Atsomepointinthesystemofinvestmentandbusinessextensionwillbefoundsomebranchesofindustrywhichhavegraduallylostwhatdifferentialadvantagetheystartedoutwithwhentheyenteredontheeraofprosperity；andiftheseareinvolvedinlargecontractsandundertakingswhicharecarriedoverintothephaseofthemovementatwhichthisparticularbranchofindustryhasceasedtohaveadifferentialadvantageinthepriceofitsoutputoverthecostofitssuppliesofmaterialorlabor，thenwhatmayhavebeenaconservativecapitalizationoftheirholdingsatanearlyphase，whiletheirearning-capacityrestedonalargedifferentialadvantage，willbecomeanexcessivecapitalizationaftertheirearning-capacityhasdeclinedthroughlossoftheirdifferentialadvantage。Somebranchorbranchesandsomefirmsorclassoffirmsnecessarilyfallintothispositioninthecourseofaperiodofphenomenallybrisktimes。Abusinessconcernsoplacednecessarilybecomesadebtor，anditsliabilitiesnecessarilybecome，insomedegree，baddebts。Itisforcedbycircumstancestodeliveritsoutputatpriceswhichprecludeitsobtainingsuchamarginasitsextensionofbusinesspresupposed。Thatistosay，itscapitalizationbecomesexcessivethroughshrinkageofitsearning-capacityascountedintermsofprice。Aconcernofthisclasswhichisadebtorisprecludedfrommeetingitsobligationsoutofitscurrentearnings；andif，ascommonlyhappensinanappreciableproportionofcases，itsobligationshavealreadybeenaugmentedtotheextentwhichitsrecentearning-capacitywouldwarrant，thentheconcernisinsolventforthetimebeing。Iftheclaimsagainstitarepressed，ithasnorecoursehutliquidationthroughforcedsalesorbankruptcy。
Eitherexpedient，ifthecaseisoneofconsiderablemagnitude，isdisastroustothebalancedsequenceofcreditrelationsinwhichthebusinesscommunityisinvolved。Thesystemofcreditrelationsprevailingatsuchatimehasgrownuponthebasisofanearning-capacitytransientlyenhancedbyawaveofdifferentialpriceadvantage；andwhenthiswavehaspassed，evenifitleavespriceshigherallaround，thedifferentialadvantageofatleastmostconcernsispast。Thedifferentialpriceadvantagehascometotheseveralbranchesorfirmsinsuccession，andhas，inthetypicalcase，successivelylefteachwithanexcessivecapitalization，andhasleftmanywithabodyofliabilitiesoutofproportiontotheirsubsequentearning-capacity。Thissituationmay，evidently，comeaboutinthismanner，evenwithoutloweringtheaggregatepecuniary
earning-capacityofthebusinesscommunitytothelevelatwhichitstoodbeforethewaveofprosperitysetin。11*
Butwhensuchasituationhascome，allthatisrequiredtobringonthegeneralcatastropheisthatsomeconsiderablecreditorfindoutthatthepresentearning-capacityofhisdebtorwillprobablynotwarrantthecapitalizationonwhichhiscollateralisappraised，Inself-defencehemustdeclinetheextensionofaloan，andforcedliquidationmustfollow。Suchaliquidationinvolvescuttingundertherulingpricesofproducts，whichlessenstheprofitsofcompetingfirmsandthrowsthemintotheclassofinsolvents，andsoextendsthereadjustmentofcapitalization。
Thepointofdeparturefortheensuingsequenceofliquidationisnotinfrequentlythefailureofsomebankinghouse，butwhenthisisthecaseitisprettysuretobeabankwhosefundshavebeen“tiedup“in“unwise“loanstoindustrialenterprisesoftheclassspokenofabove。12*