There is only a fragment of truth in these various views. It is always
lack of "money" at the moment of the crisis that causes any particular
failure, and in that sense it is always lack of "money" that causes
a crisis. The question is, whether in any reasonable sense it can be
said that it was lack of a circulating medium before the crisis that
brought it on. There is no support for this view, except in the rare
case when the money standard is undergoing a rapid change, as in the
United States from 1866 to 1873, and the statement then needs much
modification and explanation. The monetary theories of crises are a
bit nearer to the truth than are those of the over-production type,
for the crisis is always connected with prices and credit. But it
is clear that these rhythmic price changes occurring in the business
cycle are not due to the same causes as are the general movements of
the price level, due to an increasing or decreasing output of gold or
again to a paper money inflation. Statistics show that while a general
price level is slowly changing like a tidal movement, the effect
of the rhythmic business cycle appears now in hastening, now in
retarding, the changes in the price level.

Sec. 10. #Capitalization theory of crises#. Here we verge upon a
different type of explanation of the financial crisis--one of a
psychological nature. The quantity of money, we have seen, affects
prices more or less according as credit is more or less used in
connection with it. Money plus confidence has a larger power of
sustaining prices, than money without, or with less, confidence. And
throughout the business cycle the amount of confidence, expressed in
such ways as the readiness to grant credits and in the easy extension
of the time of collection, is constantly changing. Over-confidence at
one time is suddenly followed by widespread lack of confidence. This
has led some to say that lack of confidence is the cause of crises.
This is a truism, but it does not explain what is the real cause of
this lack of confidence, which, when the crisis comes, is not mere
unreasoning fear that needs only to ignore the danger to banish it.
Might it not just as truly, if not more truly, be said that the cause
is _over-confidence_ in the period preceding the crisis?

The essential characteristic of a crisis is the forcible and sudden
movement of readjustment in the mistaken capitalization of productive
agents. Capitalization runs through all indust