THE CAUSE OF A COMMERCIAL CRISIS.

Shannon News, 20 June 1922, Page 3

THE CAUSE OF A COMMERCIAL CRISIS.

(Specially written for the “News.”)

The commercial crisis is a phenomenon which occurs at more or less irregular periods. It is seldom that a period of more than seven years passed without a crisis, and although on each occasion the ( crisis may he attributed to a different cause, such as war, poor harvests, etc., it certainly would appear as though, in spite cl' the marvellous development of modern commerce and industry, there were some fundamental defects in our economic structure, leading inevitably to periods of depression. During a period of industrial activity the demand for products and manufactures grows and prices tend to increase; this engenders a feeling of prosperity and confidence in the minds of manufacturers, who use all possible means to increase their output, make extensions to their works, and increase their commitments in various Ways. If, as is often the case at the commencement of a period of industrial activity, loanable money is plentiful, no great difficulty is experienced in borrowing the necessary money, and ft is perfectly good business for a manufacturer to borrow money at 5 per cent if he can earn 10 per cent or more upon it. This happening on all sides, what occurs is that production overtakes the demand, and as this gradually becomes preceptible, manufacturers find themselves compelled to reduce prices in order to' secure business then as extensions of works and new undertakings, which have been brought into existence by the prospective profits based upon the high prices, come into operation. This becomes accentuated, and, with falling prices and possibly with their loans called in by bankers, who' at such times reduce their credits, thei position of many manufacturers who have no large outside capital resources (and most manufacturers have practically all their capital sunk in their businesses) becomes unenviable. Meanwhile), they, in. common with thousands of others similarly circumstances, have found it necessary to reduce the number of workpeople employed, which reacts upon thei general condition of industry, for obviously the placing of a number of people out of work reduces the purchasing power of the commuhity. All these circumstances, multiplied by the thousand, and one re-acting upon the other, contribute to a. general state of depression, and sometimes, . when over-speculation has been rampant, to a positive panic. Sometimes a commercial crisis can' be strictly attributed to a specific cause. For example, the absolute failure of the- American cotton crop can paralyse the whole of the textile industry —perhaps the most important industry in. the United Kingdom —the effects of which would be felt immediately throughout all the manufac* turing countries of Europe. Sometimes a crisis may be caused purely through speculation in one cominu> nity, e.g., oil or copper, and again it may be brought about, or considerably aggravated, by a bad currency system; and the inter-relationship of the different peoples is now such that a crisis in one commercial centre Is immediately felt in every other centre.

It is impossible here to refer more than briefly to the causes of commercial crises, but we ; shall not be l'ar wrong if we say that the principal cause is summed up in the word over-production. In this respect the tendency towards concentration in industry in the shape of creations of vast trusts. and combines appears to be scientifically sound, although it may involve other disadvantages from the public point of view, in that it is a great temptation to exploit the public opce a virtual monopoly in the manufacture or supply of a commodity is acquired. With a vast number of small producers, each blindly working feverishly „tosecure the maximum. profit within the shortest ppssible time!, without regard or even knowledge as. to ,'the cumulative effects of such action on the part of himself and of his fellows, no attempt can be made to adjust production 'to consumption. Just as a period of industrial activity leads to a period of depression and sooner or later to a commercial crisis, so a period of depression leads up to another spell of industrial activity. The weak men go to the wall, thus reducing., the number of producers; and with the gradual slackening of the demand for money, loanable becomes cheaper. Gradually production diminishes until the demand overtakes it, and the whole thing commences over again. In fact, the course of commerce and industry may be traced by a series of curves, not all of .equal length, but a depression following inevitably upon an upward movement, and vice versa.