I. THAT the Trade Cycle is chiefly characterised by undue periodic " lengthening " of the period of production is the well-known tenet of the contemporary Austrian School.2 According to this theory, credit expansion, through its effect on the structure of interest rates, leads producers to adopt methods of production which are more " roundabout"; the profitability of these methods can only continue, so long as the process of credit-expansion continues (or, at any rate, so long as the int'erest rate does not rise): once it ceases an attempt will be made to return to less capitalistic methods which necessitates a painful process of readjustment. Thus the real cause of the depression is the malinvestment of capital undertaken during the boom; and under the term " malinvestment " the adherents of this theory understand not investment for the wrong purpose but investment in the wrong form-not that the instruments of capital created produce uinwanted goods, but that they can only produce these goods in an unwanted way. This theory has been attacked in recent years from two different ends-from the trade-cycle end and from the capital-theory end. On the one side it has been recognised by an increasing group of economists that the important variations during the trade cycle are variations in the general level of activity-in the level of incomes, of production -and employment-and in comparison with the overriding importance of these the changes in the methods of production, on which the Austrian theory concentrated its attention, must be insignificant. On the other side, the JevonsB6hm-Bawerkian theory of capital, on which the Austrian trade-cycle theory purports to be based, has been subjected to searching criticism by a group of writers, chiefly by Professor F. H. Knight. It has been contended that quite