discount on bills; and this diminution of interest tempts the possessors to incur hazards in hopes of a more considerable return.
The demand for loans varies much more largely than the supply, and embraces longer cycles of years in its aberrations. A time of war, for example, is a period of unusual draughts on the loan market. The Government, at such times, generally incurs new loans, and, as these usually succeed each other rapidly as long as the war lasts, the general rate of interest is kept higher in war than in peace, without reference to the rate of profit, and productive industry is stinted of its usual supplies.
Nor does the influence of these loans altogether cease when the Government ceases to contract others; for those already contracted continue to afford an investment for a greatly increased amount of the disposable capital of the country, which, if the national debt were paid off, would be added to the mass of capital seeking investment, and (independently of temporary disturbance) could not but, to some extent, permanently lower the rate of interest.
The same effect on interest which is produced by government loans for war expenditure is produced by the sudden opening of any new and generally attractive mode of permanent investment. The only instance of the kind in recent history, on a scale comparable to that of the war loans, is the absorption of capital in the construction of railways. This capital must have been principally drawn from the deposits in banks, or from savings which would have gone into deposit, and which were destined to be ultimately employed in buying securities from persons who would have employed the purchase-money in discounts or other loans at interest: in either case, it was a draft on the general loan fund. It is, in fact, evident that, unless savings were made expressly to be employed in railway adventure, the amount thus employed must have been derived either from the actual capital of persons in business