A Depression May Grow to Dimensions Out of Proportion to the Preceding Boom, Losing Its Readjustment Function, Degenerating into a “Secondary Depression”

The upshot of all that we have so far said is that the causation of the crisis and of the depression must be traced back to the mechanism of the boom. We understand now not only why the boom simply comes to a halt but also why it is usually followed by a painful process of contraction and liquidation. A satisfactory explanation of the boom implies, therefore, the explanation of the crisis as well. For this reason the theory of crises and cycles is essentially a theory of the boom. In the crisis, what has been sown during the boom has to be reaped; a readjustment of the disjointed economic system cannot be avoided. This is a point which must be emphasized strongly. But it is also a point which must not be driven too far. As the dramatic development of the present crisis abundantly proves, there is no denying the fact that the depression may, under certain circumstances, grow to dimensions quite out of proportion to the preceding boom, so that it loses more and more its function of readjustment and degenerates into a secondary depression void of any function whatsoever except to test the strength of the patience of the people in enduring a cumulative process of senseless and murderous economic destruction. Instead of restoring the economic equilibrium disrupted by the boom, the depression may lead, after a while, to a new disequilibrium which, caused by the process of the chronic depression itself, has nothing to do with the old set of disturbing factors. To explain this, a special theory of the depression becomes necessary. Its task is to describe how the original process of liquidation and adaptation in the primary depression comes to set in motion a cumulative process of recession, the conditions of disequilibrium being continuously reproduced on an ever-declining level of economic activity.

—Wilhelm Röpke, Crises and Cycles, ad. and rev. Vera C. Smith (London: William Hodge and Company, 1936), 119-120.