Of Capital. 37
be increased, the labourers will receive immediate benefit, even if the loan is spent unproductively; on the contrary, the employers will, under the same circumstances, suffer a loss, because wages will rise as a consequence of capital being increased.
The ultimate effects of a loan upon all classes depend entirely upon the manner in which the loan is spent. If it is spent unproductively, the whole nation will have to pay a permanent penalty for the extravagant expenditure. If it is devoted to works of industrial usefulness, which would not be carried out by private enterprise, then the nation may be greatly enriched.
In quoting warlike materials as an example of an unproductive expenditure on the part of Government, it is intended to express no opinion adverse to military preparations. Vast sums have been, and will probably again be, squandered in war; but there can be no greater impediment to the production and accumulation of wealth than a want of security from hostile attack; and therefore it is absolutely necessary, even for the interests of commerce, that the defences of the country should be adequately maintained.
Let us now examine what different consequences ensue if an increased expenditure is supplied by taxation instead of by loan. Increased taxation is obtained in different ways in different countries. In our own country there are probably only two sources available for largely augmenting the revenue. These are the income-tax and an increase of the duties upon some commodities of general consumption, such as tea. Let it be supposed that recourse is had to both these expedients. An income-tax may be paid in two ways; it may be paid out of income, or it may be paid out of capital. Thus a manufacturer who is charged with lOOOl. additional income-tax, may pay the amount by increased saving, or, in other words, by diminishing his personal expenditure. If this is done, his capital is in no way affected, and therefore the labourers do not suffer; the important thing for them is that no encroachment should be made upon capital. But it will perhaps be said, that if the people who pay the increased income-tax are induced to retrench their expenditure, trade will suffer in consequence of their purchasing
BOOK I. CH. IV. Effect of raising money by taxation instead of loan.
An income-tax, if paid out of income, does not injure labourers.