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.

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? This is a question of 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 ally 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

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of the means to lend and to purchase interesting features. The growth of multiplication of new fields of industry, expanding intercourse of nations with one

another, their ever-increasing confidence that a debt due by a man dwelling in a foreign country will be duly paid-these and other causes spread the process of borrowing over a vast number of localities. The industries and trades worked all over the world with capital-not money, but goods exported-borrowed from England, are incalculable. Mr Mill has laid great stress on the tendency of profits and interest to descend to a minimum, as smaller returns come in from successive applications of capital, especially to land. Theoretically the doctrine is indisputable. In the latter days of the world all land will have been brought under cultivation, and increase of yield will be extremely difficult. But the theory will have little practical value for many ages to come. The movement is distinctly now in the opposite direction. This set of the tide, this marked tendency of the last fifty years to enlarge the field of labour, to place old nations by trade and capital more in the position of new ones, to convert the development of country after country into, as it were, the acquisition of new lands for mankind, and thus to intensify the motive for saving, Mr Mill failed to perceive. He was blind to it when he spoke of land. It never occurred to him, as will be shown later, that the fields of England had been increased by millions, that America, Russia, India, the Colonies, in a word, innumerable countries, were asking for the products of English industry, were summoning England to save more capital, and invest it in new manufactures, were offering their own wealth in exchange, and that profits, wages, and interest were set upon the rise.

In no sphere is this intercommunity of nations more

and trade, and interfere with the more natural and fitter course proclaimed by its teaching. Trade is always an exchange of equal goods, and Political Economy asks no questions about their nationality. This all-important truth has a great voice in this matter of international lendings, and is supreme in the domain of free trade. It follows as a direct consequence from this principle, that if the capital sent away from England to a foreign country-and it is always sent away, be it remembered, in goods, not in moneygenerates in it a production of wealth, which is exported to England in exchange for English goods, it makes no difference to England whether that capital has been invested in her own territory or in a foreign one; English labour has been equally benefited in both cases. The consumption of the capital in England would have resulted in the production of a stock of wealth by English labour; but if that capital had been invested in America, in the creation of an additional quantity of cotton, which was sent to England in exchange for English goods, then those English goods sent to America would have given additional employment to English labour, to an absolutely equal extent with those which would have been made, if the capital had been employed in England instead of in America. English capital lent to Australia has built up the great trade between that country and England, and along with it, the large extension of industry and of the employment of labour in England.

On the other hand, the loan may be applied abroad to purposes which do not supply goods to send to England, and do not directly increase English trade.