An Inquiry into the Principles of Political Oeconomy (Vol. 2 of 2) / Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes

by Sir James Steuart

From this we may conclude, that in all matters of public borrowing, it is of no consequence whether the subscription be filled by natives, or by foreigners, when the value of it is to be sent abroad.

Let us next examine the state of the question when the loan is made in order to be spent at home, as is the case after a war, when the unfunded debts come to be paid off.

We have said that loans are filled by money stagnating, which the owner desires to realize: if he cannot do better, he lends it to government; if he can do better, he will not lend it.

While the uses of domestic circulation absorb all the money in the country, that is to say, when there are private persons ready to borrow all the money to be lent, at this time government cannot borrow at home; and if they did, by offering a high interest for it, the borrowing would do harm to circulation; because it would raise interest at home, or disappoint those who would gladly borrow it, for little more than the interest offered by government.

Let us next suppose that after a war, when the unfunded debts are either bearing a high interest, or selling at discount, government shall find an advantage in opening a subscription, which may be filled from abroad, at a lower rate than the then actual value of money. Suppose, I say, the Dutch should be willing to lend at 3 per cent. while money in England stood at 4 per cent. I ask if, in this case, government ought to borrow from Holland, at the expence of sending the interest out of the country, rather than suffer such debts to sell at discount; or to continue paying a higher interest at home for what they owe?

It is my opinion that still they ought to borrow, for the following reasons. That if the high interest at home proceeds from want of money, that is to say, from circulation not being full enough, it is their interest to borrow, were it for nothing else than to supply circulation; because unless this be full, all industry must languish. But suppose it should be said that circulation is full enough, that industry suffers no check from that quarter, but that there being no superfluity of money, interest stands 1 per cent. higher than it would do were there considerable stagnations. In that case also, I think it is their interest to borrow, were it for no other reason than to produce such stagnations.

It is a general rule every where, that there is no having enough without having a superfluity; at least there is no certainty of one’s having enough without finding a superfluity. Borrowing, therefore, in small sums, at such a time, will produce stagnations at home, from which succeeding loans may be filled, after circulation is sufficiently provided: and even in case more should be borrowed from strangers than is necessary, and that in consequence of it, too much should come to stagnate at home, after the demand of government is over, in that case, the monied interest would lend, in their turn, to other states, where interest is higher; and the annual returns from that quarter would more than compensate what must be sent away, in consequence of the former borrowing.

From these combinations, let us draw some conclusions.

1mo, That the effect of public borrowing, or national debt, is to augment the permanent income of the country, out of stagnating money, and balances of trade.

2do, That this income so created, may be either the property of natives, or of strangers.