persons either counting on extraordinary profits, or in urgent need: unproductive consumers who have exceeded their means, or merchants in fear of bankruptcy. The disposable capital deposited in banks; that represented by bank notes; the capital of bankers themselves, and that which their credit in any way in which they use it, enables them to dispose of; these, together with the funds belonging to those who, either from necessity or preference, live upon the interest of their property, constitute the general loan fund of the country: and the amount of this aggregate fund, when set against the habitual demands of producers and dealers, and those of the Government and of unproductive consumers, determines the permanent or average rate of interest; which must always be such as to adjust these two amounts to one another.[1] But while the whole of this mass of lent capital takes effect upon the permanent rate of interest, the fluctuations depend almost entirely upon the portion which is in the hands of bankers; for it is that portion almost exclusively, which, being lent for short times only, is continually in the market seeking an investment. The capital of those who live on the interest of their own fortunes, has generally sought and found some fixed investment, such as the public funds, mortgages, or the bonds of public companies, which investment, except under peculiar temptations or necessities, is not changed.
- ↑ I do not include in the general loan fund of the country the capitals, large aa they sometimes are, which are habitually employed in speculatively buying and selling the public funds and other securities. It is true that all who buy securities add, for the time, to the general amount of money on loan, and lower pro tanto the rate of interest. But as the persons I speak of buy only to sell again at a higher price, they are alternately in the position of lenders and of borrowers: their operations raise the rate of interest at one time, exactly aa much as they lower it at another. Like all persons who buy and sell on speculation, their function U to equalize, not to raise or lower, the value of the commodity. When they speculate prudently, they temper the fluctuations of price; when imprudently, they often aggravate them.
