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and expressing them in a language of his own, which often uncovers aspects of the truth that the received phraseologies only tend to hide.

$ 8. The same author carries out this train of thought to some important conclusions on another closely connected subject, that of government loans for war purposes or other unproductive expenditure. These loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or altogether by increased economy) must, according to the principles we have laid down, tend to impoverish the country; yet the years in which expenditure of this sort has been on the greatest scale, have often been years of great apparent prosperity: the wealth and resources of the country, instead of diminishing, have given every sign of rapid increase during the process, and of greatly expanded dimensions after its close. This was confessedly the case with Great Britain during the last continental war; and it would take some space to enumerate all the unfounded theories in political economy, to which that fact gave rise, and to which it secured temporary credence; almost all tending to exalt unproductive expenditure, at the expense of productive. Without entering into all the causes which operated and which commonly do operate to prevent these extraordinary drafts on the productive resources of a country from being so much felt as it might seem reasonable to expect, we will suppose the most unfavorable case possible; that the whole amount borrowed and destroyed by the government, was abstracted by the lender from a productive employment in which it had actually been invested. The capital, therefore, of the country, is this year diminished by so much. But unless the amount abstracted is something enormous, there is no reason in the nature of the case why next year the national capital should not be as great as ever. The loan cannot have been taken from that portion of the capital of the country which consists of tools, machinery and buildings. It must have been wholly drawn from the portion employed in paying laborers ; and the laborers will suffer accordingly. But if none of them are starved ; if their wages can bear such an amount of reduction, or if charity interposes between them and absolute destitution, there is no reason that their labor should produce less in the next year than in the year before. If they produce as much as usual, having been paid less by so many millions sterling, those millions are gained by their employers. The breach made in the capital of the country is thus instantly repaired, but repaired by the privations and often the real misery of the laboring class. Here is ample reason why such periods, even in the most unfavorable circumstances, may easily be times of great gain to those whose prosperity usually passes, in the estimation of society, for national prosperity. To see the hideous wrong side of the picture, we must look beneath.

This leads to the vexed question, to which Dr. Chalmers has very particularly adverted, whether the funds required by a government for extraordinary unproductive expenditure, are best raised by loans, the interest only being provided by taxes, or whether taxes should be at once laid on to the whole amount; which is called in the financial vocabulary raising the whole of the supplies within the year. Dr. Chalmers is strongly for the latter method. He says, the common notion is that in calling for the whole amount in one year, you require what is either impossible or very inconvenient; that the people cannot, without great hardship, pay the whole at once out of their yearly income; and that it is much better to require of them a small payment every year in the shape of interest, than so great a sacrifice once for all. To which his answer is, that the sacrifice is made equally in either case. Whatever is spent,

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cannot but be drawn from yearly income. The whole and every part of the wealth existing in the country, forms, or helps to form, the yearly income of somebody. The privation which it is supposed must result from taxing the amount in the shape of taxes, is not avoided by taking it in a loan. The suffering is not averted, but only thrown upon the laboring classes, the least able, and who least ought, to bear it; while all the inconveniences, physical, moral, and political, produced by maintaining taxes for the perpetual payment of the interest, are incurred in pure loss. Whenever capital is withdrawn from production, or from the fund destined for production, to be lent to the state and expended unproductively, that whole sum is withheld from the laboring classes; the loan, therefore, is in truth paid off the same year; the whole of the sacrifice necessary for paying it off is actually made ; only it is paid to the wrong persons, and therefore does not extinguish the claim; and paid by the very worst of taxes, a tax exclusively on the laboring class. And after having, in this most painful and unjust of ways, gone through the whole effort necessary for extinguishing the debt, the country remains charged with it and with the payment of its interest in perpetuity.

These views appear to me strictly just, in so far as the value absorbed in loans would otherwise have been employed in productive industry within the country. The practical state of the case, however, seldom exactly corresponds with this supposition. The loans of the less wealthy countries are made chiefly with foreign capital, which would not, perhaps, have been brought in to be invested on any less security than that of the government; while those of rich and prosperous countries are generally made not with funds withdrawn from productive employment, but with the new accumulations constantly making from income, and often with a part of them which, if not so taken, would have migrated to colonies or sought other investments abroad. In these cases, (which will be more particularly examined hereafter,*) the sum wanted may be obtained without detriment to the laborers, or derangement of the national industry, and even, perhaps, with an advantage to both, in comparison with raising the amount by taxation, since taxes, especially when heavy, are almost always partly paid at the expense of what would otherwise have been saved and added to capital. Moreover, in a country which makes so great yearly additions to its wealth, that a part can be taken and expended unproductively without diminishing capital, or even preventing a considerable increase, it is evident that even if the whole of what is so taken would have become capital, and obtained employment in the country, the effect on the laboring classes is far less prejudicial, and the case against the loan system much less strong than in the case first supposed. This brief anticipation of a discussion which will find its proper place elsewhere, appeared necessary to prevent false inferences from the premises previously laid down.

$ 9. We now pass to a fourth fundamental theorem respecting Capital, which is, perhaps, oftener overlooked or misconceived than even any of the foregoing. What supports and employs productive labor, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labor when completed. Demand for commodities is not demand for labor. The demand for commodities determines in what particular branch of production the labor and capital shall be employed; it determines the direction of the labor ; but not the more or less of the labor itself, or of the maintenance or payment of the labor. That depends on the amount of the capital, or other funds directly devoted to the sustenance and remuneration of labor.

• Infra, book iv. chap. iv. v.

Suppose, for instance, that there is a demand for velvet ; a fund ready to be laid out in buying velvet, but no capital to establish the manufacture. It is of no consequence how great the demand may be ; unless capital is attracted into the occupation, there will be no velvet made, and consequently none bought; unless, indeed, the desire of the intending purchaser for it is so strong, that he employs part of the price he would have paid for it, in making advances to work-people, that they may employ themselves in making velvet : that is, unless he converts part of his income into capital, and invests that capital in the manufacture. Let us now reverse the hypothesis, and suppose that there is plenty of capital ready for making velvet, but no demand. Velvet will not be made ; but there is no particular preference on the part of capital for making velvet. Manufacturers and their laborers do not produce for the pleasure of their customers, but for the supply of their own wants, and having still the capital and the labor, which are the essentials of production, they can either produce something else which is in demand, or, if there be no other demand, they themselves have one, and can produce the things which they want for their own consumption. So that the capital cannot be dispensed with—the purchasers can. I am of course not taking into consideration the effects of a sudden change. If the demand ceases unexpectedly, after the commodity to supply it is already produced, this introduces a different element into the question; the capital has actually been consumed in producing something which nobody wants or uses, and it has therefore perished, and the employment which it gave to labor is at an end, not because there is no longer a demand, but because there is no longer a capital. This case, therefore, does not test the principle. The proper test is, to suppose that the change is gradual and foreseen, and is attended with no waste of capital, the manufacture being discontinued by merely not

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