118 SECTIONAL ADDRESSES 
flow of capital. By 1914 the interest receipts of Great Britain were 
apparently less than the amount of capital annually added to our foreign 
investments. Our exports of commodities (including current services) 
appeared to be less than our imports of the same kind. We were rein- 
vesting abroad nearly the whole of the interest upon accumulated invest- 
ments, but apparently we already needed a small proportion of such 
interest to pay for current imports. A debtor state which had ceased to 
borrow also possessed a surplus of commodity exports, the surplus being 
needed to pay the interest on accumulated debt. Such was the position 
of the United States of America before the outbreak of the world 
war. 
The growth of long-term investment was normally so slow and regular 
that it did not destroy the internal equilibrium of the investing country. 
For short periods it might invest more or less than the commodity surplus 
representing the sum available for investment. But in such cases the 
balance of payments was maintained by the transfer of liquid capital. 
The investment operation was supplemented by a credit operation. 
Similarly, if for any other reason there was a temporary excess of imports 
or exports the surplus or deficit was removed by a movement of liquid 
capital. 
It is here that we find the essential difference between investment 
capital and liquid capital. Investment might well be termed an industry 
resembling coal mining or cotton manufacture. It possessed (if we 
ignore cyclical fluctuations) a fairly constant market outside the country 
and had been built up slowly upon the assumption that the market was 
comparatively safe and likely to grow. Other industries, supplying the 
commodities representing the export surplus available for investment, 
had also grown up alongside the investment industry, their growth being 
based upon the assumption of continuity in the growth of investment. 
In short, investment was an integral part of the industrial structure and 
an influence determining the remaining permanent features of the latter. 
It was not an accident of growth or an occasional visitor. Continuity 
was of its essence, and if all foreign markets for British capital had suddenly 
disappeared, industry would have been reduced, for a time, to a state of 
chaos. Liquid capital, on the other hand, was employed, in different 
places and at different times, as an equalising factor. Its purpose was 
to restore or maintain temporary equilibrium when equilibrium had 
already been destroyed or threatened ; to ease the restoration of true or 
stable equilibrium by reducing the intermediate effects of a process of 
change or the effects of some temporary disturbing factor. I shall 
endeavour to show that some of our most serious difficulties since the war 
have been due to the fact that the distinction between investment capital 
and liquid capital has lost much of its pre-war significance. 
III. 
The conditions that I have described in the second section seem to me 
an essential part of a secure foundation for the working of the gold 
standard. But they do not indicate all the conditions that must be satisfied. 
