money market which deals in discount. It is mainly under the control of bankers; and to say this is to proclaim that the rate of interest, the consideration to be paid for the service of lending, is more subject to violent fluctuations in this region than in any other. A full explanation of the market for discount cannot be given here; it must be adjourned to the Chapter in which banking will be considered. The loan fund, with which banking deals, is commonly called floating capital. It is appropriated to no special and permanent investment. It moves about-is lent for short periods; it is in the hands of one man to-day, of another a month later; it helps at one time a merchant whose wool is on the sea, at another a speculator on the Stock Exchange. It floats; its nature is radically different from loans invested in fixed appropriations.

This is a question of

But the phrase floating capital is a very loose one, and is exceedingly apt to mislead. Where is the capital, which is thus called floating? the highest importance for a clear understanding of banking. The banker lends with pieces of paper, be they bills or cheques-cash, that is, coin and bank-notes, constitute but a trifling portion of his machinery. These are the things he handles; if he has anything to do with capital, where is it? To call the pounds indicated on these papers, or registered in his ledger, capital, is to contradict the very definition of capital, to destroy its nature, to render the explanation of the real facts impossible. Yet the lender who makes an entry in his books to the credit of a borrower, and authorises him to draw cheques or bills on that account, very really transfers property, and thus truly lends capital to

a man who without this machinery of paper would not have had the capital. He is able to do this, because the paper is endowed with the power of purchasing commodities, and these commodities are capital. The merchant and the manufacturer by the help of the discounted bill or the drawn cheque obtain materials or machinery for carrying on their business; they acquire what is very really capital; they obtain the things necessary for producing wealth. But where—and the question is critically important-where was all this capital before it was lent and transferred as loans by the action of the banker? Plainly, in the shops and warehouses-and this is a fact which few discern and

bring into its necessary prominence. The capitalnone of it except coin-is not in the hands of the bankers. What the bankers possess is purchasing power, the means of buying goods and property, and that purchasing power they can and do transfer from one set of men to another. They thus exercise direct control over ownership of capital; they enable a borrower of these means of buying to go into a market and procure goods which without the banker's aid he could not have obtained. They are paid for with cheques, which the banker authorises the borrower to draw upon him. This purchasing power which the banker lends is derived from debts, expressed in cheques, bills, and other papers, paid in to him by depositors. He collects them, but not in money, in London at least and other places, but by setting them off against the cheques which he authorised his borrower to draw. The two sets of cheques meet at the Clearing House—a balance sheet is drawn up-and the banker pays with a cheque on the Bank of England the

advantage of the straits of the needy to extort rapacious terms, but even in its most moderate form: it has no right to exist.

A fatal misconception, as I have said, pervades these ideas on interest. If, indeed, property is declared to be an immoral and unjustifiable institution, then, of course, interest must be involved in the same condemnation. But this is communism; whilst the special objection to interest pre-supposes the existence of property. The mistake consists in not perceiving that the principle of reciprocal service, as the basis of reward or payment, is fulfilled in a loan granted on interest. The capitalist has an interest in the loan, but so also has the borrower, and almost universally in a higher degree than the lender. The fact that he is willing to pay interest for the loan by itself alone proves that he conceives he is gaining an advantage by it; and if service given to the lender brings him benefit, he is bound to give a benefit in return. Not to render service for service would extinguish all labour for others, and soon destroy civilisation.

The objection that money generates nothing is futile. In all loans the things lent are what the money buys. The capitalist who lends and takes interest puts useful wealth in the hands of the borrower. The banker who makes an advance to the merchant on discount lends him the cotton which is traversing the ocean. The small capitalist who lends some hundred pounds to a small man stocks his shop and sets him up in business. The capital borrowed produces results which more than repay the interest: it creates a profit. That profit the capitalist foregoes

and gives up to another; he suffers no wrong, therefore, in being charged with interest. Quite the reverse; without that interest he could not have obtained the use of the capital bought with the money, and the profit never would have existed for him. The fact that men borrow upon interest proves that there is a gain in borrowing great enough to make it worth while to pay the interest and this is decisive. To forbid interest is to extinguish one of the greatest motives for saving. It would prevent countless wealth from coming into the hands of those who use it as capital, to their own benefit and that of the whole community. But at any rate, many affirm, the rate of interest ought to be limited by law. Such a demand betrays a lurking feeling that lenders are by nature oppressors, and borrowers victims of exaction. No one, except socialists, dreams of prescribing prices to producers of goods, yet monopolists can extort quite as easily as lenders. Such limitation took the place at the Reformation of abolition of interest, and continued in England almost down to the present day. But it forgets the true relation between the parties. As a rule, the borrower is far more eager than the lender. There are innumerable men and firms who cry at times, "never mind what you charge, only let me have the accommodation." That implies weakness, it is replied; the law is bound to step in to give protection, there may be excess. But how will the borrower feel? Will the great mercantile house, which, though solvent, is threatened with stoppage in the agony of a crisis, thank the kindness which drives the banker, ready to lend, to say: we are not allowed to charge more than 5 per

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