86

ECONOMIC PRINCIPLES

than the demand from fresh enterprises considered above.
These extensions of the conception of what constitutes that
demand for and supply of capital which determine the
current rate of interest, do not alter the nature of the
considerations indicated as governing that rate. They do
operate to bring into closer contact the actual yield of
capital which cannot, for the time, be withdrawn from its
investment, and the prospective yield of capital free to
choose any of the avenues of investment for fluid capital.
Though capital cannot, generally speaking, be freely transferred
 from one enterprise to another, some transference
can take place, and the portion of capital thus transferable
must be added to that not yet committed to any investment
to determine the aggregate of what is available for investment.

Why do we not adopt the plan of considering together
all capital, old or new, invested or free, and all opportunities
of employment for capital, occupied or not, in discussing
the rate of interest? Mainly because actual instrumental
forms of capital can only be regarded as forms of capital,
and are not able to be dealt with ona footing of equality
with free capital. Free capital can avoid a less promising
investment in favour of a more promising one, but invested
capital must, for the time, remain in the investment in
which it is, however unprofitable it may have turned out to
be. The owner of free capital can become the proprietor of
such invested capital, but the exchange must be effected,
not on the basis of the cost of the invested capital, but on
the basis of its earning power. Its value is estimated as
equal to that of so much free capital as would, at the current
rate of interest, yield an equal net income. The proportion
of that net income to the cost of the invested capital may
differ in either direction, and to almost any extent, from the
proportion indicated by the current interest-rate,
The borrowing and lending of capital is, under modern
conditions, comparatively rarely a borrowing and lending
of specific instrumental goods, and is still more rarely made
on a contract for the payment for the hire of the capital to
be made in other forms than that of the general repre-