1. In a broad sense, a crisis is a decisive moment or turning point; hence, in industry, a collapse of prosperity. In the course of a fever the crisis is the point where there is a turn for the better or for the worse. The figure of speech as applied to industrial conditions would seem to fail, in that what precedes is apparently exuberant health, not disease. Business conditions do not move along uniformly. There are waves of prosperity. Profits are apparently great, then may be suddenly swept away. The profits of the prosperous time are partly illusory, or exist only on paper. The situation has all the unhealthiness of the fever-patient. Men trade in promises and when the crisis comes, they have only promises for profits. The discussion of business management and profits is not complete without a consideration of this rhythmic movement of confidence and prices.

Broader definition of a crisis.

A crisis in the business affairs of an individual, in the sense of a collapse of prosperity, may occur from many mischances. A local crisis may be felt in some one neighborhood as a result of flood, of fire, or of other accidents. Such a case was that which occurred in 1864, in Manchester, England, when the cotton factories were compelled to close because the supply of cotton was cut off by the blockade of the ports of the South in the Civil War. Such a local crisis sometimes results from a change of transportation, throwing a town out of the line of trade. These have been mentioned in discussing chance and risk; but the phenomenon known generally as an industrial crisis is of wider extent and of a more peculiar nature.

Various types of crises.

2. In a more special sense a financial crisis is the confusion and loss that mark the end of a period of rising prices; an industrial depression is the period of hard times that follows. The word crisis suggests a brief period, a moment, something that is severe, sudden, and soon over. The term financial panic is frequently used as a synonym for financial crisis. A crisis in the narrower sense has to do with prices - is always connected with money in some way.. While, therefore, crises may be divided into industrial, speculative, and financial, according to their immediate occasion, all of them are financial in the sense that they have to do with a change in the general price level. A crisis is a jolt to prices which shatters the credit of some banks, brokers, merchants, and manufacturers. Crises are thus peculiar to the money economy and to a developed industry. Not every business misfortune is to be called an industrial crisis, but only those where prices and credit are generally depressed. A long period of hard times is sometimes called a crisis, but it is better to distinguish it by the term industrial depression.

Industrial conditions preceding a crisis.

3. The period leading up to a crisis is one of general prosperity. Industry in successive decades does not pass through an unvarying series of changes, but history repeats itself with sufficient regularity to justify the view that a certain series of changes is typical in modern industry. When prices are at the lowest point many factories are closed, and much labor is unemployed. Conditions are worse in some industries than in others. General economy and great caution prevail; few new enterprises are undertaken. To those having available money this is a good time to buy, and property begins to change hands. Then hoarded money begins to come out of its hiding-places. Money flows in from other countries, particularly if business conditions are better abroad than here, for low prices make a country a good place in which to buy. At the same time that the money in circulation thus increases, there is a general return of confidence that increases credit. Not only are there more dollars, but each does more work. Then old enterprises are resumed and new ones are undertaken. The purchase of materials in larger quantities causes a rise in prices and an increase in costs. The surplus labor on the margin of efficiency gets employment, and wages begin to increase. The only classes not sharing in this improvement are the receivers of fixed incomes. As prices rise, the purchasing power of their incomes gradually falls.

4. The crisis is a moment of widespread loss, which is followed by a long period of small profits to most enterprises, and of enforced economy. As prices cease to go up rapidly, the question arises in many minds whether the movement can continue, and if not, when it will cease. Men wish to hold on for the last profits, and are willing to risk something to gain them. When foreign prices do not rise in as great proportion as domestic prices, foreign imports are stimulated and the quantity of exports falls. This disturbs the equilibrium of money and requires at length large and continued exportation of specie. This checks prices, and, reducing the specie reserves of the banks, compels them to be more cautious. The fall in the value of many stocks and securities held by the banks forces many brokers and speculators to convert their resources into ready money. This is the moment of danger; weak enterprises find their foundations crumbling, and there are many failures. The falling prices, the shattered credit, and the financial losses force many factories to close; many workmen are thrown out of employment, and business must again enter upon a period of retrenchment, for it has completed the cycle of changing prices.

The crisis and its results.

No financial crises in the Middle Ages.