consequences follow.

1. An immense factitious stimulus is given to labour at the
time--and thus much more labour is brought into the market.

2. When that stimulus is withdrawn an augmented quantity of labour
is left to compete in the market with a greatly diminished quantity
of capital.

Here is the story of the _misery_ of great masses of the English
people after 1815, or at the least a material part of that story.

I hold by the doctrine that war loans are in many ways a great
evil: but I admit their necessity, and in fact the budget of 1855
was handed over by me to Sir George Lewis, and underwent in his
hands little alteration unless such as, with the growing demands of
the war, I should myself have had to make in it, _i.e._ some, not
very considerable, enlargement.

Writing a second letter to Northcote a few days later (August 11, 1862),
he goes a little deeper into the subject:--

The general question of loans _v._ taxes for war purposes is one of
the utmost interest, but one that I have never seen worked out in
print. But assuming as _data_ the established principles of our
financial system, and by no means denying the necessity of loans, I
have not the least doubt that it is for the interest of labour, as
opposed to capital, that as large a share as possible of war
expenditure should be defrayed from taxes. When war breaks out the
wages of labour on the whole have a tendency to rise, and the
labour of the country is well able to bear some augmentation of
taxes. The sums added to the public expenditure are likely at the
outset, and for some time, to be larger than the sums withdrawn
from commerce. When war ends, on the contrary, a great mass of
persons are dismissed from public employment, and, flooding the
labour market, reduce the rate of wages. But again, when war comes,
it is quite certain that a large share of the war taxes will be
laid upon property: and that, in war, property will bear a larger
share of our total taxation than in peace. From this it seems to
follow at once that, up to the point at which endurance is
practicable, payment by war-taxes rather than by taxes in peace is
for the interest of the people at large. I am not one of those who
think that our system of taxation, taken as a whole, is an
over-liberal one towa