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34 Manual of Political Economy.
BOOK I. CH. IV.
Loans applied to public works.
portion of the capital of the country. If, however, the capital which has been contributed to the loan had remained with its original possessors, it would in the undertakings in which it was employed, in all probability, have contributed to the production of some useful commodities which might afterwards have been applied as capital. Upon such an hypothesis, therefore, the capital of the country is diminished in consequence of the loan; the labourers will ultimately suffer, because since there is less capital there will be a smaller sum to be distributed amongst them.
As a second hypothesis, let it be supposed that the loan, after being raised in a country, is productively employed by a Government. Where industrial enterprise is backward, it may happen that many important undertakings, such as railways, canals, and irrigation works, will not be carried out by any one but the Government. A loan which is raised under such circumstances will cause an augmentation in the capital of the country, unless the whole of the loan is obtained from wealth already performing the functions of capital. This is scarcely a possible supposition; there is never this active employment of capital by private individuals in countries where industrial enterprise is backward. The money lent to the Government would no doubt, to a considerable extent, be supplied from wealth which has been hoarded. The addition which may be made to the capital of a country by devoting a loan to reproductive purposes may be much greater than is here described; for it generally happens that a large portion of the loan is obtained from foreign countries. Thus the Government railways of Russia and the Public Works of India have been to a very large extent constructed by means of English capital. In the contrast which has just been drawn between the certain loss and possible gain which may ensue upon the unproductive or productive employment of loans, it must not be supposed that a Government is justified under all circumstances in raising loans for industrial undertakings. In the first place the interference of the Government may check private enterprise, and it is always better that trade and industry should as far as possible be left to private enter-