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1. The bone cysts of osteoarthritis are found in relation to defects in the watertight layer between the joint space and the cancellous bone; these defects are sometimes obvious openings, but more often they are openings closed by fibrous tissue, fibrocartilage or new bone. The small cysts lie close to the surface. Their rounded outlines suggest the agency of fluid pressure in their formation, and the fluid and cells found in the cysts are compatible with origin in the joint space and articular cartilage.

2. The hypothesis is advanced that the cysts are formed by the intrusion of synovial fluid under pressure into the substance of the bone, and the sclerosis around by displacement of the trabeculae and their reinforcement by new bone.

3. The objections to the hypothesis that the cysts represent a primary degeneration in the bone are discussed.

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