need an advertisement to apprise him of the fact that soap can be purchased. The only purpose served, in all such cases, is to persuade people to buy one brand rather than another. Our helplessness in such a situation is revealed to us when we consider that it would take a great deal of campaigning, accompanied by advertising and high-pressure persuasion, to work up a public sentiment hostile to advertising. We might easily waste more energy in this campaign than is now wasted in advertising.

Political campaigning. Socialists are in the habit of pointing to the wastefulness of advertising as one of the costs of competition. They do not point out, however, that a political campaign is just as wasteful as a selling campaign. The candidate for office advertises his candidacy and uses high-pressure persuasion to get people to vote for him. Since the extension of government power and authority would multiply government offices, it would necessarily multiply the number of campaigners and greatly increase the waste of time and energy used up in political campaigns. Every campaigner, even he who is campaigning for socialism, is doing much the same kind of work as is done by the expert advertiser. He is using high-pressure persuasion to get men to do things which they would otherwise not do.

It looks as though we should have to regard persuasion in all its aspects, except persuasion to do that which is morally condemned, as a necessary cost of freedom. A despot could suppress all persuasion, in politics as well as in salesmanship, but a free people can scarcely get along without it. Freedom is in some respects costly, but it is worth all it costs.

CHAPTER XXVII

ECONOMIC CRISES

Financial crises. One of the most important and most puzzling of all modern economic questions is that of the frequent recurrence of financial crises and general industrial depressions. A financial crisis is an occasion when the money market becomes suddenly demoralized, confidence disappears, and credit shrinks. Everyone to whom money is owed wants it at once, but no one wants to let go of any money in his possession, for fear that he may not be able to get any more. Besides, there does not seem to be money enough to pay off existing debts.

In the chapter on Banking it was pointed out that a large part of the business of the world was done on credit, without the actual handling of money. If you will imagine a group of men doing business with one another, where each one trusts every other, you will see that a large amount of business can be done with a ridiculously small amount of money. Many transactions will be carried on by means of promises to pay money instead of with the money itself. Many of these promises will be balanced against one another and canceled without the use of any money. In other cases the money will be used merely to pay the balances. But if something should happen to destroy confidence,, so that no one would accept promises, but everyone demanded real money, there might not be money enough to go around and make the necessary payments. In that case business would have to slow down, and only as much business could be done as could be done with the small amount of money available. If, in addition to this, everyone held on to all the money he could lay hands on, for fear that he might

not be able to get any more, even the limited amount of money in circulation would move slowly, and business would have to slow down correspondingly. A swift dollar may pass from hand to hand many times in a day, and in this case it will do a large amount of business; but a slow dollar passes from hand to hand only a few times a day, and does a small amount of business.

Industrial depressions. An industrial depression is usually more deep-seated than a financial crisis and usually lasts for a longer time. It is a general stagnation of production because of an inability to get satisfactory prices for products. Various explanations, some intelligent and some absurd, have been offered. Overproduction is one of the most common and least intelligent. There may be such a thing as disproportionate production, but such a thing as general overproduction is a physical impossibility. The production and supplying of one thing is a demand for something else; the more production, the more demand; but if some things are produced and offered for sale, and there is no demand for them, it means either that those few things are overproduced or that the other things which might be exchanged for them are underproduced.

The overproduction theory. One phase of the overproduction theory of industrial depression is that wages are so low that the laborer is not able to buy his own products. It is argued that this results in an overproduction and glut on the market. There are many excellent reasons why wages should be higher than they are, but this is not one of them. So far as its effect on the general purchasing power of the community is concerned, it makes no difference whether wages are high and rents, interests, and profits are low, or whether wages are low and rents, interests, and profits are high. If the laborer gets a small share of the production of a given industry, and the managers, landowners, and capitalists get a large share, these have a large purchasing power and the laborer a small purchasing power. The value of the whole product of every

industry goes to these various classes, and they have it all to spend. If one class possesses a large share, and another class a small share, the total amount to be spent for other commodities is not affected by that distribution. If the laborers get absolutely the whole product of an industry, there would be no more to spend on other products than if the laborers got one half the product and the other participants got the other half. This, let it be repeated, has nothing to do with other and excellent reasons why wages should be high.

The periodicity theory. A certain periodicity has been observed in the recurrence of crises and depressions. It is not always easy to determine just the interval that elapses between depressions. Sometimes they come approximately twenty years apart, but they have a disconcerting habit of coming at unexpected times. In his book on "Economic Crises " Jones gives the following table: 1

In the nineteenth century it will be noticed that there were severe crises in 1818, 1837, 1857, with lesser crises in 1825 and 1847. The severe crises seemed to come every twenty years

1 Edward D. Jones, Economic Crises. The Macmillan Company, New York, 1900.

for almost half a century. Again there were severe crises in 1873 and 1893, with a less severe one in 1884. Another one occurred in 1907.

Various attempts have been made to explain this apparent periodicity. The late William Stanley Jevons developed an interesting theory of the coördination between sun-spot cycles and industrial depressions. The sun-spot cycles, he argued, had a profound effect on the weather, rainfall, etc., and these in turn affected the agricultural basis of the world's wealth. This theory, however, had not been taken seriously by the economists until it was recently revived by the interesting observations of Professor Ellsworth Huntington. It is true he has not developed the theory at great length as applied to economic crises, but he has presented strong evidence in favor of the doctrine that solar disturbances profoundly affect climatic conditions and rainfall, and these in turn have produced great historical and economic disturbances.1

The overspeculation theory. There is a persistent belief among all students of the question that overspeculation has something to do with depressions. When a fever of speculation takes possession of a community, the prices paid for the articles in which people are speculating do not bear any logical relation to the real values. The speculator will pay any price for anything, provided he thinks he can sell it later at a still higher price. When prices are tending rapidly upward, he may rely on the mere momentum to carry them higher. There is only one possible outcome of this tendency; that is, a rapid fall in the prices of the commodities in which men are speculating.

Even though the speculation takes place in a single article, it may produce a profound economic disturbance. The money that is absorbed in the speculative purchasing of the article in question is necessarily withdrawn from other kinds of business.

1 Ellsworth Huntington, "Climatic Changes and Agricultural Exhaustion as Elements in the Fall of Rome," Quarterly Journal of Economics, February, 1917. See also "The Pulse of Asia," Houghton Mifflin Company, Boston, 1907.