10 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK 
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I do not regard Schumpeter’s theory of crises as an adequate 
theory. I hasten to add that my brief statement of it does not 
do justice to the vivid brilliancy of Schumpeter’s thought. But 
one element in it is highly significant. Schumpeter’s account 
of the causes of dynamic change is inadequate, and he attempts 
no quantitative statistical measurement either of the extent of 
change or of the sequences within the movement. But the static- 
dynamic contrast which he employs is, I believe, fundamental to 
any sound theory of crises. The picture of industry out of 
balance being restored to balance in the course of a crisis and the 
ensuing depression is essentially true. That is what crises and 
depressions do, and it is the accomplishment of this which makes 
possible a new upward move. A crisis never accomplishes it 
perfectly; always there are discrepancies between an actual situ- 
ation and an ideal static equilibrium. But the forces which lead 
to a crisis are forces which are throwing economic life out of 
balance. The lack of balance may manifest itself in the pro- 
portions of industry—as too much agriculture and too little manu- 
facturing; or in the international trade balance; or in the pro- 
portions of quick assets to quick liabilities—the equilibrium con- 
cept covers a multitude of factors which I shall not try to 
analyze here. Very fundamental in this connection is the gen- 
eralization of J. B. Say and Cairnes regarding general over- 
production and particular overproduction to which I have 
referred above. But the coming of a crisis can be sensed most 
surely by those who have the equilibrium picture in their minds, 
and who study current business data and statistical changes with 
this equilibrium picture in mind. And confidence regarding the 
revival after a crisis is most justifiable when the statistical data 
available indicate that balance is being restored. 
Sometimes very consciously, often unconsciously, bankers in 
their study of the business situation make use of this equilibrium 
concept. The banker deals with all the other businesses. The 
local banker deals with all the businesses of his community. The 
banker in the central money market deals with businesses and 
banks all over the country, and for that matter throughout the 
world. He is constantly raising the question of whether this line 
is being overdeveloped and this line developing inadequately. He 
is interested in a well-balanced situation. He trusts it. A one- 
sided prosperity on the other hand, where certain businesses are