CAPITAL AND FINANCIAL INSTITUTIONS IN THE COLONIES
Introduction. Capital is one of the four classes into which economists have divided the agents of production. As an agent of production, and one that has become increasingly important as time passes, it is essential to society that conditions shall be such as to foster its accumulation and further its most economical use. In determining these conditions the financial institutions of a country play a vital part.
The supply of capital is commonly said to be determined by the amount of wealth produced that it is possible to save--the savable fund-- and by the willingness of those who can save to save--the effective desire of accumulation. The savable fund depends on how much surplus is produced over and above what is necessary for subsistence. The effective desire of accumulation depends on those conditions that make a person willing to forgo immediate consumption of wealth for the sake of having more in the future, such conditions as foresight for possible future wants and such social security as makes it probable that one who saves, or those for whom he saves, will in the future enjoy the fruits of his sacrifice and not be deprived of them.
For its most economical use, it is desirable that such capital as has been saved shall be used in the process of production by those who can make it most productive. Since those who own capital are often not in a position to use it in the most productive manner themselves, it is desirable that there should be facilities for transferring it to those who can so use it. This is done, where the owner does not use it himself, by lending it to others or investing it in enterprises the control of which rests chiefly or entirely with others. Some borrowing is for the purpose of obtaining money to be used in consumption. A borrower is said to receive credit from the lender. This credit is based on all the factors that create a belief in the lender that the borrower will be able and willing to repay the debt when it falls due. It is therefore clear that the better the facilities existing for lenders to determine with accuracy the credit of borrowers, the greater is the likelihood that capital will flow into the hands of those who will use it most productively. Credit institutions increase the mobility of capital and facilitate its transfer.