Borrowing to secure the means for entering upon some productive enterprise is the chief cause of the debts of local governments, Cities borrow to build water-works, toconstruct street railroads, to establish a gas or lighting plant, etc. In the United States the different commonwealths have borrowed to aid in the construction of railroads, or to establish banks. The enterprise in which the funds thus acquired are invested furnishes an additional security to the loan, and enhances the credit of the local body, because it is supposed that the enterprise itself will yield the interest and other debt charges.

¹ In 1894-95 English exchequer bills for March bore interest at the rate of 1.5 and 1 per cent. June bills, 2.75 and 1.25per cent.

There are two ways of managing such enterprises. One is by selling the commodity or service produced; the other is by the assessment of a fee upon the users. So far as the debt is concerned there is little difference in these two methods. The former, however, introduces a speculative element, while the latter is more regular in its returns. Sometimes such enterprises fail, and the interest has to be paid out of the revenue from taxation. Not infrequently debts are made of this same kind to render assistance to private companies, and the expectation is that the companies will meet the interest charges. The bulk of local debts the world over are of this general character.

National governments, too, have sometimes contracted debts of this sort. Thus Prussia's debt was almost all incurred for the purchase of railroads, which pay the interest and provide for the sinking fund. Other countries of Europe have similar " invested " debts. The United States has given aid to railroads, but on terms that give no real surety that the debt charges will ever be met by the roads. The wisdom of such loans depends solely on the wisdom of entering upon such enterprises. It may even be wise under certain circumstances to advance money borrowed in this way to private companies which promise to provide some much-needed facilities, even without any hope that the interest and debt charges will be met in any other way than by taxation. That such debts when contracted should be treated in the same manner as any other debts, and paid as soon as possible, is a matter of good business management. The failure of the assisted private enterprise to make good the sums expended is no reason for the refusal of the government to meet the obligations thus incurred, and refusal under such circumstances is as destructive of credit as would be the failure to meet any other obligation.

The nature of all the remaining forms of debt is clear from their names in the table. A good many of them are merely formal in character and are incurred in carrying out some of the regular processes of business or law. Such debts are never included in the sum total of the burden of debt, because the sums out of which they are to be met are received when the debt is contracted and retained until the debt is due. They are never, except in the case of the grossest mismanagement, a burden on the revenues.

These different forms of debts are all in constant use, and the indebtedness of any nation will show almost all of them. The experience of the most advanced nations shows that there is as much need of a systematic arrangement of the different forms of debts as there is of the different forms of taxes. The various kinds of stocks are adapted to the differing needs of the treasury and the tastes of the lenders. The former must be consulted, perforce; the latter, if it is desired to obtain the most favourable terms; hence the scope for the exercise of good judgment on the part of the fiscus in the choice of forms.