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 result of mental excitement, which results in a temporary check to a natural flow of the media 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, intense, vivid, 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 and 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 and its deep-seated 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 incite 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 can be classed together only because the results of each have a disastrous effect upon business. 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 that can no more be regained than a lost day or year can be regained.
This is an excerpt from an article written by George H. Hull in 1911 regarding panics and depressions. It almost sounds like it could have been written this year, which I find most interesting because this near-century-old article shows how investor psychology will always remain the same in any setting. The article also helps to serve as a reminder that business and the economy will continue to go up and down in cycles.
Another interesting thing is how Hull chooses to describe panics and depressions. He describes them as if they were diseases or afflictions, or rather, a psychological ailment or “mental disorder,” describing the symptoms and how the disorder will run its course through the economy.
Finally, I look up on this article as a reassurance for the tough times that many of us are experiencing in this country. If people back then could get through bank panics and economic depressions without the benefits of indoor plumbing, air conditioning, and sliced bread, then we really have no need to worry that things will eventually get better for us!
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