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BANKING AND THE BUSINESS CYCLE excess of capacity for production" at remunerative prices. FREE BANKING BOOKS Instances might be multiplied of overproduction in this sense in specific industries, both prior to 1929 and during the Depression, prominent among which are coffee, cotton, wheat, rubber, copper, and tin. The automobile industry was during and even before the Great Depression a notable example of an industry with capacity in excess of the apparent demand for its products.{GOOGLEADS} Excess capacity, however, is evidence of overinvestment, or of misapplication of capital.FREE BANKING BOOKS PDF  And therein lies the explanation of those cases of seeming overproduction. Overinvestment, which must be assigned the role of a positive disturbing factor, has its ultimate source in an excess of credit, however, and this returns the argument to the basic contention of the present study. One of the deeper causes of the recent depression was the overexpansion and overinvestment of capital in many lines of business at a rate so pronounced as to represent a positive misapplication of capital in view of the level of prices then prevailing, or which might have been expected to prevail in the future.

But the policy of overinvestment, with its attendant misapplication FREE BANKING BOOKS DOWNLOAD PDF of capital, could never have been carried to the lengths that it was during the decade of the 'twenties if the banks and the Government had not supplied abundant credits at artificially cheap rates. This, together with the policies of hoarding, pooling, and valorization, also made possible by the inflation of bank credit, prevented the natural and gradual reduction of prices that might have been expected from improved productivity. Hence a disturbing factor in FREE BANKING STUDY MATERIALS the situation was the overinvestment and misapplication of capital; the origin of the misapplication of capital, the reason for the misdirection of investment, was the excessive credit expansion brought about largely by the inflationistic bias of the Federal Reserve authorities, tinkering with the inherently inflationistic machinery of central banking in an BANKING BOOKS 2017-2018 ill-advised effort to maintain prices at an artificially stable level

UNDERCONSUMPTION THEORIES 69 THE UNDERCONSUMPTION CONTENTION Closely analogous to the notion of overproduction as the cause of the depression is the other side of a Janus-faced argument, the "underconsumption" theory proper. The argument of the underconsumptionists does not stress the excess of goods, as such, as being the cause of the trouble, but rather directs emphasis to an absolute insufficiency of purchasing power in the form of money in the hands of consumers to take the entire output of the industrial process off the market. Consumption rather than production is the focal point of attack; demand is differentiated from supply, and lack of demand because of insufficient consumers' purchasing power is made the disrupting factor. BANKING STUDY MATERAILS It is asserted that the net money income of the final results of the productive process is not great FREE DOWNLOAD FOR PDF enough to EXAM PREPARATION & TUTORING remove the gross product from the market. Underconsumption Idea May Have Partial Validity Temporarily It is conceded that in one type of situation which sometimes exists the underconsumption idea may be granted partial validity. That is during and following a serious monetary and banking panic, when unreasoning fear is the dominant emotion, and the disposal of goods and property rights in favor of "hard" money is an almost universal immediate objective. Under such conditions, as Davenport puts it,1 The psychology of the time stresses not the goods to be exchanged through the intermediate commodity, but the commodity itself. The halfway house becomes a house of stopping. There sets in an abnormally developed emphasis upon money or credit as deferred purchasing power rather than as present purchasing power{GOOGLEADS}—on money for future purchases rather than as demand for present goods. The situation is one of withdrawal of a large part of the money supply at the existing level of prices.