3. How can it be that prices have fallen more than costs? For costs are what a business man pays out for the production of his commodity, and prices determine what he gets back when he sells it. It is easy to understand how for an individual business or an individual commodity these can be unequal. But surely for the community as a whole the business men get back the same amount as they pay out, since what the business men pay out in the course of production constitutes the incomes of the public which they pay back to the business men in exchange for the products of the latter? For this is what we understand by the normal circle of production, exchange, and consumption.

4. No! Unfortunately this is not so; and here is the root of the trouble. It is not true that what the business men pay out as costs of production necessarily comes back to them as the sale-proceeds of what they produce. It is the characteristic of a boom that their sale-proceeds exceed their costs; and it is the characteristic of a slump that their costs exceed their sale-proceeds. Moreover, it is a delusion to suppose that they can necessarily restore equilibrium by reducing their total costs, whether it be by restricting their output or cutting rates of remuneration; for the reduction of their outgoings may, by reducing the purchasing power of the earners who are also their customers, diminish their sale-proceeds by a nearly equal amount.

5. How, then, can it be that the total costs of production for the world's business as a whole can be unequal to the total sale-proceeds? Upon what does the inequality depend? I think that I know the answer. But it is too complicated and unfamiliar for me to expound it here satisfactorily. (Elsewhere I have tried to expound it accurately.) So I must be somewhat perfunctory.

In a boom, goods and services (including capital goods and services) are bought on credit, in a cycle in which the expectation that prices will grow justifies lending for purchase since what is purchased will rise in value enough to repay the loan. So, in a boom sales proceeds exceed costs because the sales are being paid not only with the money that exists today, but with money loan money which will be paid back in the future.

In a slump, debt is being repaid and no new credit is extended because decreasing prices make debt unlikely to be paid back. So, prices exceed costs.

Effectively the economic cycle consists of paying for the profits of the boom with money coming from the subsequent bust, through the intertemporal nature of cretit.

Economics is politics by other means