tically valueless, and the issue worthless. The government should receive equivalent value in some shape for every dollar put into circulation by it.

It has been suggested that the government might make advances to certain classes, on different kinds of produce, etc.-in other words, go into the business of loaning money on commercial paper and warehouse receipts. Bankers, merchants, and warehousemen will do this now, on good security. Certainly the government could not long continue to do it on any lesser security than the bankers, merchants, and others are willing to accept. And if it did, would soon be in a position where it could make no further advances. And if one class is entitled to borrow money from the government, why not all classes?

Capital is not and cannot be created by printing "greenbacks," paper money, neither by a government nor by an individual, and the usefulness of paper money is measured by the ability of the issuer to redeem such promissory notes upon demand. Should the issuer part with them without receiving an equivalent value, he places himself in a position where whatever security exists for their payment must soon be exhausted, and where there is no income to provide for the unpaid issue.

The necessity of government supervision and control of the issuance of both coin and currency in the shape of money has previously been commented upon in the article on "Money," and need not be here repeated.

As the financial operations of the government with business life are usually consummated not through the Treasury at Washington, but rather through its subtreasuries and fiscal agencies (national banks, generally), outside of mentioning the amount of money in the Treasury, it has been thought best to describe the operations of a sub-treasury, in preference to those of the main Treasury. As that in New York is the largest and most important, as well as fairly typical of the others, that has been chosen.

CHAPTER II.

Capital Credit-Interest-Exchange-Price.

Capital. In order to arrive at any true understanding of the meaning of this much-used word, we will have to consider it, first, in the broader definition accorded it in political economy, and secondly, in the more restricted sense in which it is used in commerce.

In political economy capital is that part of the product of industry not needed for immediate consumption, and which may be used for the support and maintenance of life during a subsequent period of productivity. Capital is the surplus beyond the present necessities: in the case of an individual, of that individual; in the case of a community or state, of that community or state. Capital is the accumulated product of past labor upon natural objects, over and above the immediate needs of mankind and the animal or mechanical labor which he calls to his aid, and which may be used at a future time. The real capital of either a man or a community is that portion of his property on which he may subsist during some future period, or that which he may exchange for such subsistence. Wheat, corn, rye, rice, and other cereals, cattle, hogs, sheep, etc., wool, cotton, and the skins of wild animals are practically the only forms of capital whose value is always real, and not, as in the case of precious stones and many other things, almost wholly dependent upon

their exchangeable value for the above-named necessities. Few circumstances could arise where these things would not be of value, whereas under many circumstances metals or precious stones would be of no value to the possessor. In fact they derive their only value from a surplus of the necessities of life, the exchange of which they are largely used to facilitate, and as that surplus is greater or less their value increases or diminishes.

Capital is often described as a moving force, and the fact that it is the surplus which makes possible the con. tinued use and development of wealth and property by providing food, raiment, and other necessities, as well as luxuries of life during this time, is one of its distinguishing features from property, or wealth, or value. And yet capital is property, capital is wealth, but it is only that part of property or that part of wealth which, by affording man and his agents subsistence during the period of the development and maturing of the labor expended upon wealth or property, makes that development possible. Capital as the support of labor is the active force, acting on property the passive object.

Capital is subject to the same laws which govern the whole universe; it is created, matures, and passes away. Only the most insignificant portion is of a character which renders its disuse without loss possible. Practically the whole of capital, being composed of the articles and commodities necessary for the maintenance of life, and therefore of a nature not admitting of permanent preservation, must needs be used in order to supply labor with the power to re-create more capital.

While an individual may add to his capital by dispos ing of a portion of his property, the relative amount of capital to property in a community or state cannot be affected by any such transfer unless the capital is furnished by some other community or state; such transfers between its own citizens cannot alter the relation of

capital to property, but if beneficial to both persons it may afterwards result in increased productivity.

It cannot be too strenuously insisted that land is not capital, but that its whole value is dependent upon its adaptability to the use of capital upon it.

Secondly, in its restricted, commercial use, capital is either money or what may readily be converted into money without subtracting from the earning capacity of the industry in which it is invested. Thus the net earnings of a factory after the payment of all charges, or the funds or securities, things or values which may be used without diminishing its plant, is capital, but the sale of its fixtures or machinery would not be in any sense capital, especially if they were necessary to its proper conduct. This interpretation is so generally accepted that the results of all sales of machinery, fixtures, or equipment are invariably recorded in the books of all properly managed companies as belonging to their respective accounts and forming no part of capital.

We will then assume capital to be the fund used in the actual conduct of a business, the place or plant and the fixtures or machinery necessary thereto having been paid for previously or provided for out of other property.

While by many stock in trade is regarded as capital, which in the broader definition given the word by political economists it certainly is, yet when used commercially, and considered as the surplus fund by which the business is conducted during the interval between the purchase and sale of this stock, such a treatment, while theoretically correct, is unwise and inexpedient.

What ratio should capital bear to the business transacted? This is a question which nearly every business man has at some time asked. So much has to be taken into consideration in attempting an answer that most men, appalled at the task, do not attempt it. Certainly only the most general rules can be suggested, so much

depends upon the nature of the business, the conditions of purchase of stock and the sale of product, the time given the purchaser, and the time he in turn extends to those purchasing from him; the variations in the price of both the raw material and the manufactured product, the rate of interest which capital commands in the open market, the condition of the country, and a hundred other things have to be taken into consideration in answering this question as to any particular industry. Of course, less capital is required to conduct a commission business than a business where the goods are purchased outright and sold again, but even here there must be sufficient capital to conduct the business until commissions are earned and received, to make necessary advances, etc.

In most trades or businesses there is some ratio which careful men consider necessary to maintain under even the most auspicious circumstances. There should certainly be enough capital in a manufacturing business to run the business, pay all expenses, labor, etc., and leave a moderate reserve fund on hand, from the time of the purchase of a stock until that stock is made up, sold, and paid for. Where the time consumed is short, less capital is required than where it is long. By way of illustration we will take a factory whose annual output is $1,000,000, ten per cent. of which, or $100,000, is profit. $500,000 represents the cost of raw material, and $400,000 of labor, taxes, insurance, etc., and which is divided into four purchases of stock, of four periods of three months each. The cost of running the factory for three months would thus be $225,000, or $900,000 annually. It would seem that $225,000 would be the smallest sum with which such a factory could be safely and comfortably run; and this would involve turning over the whole capital four times in a year to reach the figures given. A great many factories, however, are not run on this cash basis, but on a credit basis, in which event the owners must, of necessity, pay for the use of the capital of others during the interval between