CONTINUOUS BORROWING 231 
what is the verdict as to the wisdom, first of incurring, and 
latterly of increasing, the public debt? The onus of answering 
these and similar questions is being thrown, to an increasing 
extent, upon the professional economist; and he would fail in 
his duty if he refused to assume it. 
The first of the effects, and from the aspect of the business 
cycle the most important, is the almost inevitable tendency to 
develop a standard of living that is too high in proportion to 
the range of resources possessed, and to the degree of industrial 
development attained, by the community. The stimulation of 
purchasing power in the borrowing country, as a consequence 
of large foreign loans, has now been adequately examined 
through its effects in expanding credit, and in enabling the 
undertaking of great developmental schemes by means of 
which this purchasing power is dispersed through every channel 
in the community. The characteristic rise in the wages curve in 
the early phase of the borrowing cycle, and its tendency to fall 
towards the end, is a strict counterpart of the rise and fall in 
available bank credit. That the maintenance of heavy borrowing 
over a decade or more accustoms a community to a standard of 
living that is relatively too high has been emphasized in each 
instance we have examined. This was shown by the necessity 
for a reversion to the economic level of wages, and to standards 
of living within the capacity of the community to maintain, at 
the end of each borrowing cycle. 
A second effect originates in the mental attitude which is 
characteristic of periods of prosperity generated by expanding 
credit, and that is the failure to measure rigidly every capital 
investment by its immediate productiveness. Admittedly this 
is a counsel of perfection in a community faced by the necessity 
for providing quickly so much permanent equipment, and in 
which the method of trial and error in solving problems that 
involve so many unknown factors is the only possible line of 
attack. But, despite this concession on the matter of urgency, 
it will scarcely be contended seriously that the expenditure of 
loans promotes that care in calculating probable returns which 
we would expect to find accompanying the investment of the 
domestic capital surplus, if that were the only source from which 
development could be financed. This condition will persist 
while overseas capital supplies remain cheaper than domestic