Crisis

Collier's New Encyclopedia (1921)

ECONOMIC, a term employed to denote the succession of phe nomena, recurring at regular intervals in the industrial cycle, arising from disturbances and general depression in business following a period alternation of prosperity and depression has become so marked a feature of recent economic history as to wear the appearance of a natural law, and, though the causes that lie at its foundation have not been fully ascertained, students of economics have begun to look on it as an inevitable accompaniment of the existing industrial order. The course of the crisis has been so pronounced that its characteristics are of prosperity. This There is first of all the current of proseasily described. perity with growing business and expansion in industry and commerce, and then the period of uncertainty arising from the great increase in cost. A diminished volume of operations follows, with less demand for material and labor. So the decline of demand is felt in ever widening circles until the whole industrial world becomes sensible of the commercial depression. A condition of general anxiety supervenes, in the course of which a catastrophe of some kind, the failure of a great mercantile firm, drags ing down with it other firms having the depression to a lower level by bringrelations with it. The repercussion is felt in many direcfidence undergoes a process of further tions throughout the business world, condebts, debtors, however solvent, find it demoralization, on, creditors call in their harder to get credit, and the whole system of credit shows signs of crumbling. proportions and business may become The demoralization may take on huge almost stagnant. Then follows a period of quiescence , during which the psychological influences at work are apt to run their course. sense that the worst has passed, and Then follows a general since a state of quiescence becomes in time intolerable, the wheels begin to work again, and out of the depression confidence and credit begin to build their course, the period of prosperity again structure again . So the cycle runs its being followed by a period of depression and disturbance, and this again having run its course, confidence and increased production return. Crises of the kind described are of regularly referred to in the press. There course more rare than the disturbance are crises of a less important kind, those leading to and resulting in panics in the affect the commercial or industrial world money market. These do not always in any appreciable degree. ree. Of more gree.. import are crises having their intrinsic causes in the commercial and industrial a world, for these last affect the actual wealth of a country, while a stock exchange crisis is apt merely to affect the symbols of wealth. A crisis in the inperiod of hard times, which often extends dustrial world generally betokens itself, owing to the tightening of international relations, to several countries. A succession of bad harvests, for example, would be quite apt to cause enorwith the result of successive periods of mous distress and dislocation of trade, crises in different countries . One of the worst crises in the history of United States business was that of 1873. It characteristics of crises that have ocexhibited in fullblown investiture all the curred before or since, the great industrial activity following the Civil War, the years of prosperity, the period of overconfidence, the sudden failures here and there of conspicuous landmarks in the mercantile world, the increase of other failures, the panic and decline, the return of confidence and activity after the lowest point had been reached in 1876. The list of business failures in those years tells the tale. Year Number Liabilities 1871. 2,915 1872 4,069 1873 5,183 1874. 5,830 1875 7,740 201,000,000 1876 9,092 191,117,000 65,752,000 1880. 4,735