In

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.

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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

capital are made in periods of every variety, but the annual production of crops renders it convenient to measure all incomes as annual. The aggregate of income is, therefore, the aggregate of annual income.

Of the whole aggregate stock of money or paying power, namely, bullion, bank-notes, and bank credits, every portion is held by some one, to be laid out either as part of his income or as capital. At any one moment, therefore, there is a certain definite portion of the whole held by the whole community, as income. The remainder is necessarily held as capital, and is, in fact, the then existing stock of money capital.

Few

The sum of bullion, bank-notes, and transferable bank credits, would give us at any moment the then existing aggregate of money, including both income and capital. The same sum, after deducting the part held to be used as income, would give us the exact total of money capital; but the sum of the part so deducted for income is evidently quite a different thing from the sum total of annual income, and even if we knew the former, it would not enable us to know the latter. men hold a year's income in cash or at a bank, and the great mass of those who spend have seldom at command more than from a week's to a month's supply. As men's actions are so much governed by habit, it is certain that, unless when alarm leads to hoarding, the aggregate amount usually held in hand for expenditure bears some pretty constant proportion to the aggregate of expected annual income, but unfortunately neither term of the proportion is accurately known to us.

The income-tax returns', combined with some other and more uncertain data, have suggested rough estimates of the gross income of the community as measured in money. We know the aggregate of income assessed to the income tax, but we can only

1 Of what immense value it would be to have a copious and clear digest of the information contained, and hitherto concealed, in the records of the income tax. Every object, of course, might be attained without a single disclosure injurious to individuals.

guess at the gross amount of the smaller incomes. Whatever it may be, it is a definite amount, susceptible of increase or diminution; and it is easy to conceive a measure by which, for a time, it might be considerably augmented. A large sum taken up by Government, or a railway company, and applied in wages and salaries, would evidently enlarge the gross income by more than its own amount, for after enlarging the income of the first recipients, it would go on from the increased demand enlarging other classes of incomes. The more rapidly taken up and applied, the greater the effect. It would not all be paid out at one time, nor, of course, all held as income at one time; but in proportion as each man came to believe that he could afford to spend more in the course of the year, he would naturally hold more at command for his increased current expenses. To many, especially of the working class, the actual proportion of the whole income held at one time would be even increased, and thus two sets of causes would draw into that part of the monetary machinery which distributes incomes, a large portion of what previously existed as money capital.

But it is frequently found that these large drafts out of capital into income leave the former apparently as abundant as before. During the war the Government drew upon the stock of money capital with insatiable voracity; but, though the rate of interest remained high, the capital was never exhausted. The loans were always to be had, and it seemed as if the water in the reservoir only rose higher for every new pipe of discharge that was opened out of it.

The causes which determine the variations in the amount of money capital are so veiled by the complexity of our banking and credit system as almost to defy accurate analysis. The materials for such analysis are only possessed by those who, in the actual course of varied and extended banking transactions, see the movement of that wonderful circulation which is the life-principle of modern industry, and is undoubtedly the most delicate and highly-finished portion of our whole social organization.

It is impossible to keep quite separate the different parts of this subject. They flow into each other. Such rough distribution as I have attempted, however, will assist the reader. Having considered money capital, I now pass to money incomes; an examination of which will more clearly show the nature of the transformations incidental to money capital.