MANY people believe that industrial depressions are the result of financial panics. Many of them are, but when they result from this cause they are of short duration and their origin is always apparent. Long continued and mysterious industrial depressions result from something more lasting than a panic. They originate from something wrong within the industries themselves. They are independent of panics and come whether panics occur or not.

The causes and conditions of a financial panic and of an industrial depression are so radically different that any condition which is a direct cause of one cannot by any possibility be a direct cause of the other. When an acid is mixed with an alkali, they neutralize each other and the active qualities of both are destroyed. The causes and conditions which lead up to an industrial depression are just as opposite and antagonistic to the causes and conditions which lead up to a financial panic as are an acid and an alkali.

Differences Between the Causes and Conditions of Panics and Depressions

Panic is defined as "a sudden, unreasoning, overpowering fear, especially when affecting a large number simultaneously; extreme and sudden fright." A "Financial Panic" is therefore the effect produced upon the finances of a country by sudden, unreasoning, and overpowering fright.

Depression is defined as "a state of dullness or inactivity a protracted season when business falls below the normal." " Industrial Depression," therefore, means, literally, a state of dullness or inactivity in the industries of the country; a protracted season during which the production of buildings, furniture, goods, machinery, railroads, ships, etc., falls below the normal.

A financial panic is precipitated by sudden, excited, and imprudent action. An industrial depression is precipitated by deliberate, thoughtful, and prudent inaction. One is the effect of mental excitement, which results in a temporary check to the natural flow of the mediums of exchange. It is a mental disorder.

The other is the effect of calm, deliberate consideration, which results in reducing the rate of production of materials of physical wealth. It is a physical disorder. A financial panic is an acute malady. Its beginning is sudden, vivid, intense, and startling. Its chief element is fright. It paralyzes finances at a single blow. Each subsequent step in its course is an alleviation. Each day, week, or month shows a marked recovery. From its nature, as well as from its intensity, it is short-lived.

An industrial depression is a stubborn, chronic malady. Its beginning is gradual and quiet. It commences and goes on increasing in force for many months, unnoticed. Its cause is silently doing its fatal work while actual business is increasing by leaps and bounds. When actual depression appears, its cause has almost ceased to exist. From its nature, as well as from its deep-seated and gradual growth, industrial depression is long-lived.

A financial panic is usually a matter of a few months, weeks, or days. An industrial depression is usually a matter of one or more years. A financial panic may be compared to a mob, in which a great number of excited minds work upon and excite each other until men act in a body as no one of them would act if left to himself. Industrial depressions, on the other hand, are the cumulative results of the deliberate and thoughtful decisions of individual men.

These two calamities and their causes resemble each other in no way. They can be classed together only from the one fact that the results of each have a disastrous effect upon business; but even in this there is a wide difference. A panic has an effect which is short, exciting, and a temporary disaster, not to existing material wealth, but to the documentary representatives of wealth; a loss from which the country may entirely recuperate within a short time. The other is a compulsory laying down of the tools which produce wealth, by a vast army of wealth-creators; a loss which can no more be regained than a lost day or a lost year can be regained.

There is no doubt that a financial panic, like any other great disturbance, such as war, pestilence, or famine, may have a depressing effect upon the industries while it lasts; but if a financial panic comes when industrial conditions are favorable, then the industries will revive as soon as the panic has spent its force, and the panic will rightfully be considered responsible for the check given to the industries. On the other hand, if a panic takes place when the industries are already depressed by internal causes, then the industries will not necessarily revive when the panic has ceased. They will revive only when their real cause has ceased to have its natural effect. The public, however, will almost invariably identify the panic as being responsible for the prolonged depression, simply because the panic, being startling and spectacular, will make a vivid impression upon the public mind.

A Panic Need Not Necessarily Cause a Depression, and Vice Versa

The causes and conditions of industrial depressions and financial panics being entirely different, there is no logical reason why an industrial depression should necessarily be accompanied by a financial panic, or vice versa, any more than that an individual suffering from one disease should on that account contract another disease originating from a different cause. At the same time it must be admitted that the physical weakness caused by one disease will naturally render the patient more liable to succumb to the second disease, if exposed to the conditions which ordinarily cause the second disease. Just so with financial panics and industrial depressions. Among the facts established and emphasized by the government commissions appointed to investigate industrial depressions, is the fact that financial panics have often occurred without being either attended or followed  by industrial depressions, and that industrial depressions have occurred without being followed or attended by financial panics. The most favorable industrial conditions will not prevent a financial panic if financial conditions are sufficiently deranged, nor will the most
favorable financial conditions prevent an industrial depression if the industrial conditions are sufficiently deranged.

In consequence of the opposite quality of the causes of these two calamities, it is plain that the two sets of causes should never be confounded, yet in the efforts made to discover the cause of industrial depressions, the causes of financial panics have been so constantly and persistently cited that it has been one of the chief obstacles, if not the chief obstacle, to success in discovering the true cause of depressions. As will be explained later in this volume, everything connected with finances should be rigidly excluded from any consideration in endeavoring to identify the cause of the mysterious industrial depressions which come in the absence of financial disturbances. To admit them will not only confuse the searcher, but will almost certainly defeat the object of his search.