It will be seen, therefore, that a bank’s profits are not something over and above, out of the sphere of the total profits of the community, but are a share of them, just as my employer shares with me the profits he makes. If he paid me no salary, his personal profits would be larger. But they are diminished to the extent of the salary he gives me. When banks raise their interest for loans it is tantamount to raising the price of their services. That is to say, they demand a larger share in the profits of the community. Merchants then try, in their turn, to obtain a larger portion of the profits of the community. Less wealth is then liquefied, the wheels of trade begin to revolve more slowly, and depression sometimes begins. Profits diminish, less capital and wealth are produced, and the effect is subsequently seen in the so-called loanable fund. The character of the loanable fund alters, however, in times of depression. The pure deposits then increase and the loan deposits diminish. As it becomes less profitable to liquefy fixed capital, then less wealth is taken to the banks to be liquefied, and therefore the banks have to take their lessened share of the aggregate profits of the community. But a considerable portion of capital already in liquid form in the shape of profits, instead of being reconverted into fixed capital, remains liquid, and in its liquid form is hoarded with the banks. But this hoarded, liquid capital is not credit now, although in its origin it was called credit. Even those who hold that banks originally created the credit will hardly deny that these deposits are now money, even though the money may be the product of former bank loans, or former liquefaction of wealth. If in their original liquefaction they were credit, why are they not credit now? At what precise moment did they become no-credit? If they originated as credit why are they not permanent credit? However, we see the character of the loanable fund change. The pure deposits grow, the loan-deposits diminish, and banks are said to have more money or capital than they can employ. This is so, even if the aggregate of the deposits is precisely the same before the depression as after it, the increase in the pure deposits being, say, merely equal to the decrease in the loan deposits. Why, if the deposits are equal in amount, is the loanable fund much greater in times of depression than in times of activity, and why do rates for loans fall? CHAPTER VIII THE METAMORPHOSIS OF THE FUND This is because of the character of legal tender currency, and a legal tender currency, however desirable and however great its merits, must necessarily have its shortcomings in a progressive state.