§ 6. Governmental receipts from loans. The funds to in vest in these commercial undertakings are originally obtained in nearly all cases from public loans. Almost every unit or division of government may become a borrower to provide for its citizens at once certain needed advantages and im provements when the funds are not at hand and immediate taxation is deemed too heavy a burden.
The indebtedness (less funds available for payment of debt) of the aggregate governments of the United States in 1913 W88 : Nation $1,028,000,000 States 346,000,000 Minor divisions 3 478,000,000 Total $4.850,000,000 The debts of the states and the minor divisions slowly and steadily increased after this date, and that of the nation leaped up in 1918 to $11,000,000,000 and in 1919 (at the maximum) to $25,000,000,000.
Nearly all public debt other than national has been created for the purpose of peaceful social and industrial develop ment. The debts of the American states have partly been made necessary to meet deficits in current expenses, but largely to construct canals, to erect public buildings, and of late to purchase forest-lands and to build roads. The minor divisions are counties, cities, villages, boroughs, towns, town ships, and special districts for schools, drainage, irrigation, levees, fire protection, poor relief, roads, and various other purposes. Every one of them has more or less legal power to incur debts and to levy taxes for the purpose of paying the interest and of repaying the principal. The purposes for which the debts are incurred by specially organized districts are mainly indicated in the names (e. g., drainage, irrigation), while the regular political divisons of counties, cities, villages, towns, townships, incur debts for many objects, such as streets, sewage disposal, water supply, electric-light or gas plants, schoolhouses, libraries, and other public build ings. Large expenditures for these purposes are necessary because the local governments are undertaking new functions, and either existing equipment (such as waterworks systems and street railways) must be bought from private companies or new ones must be built. They are necessary further be cause the rapid growth of population calls for an immediate "capital investment," the payment of which may be, through borrowing, more easily spread over a series of years (e. g., in the extension of streets and paving and in the provision of schoolhouses for the children).
The larger part of nearly every national debt has been incurred for war or preparation for war. The total debts of the national governments of the world just before the out break of the Great War in 1914 were estimated at about The total at the close of the war is esti mated to be near This amount has been, and will be, very largely increased in the later figures for 1 These figures include the debts of the separate states in the federal unions of Australia and the German Empire. and the separate debts
of European colonial governments, but not those of the states of the United States, and in no case including the debts of minor divisions, the total figures of which are not to be had.
2 As computed by the statistician of the National City Bank. from figures at various dates from 1916 to 1920, the total was $279,000,000, 000.
the war period and for the after-war period, while almost everywhere expenses continue to exceed revenues. It is im possible to appraise at all definitely the ultimate fiscal bur den of these debts in the present disordered condition of the monetary systems and in the precarious state of the finances in many of the countries. Russia, under the Bol shevik regime, has blankly repudiated its debt of $25,000, 000,000 but doubtless will reacknowledge parts of it ulti mately as a condition to the establishment of its national credit. Numerous states are near the verge of bankruptcy and it is now impossible to predict what adjustments they may be forced to make with their creditors. The debts of some leading solvent countries, as estimated in 1920, are France, $48,000,000,000 United Kingdom, 39,000,000,000 United States, 24,000,000.000 Italy, 18,000,000,000 § 7. Non-revenue character of receipts from loans. The proceeds from loans (and certain other items of sales) are called non-revenue receipts, because they are but in anticipa tion of receipts from other sources. The economic theory of such loans is essentially the same as that of private loans, but it is the people of the political district collectively that are the borrowers. To get the present uses of goods, they sell their promise to make future payments totaling a larger amount. The loan is the present worth of those promises. In the case of loans made for local purposes, provision is now usually made for their complete repayment within a definite number of years, usually ten, or twenty, or thirty. Mean time interest is payable annually or semi-annually, and from some source an additional sum is collected to repay a part of the loan, sometimes by redeeming a certain part annually, sometimes by accumulating a sinking fund until that amounts to the whole debt.