There is a pool of commercial financing through which effective utilization of the social circulating capital is rendered possible. The individual business enterprise contributes its surplus and obtains its deficit, the co-operative application of the capital being effected through the institution of commercial banking. There is an investment pool, as well, in which the institution of investment banking partly effects the co-operative application of the capital which is contained in that pool. Considerable difference, however, exists between the two pools. The pool of commercial financing concerns itself exclusively with the social circulating capital, while the pool of investment financing is much wider, and concerns itself with the total capital in existence and includes fixed, as well as circulating, capital. In a broad sense, there is thus included in the pool of investment financing the capital which is contained in the pool of commercial financing.

This difference in area goes hand in hand with a difference in the units between which co-operation is effected. In the case of commercial financing, we stop with the individual enterprise; in the case of investment financing, we end with the individual himself. In the first case, the lenders and borrowers are in a broad sense one and the same class; in the other, the individual is the lending unit, while the business enterprise is the borrowing unit. The underlying purposes of the two pools thus differ. The commercial pool represents co-operation by business enterprises in the employment of the circulating capital owned by these enterprises; the investment pool represents co-operation by individuals to render available for employment by business enterprises the capital owned by these individuals. In the investment pool, relative permanency is the keynote, both on the part of borrower and lender. There is not the periodic liquidity of funds which is found in the commercial pool, nor is there the frequent periodic availability and inavail-ability of funds - alternating periods of surplus and deficit - on the part of the individual enterprise. The flow of capital in the investment pool is more viscous. Slower change occurs in the alignment of recipients and of lenders, as well as in the general character of the investments represented. Change in the investments occurs primarily in the direction in which new saved capital is applied.

Corresponding to the difference in the fundamental purpose of the two pools is a difference in the technic by means of which the pooling is effected. The factors in the investment pool are more diverse, the structural differentiation is more pronounced, and the relative importance of the role which each of the factors plays, differs. In the commercial pool the structural elements are threefold: (1) the note broker, the discount corporation, and the finance corporation; (2) the commercial bank; and (3) the individual enterprise which either sells on time or which purchases and holds commercial paper with its surplus funds. The parallel elements in the investment pool are: (1) the trader in securities, such as the bond house (including also the corporation which resells securities with its own indorsement or issues its own obligations based on these other securities); (2) the association of lenders, in the form either of savings bank, holders of time deposits or inactive accounts in a so called "commercial" bank, insurance company conducted upon the actuarial principle of reserves as distinguished from the actuarial principle of distribution of loss, or co-operative bank; and (3) the individual.

Concentrating attention upon the second element, it is seen that while banking in both pools concerns itself with the assembling of capital, only in the commercial sphere does it concern itself equally with its distribution. Owing to the character of the purposes to which commercial loans are applied, and the corresponding duration of the loan, it is possible to change the total volume of loans. On the other hand, by means of the association of lenders - depositors, the withdrawal of certain enterprises from the circle of lenders - depositors is compensated, broadly speaking, by the advent of others. Thus its funds again become available automatically to the individual lending enterprise through the commercial banking system. In the investment sphere, however, this availability is attained in another manner. Whereas in the commercial pool the discount market is primarily a question of the internal organization of the banking system, in the investment pool the security market plays a far wider role. In the investment pool the individual investor bulks large among the sources of capital supply. In general, he holds title to a specific security rather than what is in effect a claim to a proportionate share of the total holdings of a group. For him, shift of his investment is accomplished only through sale to another individual or to an association. Moreover, in case the depositors of the bank call upon it for funds, in the absence of the self-liquidating feature in its loans and investments, it must have recourse to the security market. Thus a broad open market is indispensable, and it is in this connection that security speculation performs its first function.

Considering merely the investment pool, the forms which the "in vestment" of capital assumes therein are threefold: (1) ownership of securities; (2) loans on securities, made largely either to bond house or speculator; and (3) direct loans to the individual enterprise. The first of these calls for no special comment. In connection with the second, investment banking assists in directing the flow of capital into investment. "This it does through loans to bond houses, which are engaged in what is in certain ways a species of commercial activity, as well as by providing capital equipment to the basic value element in the securities involved, during what we may term the process of "seasoning." In the latter case the speculator - a special class of individual holder - supplies the fluctuating additional amount. Speculation here performs its second function - namely, that of directing the flow of capital into investment. Turning to the last form of investment, direct loans to the individual enterprise, in order to involve the time element, are practically made for employment as fixed capital. There is, however, a shading in time, both of loan and of operation to which the same is applied, between such loans and commercial loans, and a large twilight zone exists.