204 BANKING THEORIES IN UNITED STATES

purchasing power, spoils the market, one employer after another
must release some of his workers, lending apparent plausibility
to the idea that commodities in general have been produced in
excess of the needs of the community. The discharge of a considerable
 number of employees, depriving them of their incomes,
prevents their purchasing as freely as usual, thus tending to
diminish production in other lines and further to increase unemployment.
 A progressive deterioration of the market is introduced,
 and with it goes like slackening of production.! Yet,
if the real wants of the community, and not their ability to pay, be considered,
 it will not, perhaps, be found that any one useful trade or profession
has too many members. . . . But, in one sense, “all businesses” may be said
to be “overdone,” since all businesses are by this system rendered unprofitable.?


In the eighteen-fifties the notion of a general overproduction of
goods was refuted by E. Peshine Smith and, with qualifications,
by Francis Bowen.?
Hildreth emphasized, in this connection, the bearing of division
 of labor and its concomitant, production for a market, upon
the occurrence of crises. Prices, Hildreth contended, fluctuated
just as much in the eighteenth century, but people were affected
less thereby because there was relatively little exchange. Most
households were practically self-sustaining, buying little and
producing little for sale. But with the great increase of division
of labor, based upon the three broad classes of farmers, manufacturers,
 and merchants, people have become dependent for a
livelihood, not merely on good crops and an abundant sheepshearing,
 but also on a good market for the products — that is,
on prices.
At about the same time, Professor Dew commented upon the
significance of specialization by any country in the production

1 That the drop in prices (induced by deflation and by the forced liquidation of
stocks made necessary by the calling of loans), in itself spoils the market, explaining
the intensity of the distress, was a familiar observation.
2 Gouge, Short History of Paper Money, etc. (1833), p. 27.
3 Smith, A Manual of Political Economy (1853), p. 247; Bowen, Principles of
Political Economy (1856), pp. 261-271.
+ Hildreth, “On High and Low Prices,” Hunt's Merchants’ Magazine (Oct.,
1840), iii, 305-311.