cause, or, to use Mr. Mill's accurate language, the most important portion of that "assemblage of conditions" forming the whole cause, in every case of speculative fever, was an accumulation of disposable money capital, the result of savings which the demand arising from the existing income was not sufficient to draw into employment. Mr. Tooke, though scarcely disposed to allow enough of influence to the facilities of the money market in fostering speculation, points out, with his usual candour, that the speculative seasons have been regularly ushered in by a low rate of interest, the usual indication of excess in the quantity of money seeking employment. The accumulations which lie idle are very much, if not altogether, the work of the non-trading classes. The savings of merchants and manufacturers are generally most profitably employed in extending their business, and are not so apt to go in quest of strange schemes, though the last mania, the most extensive that we have ever had, did spread amongst them widely. But, for the most part, commercial accumulations appear in the increase of fixed capital or larger stocks in the warehouses. It is landlords, professional men, including (I must say it) divines, annuitants, members of the well-to-do educated middle class, who are the creators of the most dangerous accumulations in the money market. And this gives this whole subject additional importance, because it renders each speculative outbreak the act, not of one particular class, but, in a certain sense, of the whole people of England.

Speculations convert Capital into Income.

When money capital has been thus drawn together in large masses, the whole monetary atmosphere becomes highly electric. An explosion is inevitable, but accident determines the precise moment and direction of the discharge. A prospect of profit in some new application of capital strikes the popular imagination. Light airs of speculation fan the money market. Thin clouds speck the horizon, indicating a storm. Men feel vaguely,

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like cattle in the field, that something momentous impends'. At length the tempest bursts out in its strength, and all classes are carried away by its impulse. Immediately the dormant excess of money capital begins to pass into a state of the highest activity. It is advanced on all sorts of projects, the general characteristic of the whole being a rapid conversion of capital into income. That money or paying power which was in hands wanting to employ it for profit, now passes into hands which will use it as income. They bring it forward as so much new demand for consumption, which instantly increases the value of the goods and services they require, and one class of incomes after another comes to feel the force of the original impulse.

This process, by which money capital is thus rapidly converted into income, is evidently the reverse of that by which income is previously made to generate the excess of money capital. The saving, while it goes on, is in itself an abstinence from demand for consumption; a demand suspended, as it were, and held dormant, and its effect for the time is necessarily depressing to markets and prices. It is so much withheld from the aggregate which would otherwise be the return power to the money capital actually in employment. At length the disproportion between the accumulated mass of money capital and the aggregate of income reaches a point at which it cannot be sustained. The law of monetary equilibrium sets in, and the reaction is so rapid and violent that one year of speculative activity may be enough to carry off for the moment the results of ten years' saving. For reasons which will afterwards be seen, the excess of disposable capital on these occasions is always much greater. in appearance than in reality, and the speculative impulse soon drives much more of it into income than would have restored the balance between them.

1 Mr. Horsley Palmer said of 1836, if I remember rightly (I cannot now find the passage), that in the midst of the apparent high prosperity, there was a “ moral apprehension in the minds of prudent men that mischief was abroad."

Destruction of Capital leads to Saving.

But if the progress of accumulation be slow in provoking that rapid and violent movement which counteracts it, the latter is not slow in setting to work the forces which repair its own devastations. A Californian, not long ago, signed a contract for the rebuilding of his warehouse while the engines were still playing upon the burning timbers of that which it was destined to replace. The indomitable thrift of the English nation is no less ardent to rebuild what the fire of speculation destroys. Like Edmund Burke, it cannot bear to see ruin on the face of the land. In the midst of the calamities and confusion of a crisis, the process of saving-that stern subjection of the present to the future, which is the inner principle of English greatness-recommences with new vigour in thousands of homes. All over the land contraction sets in at every point, in the aggregate of spending incomes, until the volume is reduced in even a greater degree than its previous expansion. No small part of this dangerouslyreparative process, too, consists of the extraordinary gains made by some individuals and classes, at the expense of the rest, during the speculative periods and the panics which follow them. Of course what is taken from income in all these ways starts up in innumerable jets of capital, which flow into and soon fill up the exhausted reservoirs of the bankers.

Banking Facilities after a Crisis.

Hence arises the commercial languor, accompanied by great banking facilities, which always follows a crisis. The contraction of demand for consumption leaves all sorts of markets glutted with commodities. The capital of a trader exists in forms which are constantly changing, and it depends very much upon his own will what those forms shall be. In addition to what is his own, he usually holds a portion on loan, in the form

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of discounts. Of the whole mass the greater part commonly consists of actual stocks of commodities, part of warehouses and other fixtures, and part is in the form of money capital; that is to say, in coin, notes, and his balance at the banker's. When a prospect of increased demand leads him to borrow more largely, he uses the loans to hold larger stocks, and sometimes enormous masses of produce, cotton, sugar, or corn, are held in this way in the expectation of rising markets. every addition thus made to stock, that portion of his capital which is here called specific is evidently increased; and in precisely the same degree his money capital is diminished. The principle is no way altered by the cases in which stocks are held on credit, the money capital in those cases remaining unaffected until the expiration of the credit, when, of course, it is diminished for the individual who discharges the engagement, and increased for his creditor. On the other hand, it is evident that if at any time a merchant abstains from laying in fresh stocks, and suffers the progress of his sales to continue, his capital passes continually more and more into the form of money capital. The cessation of his demand upon the producer checks production and diminishes income, whilst the running off of his stocks into consumption restores out of the incomes which are still in course of expenditure, the equivalent which comes back to him as an addition to his money capital.

This running off of stocks is a usual consequence of a crisis. Traders, as it is said, do their utmost "to contract their engagements." Except where there is the surest prospect of profit, they provide for having to receive as much and to part with as little money capital as they can. Their demands, therefore, upon that general fund which bankers dispense are everywhere diminished precisely when capital to supply them is pouring in in abundance. The rate of interest rapidly falls. The money market is easy, and the commercial community in that state of calm and languid depression which follows the paroxysms of

fever.

Money Capital lost reappears in new Hands.

In Mr. Mill's admirable explanation of the annual creation and destruction of the greater part of our specific capital, that is, commodities, he notes and explains the shallowness of the wonder caused by the rapid recovery of countries devastated by war. Similar, but not the same, is the explanation that can be given of the restoration of money capital after its destruction during a crisis. In war, capital in the specific form of commodities is really destroyed, though it is rapidly replaced by human labour. In a crisis, money capital is destroyed for a time by being transferred into income; but there is an absolute necessity for its coming back as capital. The sending of bullion abroad, or the failure of bankers, may make a gap in the aggregate of the money capital-the amount in the latter case being measured by the difference between the sum of the bankers' deposits, and the cash held in his hands to meet them; but the vast losses of commercial houses, or of private accumulators, do really return in the course of another revolution, and restore, though in new hands, and with a new distribution of property, very much the same state of real, as distinguished from factitious, money capital which existed before the convulsion; the main difference between the two cases being the destruction, in the latter case, of the confidence which existed in the former. In a word, the community, as a whole, has the same life and blood in it as ever; but it does not believe it. It is low-spirited, hypochondriac, or hippish, and will not dare, for some time to come, to indulge in the debauchery which was followed by so severe a retribution.

A definite Relation between Capital and Income.

The idea of a balance or harmonious proportion between money capital and money income, suggests the question in what way a relation of quantity subsists between them, and whether it can be measured. The returns from income to