We, however, remarked that there are other circumstances in which loans are not chargeable with these pernicious consequences: namely, first, when what is borrowed is foreign capital, the overflowings of the general accumulation of the world; or, secondly, when it is capital which either would not have been saved at all, unless this mode of investment had been open to it, or, after being saved, would have been wasted in unproductive enterprises, or sent to seek employment in foreign countries. When the progress of accumulation has reduced profits either to the ultimate or to the practical minimum—to the rate less than which would either put a stop to the increase of capital, or send the whole of the new accumulations abroad—government may annually intercept these new accumulations, without trenching on the employment or wages of the laboring-classes in the country itself, or perhaps in any other country. To this extent, therefore, the loan system may be carried, without being liable to the utter and peremptory condemnation which is due to it when it overpasses this limit. What is wanted is an index to determine whether, in any given series of years, as during the last great war, for example, the limit has been exceeded or not.
Such an index exists, at once a certain and an obvious one. Did the Government, by its loan operations, augment the rate of interest? If it only opened a channel for capital which would not otherwise have been accumulated, or which, if accumulated, would not have been employed within the country, this implies that the capital, which the Government took and expended, could not have found employment at the existing rate of interest. So long as the loans do no more than absorb this surplus, they prevent any tendency to a fall of the rate of interest, but they can not occasion any rise. [But] To the full extent to which the loans of government, during the war, caused the rate of interest to exceed what it was before, and what it has been since, those [pg 598] loans are chargeable with all the evils which have been described. If it be objected that interest only rose because profits rose, I reply that this does not weaken, but strengthens, the argument. If the Government loans produced the rise of profits by the great amount of capital which they absorbed, by what means can they have had this effect, unless by lowering the wages of labor? It will, perhaps, be said that what kept profits high during the war was not the drafts made on the national capital by the loans, but the rapid progress of industrial improvements. This, in a great measure, was the fact; and it, no doubt, alleviated the hardship to the laboring-classes, and made the financial system which was pursued less actively mischievous, but not less contrary to principle. These very improvements in industry made room for a larger amount of capital; and the Government, by draining away a great part of the annual accumulations, did not indeed prevent that capital from existing ultimately (for it started into existence with great rapidity after the peace), but prevented it from existing at the time, and subtracted just so much, while the war lasted, from distribution among productive laborers. If the Government had abstained from taking this capital by loan, and had allowed it to reach the laborers, but had raised the supplies which it required by a direct tax on the laboring-classes, it would have produced (in every respect but the expense and inconvenience of collecting the tax) the very same economical effects which it did produce, except that we should not now have had the debt. The course it actually took was therefore worse than the very worst mode which it could possibly have adopted of raising the supplies within the year; and the only excuse, or justification, which it admits of (so far as that excuse could be truly pleaded) was hard necessity; the impossibility of raising so enormous an annual sum by taxation, without resorting to taxes which from their odiousness, or from the facility of evasion, it would have been found impracticable to enforce.[356]
When government loans are limited to the overflowings of the national capital, or to those accumulations which would not take place at all unless suffered to overflow, they are at least not liable to this grave condemnation. In this case, therefore, the question really is, what it is commonly supposed to be in all cases—namely, a choice between a great sacrifice at once, and a small one indefinitely prolonged. On this matter it seems rational to think that the prudence of a nation will dictate the same conduct as the prudence of an individual; to submit to as much of the privation immediately as can easily be borne, and, only when any further burden would distress or cripple them too much, to provide for the remainder by mortgaging their future income. It is an excellent maxim to make present resources suffice for present wants; the future will have its own wants to provide for. On the other hand, it may reasonably be taken into consideration that, in a country increasing in wealth, the necessary expenses of government do not increase in the same ratio as capital or population; any burden, therefore, is always less and less felt; and, since those extraordinary expenses of government which are fit to be incurred at all are mostly beneficial beyond the existing generation, there is no injustice in making posterity pay a part of the price, if the inconvenience would be extreme of defraying the whole of it by the exertions and sacrifices of the generation which first incurred it.
§ 2. Not desirable to redeem a national Debt by a general Contribution.
When a country, wisely or unwisely, has burdened itself with a debt, is it expedient to take steps for redeeming that debt? In principle it is impossible not to maintain the affirmative.
Two modes have been contemplated of paying off a national debt: either at once by a general contribution, or gradually by a surplus revenue. The first would be incomparably the best, if it were practicable; and it would be practicable if it could justly be done by assessment on property alone. If property bore the whole interest of the debt, property might, with great advantage to itself, pay it off; [pg 600] since this would be merely surrendering to a creditor the principal sum, the whole annual proceeds of which were already his by law, and would be equivalent to what a land-owner does when he sells part of his estate, to free the remainder from a mortgage. But property, it need hardly be said, does not pay, and can not justly be required to pay, the whole interest of the debt. Whatever is the fitting contribution from property to the general expenses of the state, in the same, and in no greater proportion, should it contribute toward either the interest or the repayment of the national debt. This, however, if admitted, is fatal to any scheme for the extinction of the debt by a general assessment on the community. Persons of property could pay their share of the amount by a sacrifice of property, and have the same net income as before.
If a person owns a property, A B, which returns him $1,000 income, and if he pays $10 a year in taxes as his share of interest on the public debt, suppose that part of his estate represented by X, which returns him annually $10 (and which return he has annually handed over to the state), to be carved out of it, and that he is to be hereafter relieved of his share of taxes. He would then, after having paid the capitalized value (X) of that which was his share of the annual tax to the state on account of the public debt, have the same net income as before; for he was never able to enjoy the income of X.
If those who have no accumulations, but only incomes, were required to make up by a single payment the equivalent of the annual charge laid on them by the taxes maintained to pay the interest of the debt, they could only do so by incurring a private debt equal to their share of the public debt; while, from the insufficiency, in most cases, of the security which they could give, the interest would amount to a much larger annual sum than their share of that now paid by the state. Besides, a collective debt defrayed by taxes has, over the same debt parceled out among individuals, the immense advantage that it is virtually a mutual insurance [pg 601] among the contributors. If the fortune of a contributor diminishes, his taxes diminish; if he is ruined, they cease altogether, and his portion of the debt is wholly transferred to the solvent members of the community. If it were laid on him as a private obligation, he would still be liable to it, even when penniless.