36 Manual of Political Economy.
BOOK I. CH. IV. Effects of loans in general.
most unproductive manner possible without in any way diminishing the national wealth. There is, however, a difference in the consequences which result when money is spent unproductively by individuals, and when the same money is subscribed to a loan, which is spent unproductively by Government. In the first case, where individuals spend the money unproductively, no one has to pay them anything for doing so; but in the second case, where these individuals lend the money to the Government to be spent unproductively, the whole nation has annually to pay a certain penalty in consequence of this unproductive expenditure. The penalty paid is the interest received by the lenders of the money.
In estimating the effects of a loan we have these general principles to guide us: The loss of the labourer is in proportion to the extent to which the loan encroaches upon the capital of the country. A loan may increase the capital of a country either by encouraging greater saving, or by inducing capital to be subscribed to the loan from other countries. In this case the labourer may receive an immediate benefit, proportioned to the increase of capital caused by the loan. Indian railways have been constructed by loans subscribed almost entirely in England. It has been calculated that during little more than twelve years ll,000,000l. was paid to the natives of India for their labour upon railways; and, since this amount was imported capital, the labouring population of India derived the same advantage as if private capitalists had decided to spend an additional 11,000,000l. in the employment of labour. Whether the advantage is permanent or not depends on whether the railways ultimately prove to be remunerative. Although it now appears probable that the Indian railways will in the aggregate yield a fair profit on the capital expended in their construction, yet for many years they failed to yield this profit, and a heavy deficit had to be made good out of the general taxation of the country. It must be remembered that this taxation had to be borne by the whole people, many of whom lived too far from the railways to derive any advantage from the extra demand for labour which their construction created. If, however, a loan in any way causes the capital of the country to