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There was once a dreadfully wicked hobgoblin. One day he was in capital spirits because he had made a looking glass which reflected everything that was good and beautiful in such a way that it dwindled almost to nothing, but anything that was bad and ugly stood out very clearly and looked much worse.
This story is https://www.storynory.com/the-snow-queen-part-1/

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  • Is it capital³ or spirits² that is causing the difficulty, or how the adjective is applied to the noun? The usage is dated. Commented May 23, 2021 at 19:37
  • @WeatherVane Not necessarily dated, but certainly uncommon in American English. You'll still hear this in Britain (depending on where you are in Britain, of course)
    – Jasmine
    Commented May 23, 2021 at 19:57
  • The 'excellent' meaning is in Merriam-Webster without any 'dated' note, but I agree it is somewhat old fashioned. Commented May 23, 2021 at 20:09

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He was feeling happy, good, or cheerful

"He was in capital spirits" = "he was feeling happy"

In British English, capital means "good, fine, excellent"

"Spirits" in this case means "mood" -> "he was in poor spirits" = "he was sad"

You could literally translate this to mean "he was in an excellent mood"

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