The struggle for extra profits overreaches itself in due time. Producers overestimate the capacity of the market for consumption at a price that will return costs of production. Here is the key to the mooted question: Is overproduction possible ? The answer may be Yes or No. In either case an explanation is necessary. Overproduction is possible, if, by overproduction, we mean that there is a surplus of goods for which there is no demand at a price that will cover the expenses involved in producing them. It is not possible in the sense that there are more goods than society can consume, for the social capacity for consumption is never satisfied. What actually happens is that too many goods of a particular kind are thrown on the market - that is, there is malproduction.

At the same time there is almost sure to have been an over-expansion of credit. Producers of all sorts have been carried away by the hope of anticipated profits, resulting in the creation not only of more goods than society demands, but also in the creation of excessive money obligations. Such a situation usually results in a crisis. Manufacturers curtail their operations by lessening their purchases of raw materials, by discharging portions of their workmen, and by contracting their active capital. Producers of raw materials, laborers, and money-lenders must, as a result, curtail their expenditures for consumable goods. All is uncertainty. Business optimism has disappeared. The typical business man waits for others to take the lead. Prices are now on the decline.