the dogma is held, and what is its effect on the course of business enterprise.
"Overproduction," or "underconsumption," as it is met with in the views of business men, is neither a vacant dogma nor a shifty apology wherewith to cover their own delinquencies, but a very concretely real state of affairs. It is a state of affairs that prevails when business is persistently dull; and the concept covered by the term comprises the sufficient cause of the dulness, in the apprehension of the business community, even though they may not always speak of the difficulty by that name. It may be worth while, even at the risk of tedium, to point out that this concept of "overproduction" applies, not to the material, mechanical bearing of the situation, but to its pecuniary bearing. The notion is never seriously entertained that there is or may be an embarrassing excess of goods, or of the appliances for their production, above what would be of some human use if the business situation permitted them to be turned to use.
(1) The supply of consumable goods is, practically, never greater than the community's capacity for consuming them. An embarrassing excess in any line is practically a remote contingency at the most.124 There are many eloquent passages in the economic manuals which may be called in witness of this truism, where much pains is taken to show that human wants are, in the nature of the case, indefinitely extensible. Nothing stands in the way, we are told, but "difficulty of attainment" of the goods with which to satisfy these wants. (2) In times of depression, or "hard times," there is, under the modern industrial system at least, no overproduction in the sense of a production so large as to overtax the working capacity of the industrial appliances and processes employed, nor so large, even, as to overtax the normal powers of the force of workmen or require them to work overtime and holidays. Quite the contrary. That sort of thing happens only in brisk times, when there is no overproduction. Seriously to recite such platitudes as these may seem like a trifling with the patience of the printer, or it may be taken for a light-headed excess of "wissenschaftlicher Methode"; but these two formulations appear to cover all the conceivable ways in which overproduction may occur, so long as the term is construed from the point of view of the mechanical facts of the case. Seen from this side a period of depression is a period of underproduction; mills tun on half time or none, and the supply of goods that finds its way into the hands of consumers is sensibly scant for the demands of comfort.
The difficulty is, of course, a pecuniary one, and the phrase is used by business men in that pecuniary sense in which it has an immediate bearing on business. "Excessive competition" is an alternative phrase. There is an excess of goods, or of the means of producing them, above what is expedient on pecuniary grounds, - above what there is an effective demand for at prices that will repay the cost of production of the goods and leave something appreciable over as a profit. It is a question of prices and earnings. The difficulty is that not enough of a product can be disposed of at fair prices to warrant the running of the mills at their full capacity, or running them at a rate near enough to their capacity to yield a fair profit. Or, to turn the proposition about, as business men are in the habit of doing, there is more of an output offered than will be carried off at a fair price, such a price as will afford fair or ordinary profits on the investment and the running expenses. There is too large a productive capacity; there are, too many competitive producers and too much industrial apparatus to supply the market at reasonable prices. The matter reduces itself to a question of fair prices and ordinary profits.125
If there is a large volume of outstanding credit obligations, that will complicate the situation. There is always a considerable amount of interest bearing securities outstanding, and the claims of these securities have to be satisfied before dividends can be paid on stock, or before profits accrue to industrial ventures which have issued the Securities. These fixed charges, together with others of a like kind, narrow the margin from which profits are derived and increase the handicap which
