CHAPTER XVIII 
THE ECONOMIC EFFECTS OF CONTINUOUS 
BORROWING 
‘Even if external borrowings were ‘to cease altogether, and the existing amount of 
Government capital expenditure undertaken either by taxation or internal loan or 
both, the effect on the nation as a whole if the change were carried out gradually 
should not involve more than either an average reduction in the standard of living 
of, say, about 5 per cent., or an increase in the efficiency per head of a similar 
amount. —Mr. E. C. DyasoN, ‘The Australian Public Debt’, in the Economic 
Record. November 1927. 
‘The necessities of a nation in every stage of its existence will be found at least 
>Gusl to its resources. —ALEXANDER HAMILTON in The Federationist. 
' A reference to the nature of credit shows that a national debt is no creation of 
wealth ; that at best it can only be, in Bagehot’s phrase, “additive” and give greater 
energy to production. Moreover this position can only be obtained where credit 
is productive, i.e. used in the creation of fresh wealth. Where the resource whose 
use is obtained serves merely for some object which, however important, is not 
conducive to economic production . . . there is so far a loss of material power. 
Present borrowing of this latter kind implies less income in the future until the loan 
is repaid '—RBasTarLe. Public Finance, v. 658. 
IT is to be supposed that, since borrowing first began, this 
method of acquiring property has not lacked defenders. Nor 
have there been wanting those ready to justify the quality of 
the statesmanship which initiated and maintained the policy 
of public borrowing in Australia. It is to be pleaded, of course, 
that it is easy to be wise after the event; but experience shows 
that it is easier to be instructed than to be wise concerning the 
follies of financial sin, that is if borrowing is to be placed in the 
catalogue of transgression. The belief may be modestly tenable, 
in any case, that the facts concerning national indebtedness as 
presented in the preceding pages, justify at least some hesi- 
tation in pronouncing upon the wisdom of a plan of action that 
would persist in following the paths which have led to such 
economic disorders in the past. 
A very close parallel is to be observed between the economic 
situation resulting from public borrowing and that policy in 
retail trading known as instalment buying, or the hire-purchase 
system. Most of the arguments, too, that are used so freely in 
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