236 THE ECONOMIC EFFECTS OF 
excessive, the economist’s attitude would be stated somewhat 
in these terms. Excessive borrowing is that which, under the 
circumstances to be foreseen as far as may be in the future, 
promises to return less than it costs; in other words, that 
portion of the external debt is in excess of the national borrow- 
ing capacity the value of whose marginal net product from the 
national standpoint is less than the annual interest charge. 
When the final trade return provides through normal taxation 
an amount that is less than the charges for the use of the 
capital the safety-point has been passed. It is in fact a special 
case of the application of the law of diminishing returns; and 
bhe point which it is desirable to indicate is that at which the 
surve for increasing returns is at its highest. 
For in its broad aspect the problem is not so much the 
academic question whether public borrowing is expedient. It 
is rather, in that stage of industrial organization occupied by 
the Commonwealth, how much or how little each year the public 
debt should be increased. The position created is exactly similar 
to that of a business maintained partly by bank overdraft. The 
best of whether or not it is desirable to increase or diminish the 
overdraft, in effect to have a little more or a little less of capital 
in the business, implies the same decision as to the point at which 
borrowing becomes unprofitable. That is to say that the test 
is one of the marginal utility of the increment. So, in the 
national sense, productivity in relation to annual interest on 
the external debt is the only sound test of the economic advantage 
due to the increase in debt. It must be conceded, however, that 
there is a fundamental difference between the two cases. The 
solution of the problem for the private enterprise will depend 
upon the immediate prospective return, whereas that for the 
public undertaking must be decided to a greater extent by the 
potential returns in the more remote future, especially when 
development must anticipate a relatively rapid increase in 
population by immigration. Further, the mobilized credit of a 
state, and the greater long-period stability in the case of national 
undertakings, justify public borrowing to a greater degree than 
is the case in private business. } 
In considering problems of national indebtedness, moreover, it 
is important not to lose sight of the fact that the ultimate 
objective of both borrowing and taxation must be the improve-