though he be called miserly. Because in time he will come to be regarded as more and more liberal, when it is seen that through his parsimony his revenues are sufficient; that he is able to defend himself against any who make war on him; that he can engage in enterprises against others without burdening his subjects; and thus exercise liberality towards all from whom he does not take, whose number is infinite, while he is miserly in respect of those only to whom he does not give, whose number is few.

Machiavelli also suggests here that the actions of the liberal prince only benefit a small group of elites and courtiers, while those leaders that wisely save their resources are able to undertake actions which benefit the state as a whole. On the other hand, Machiavelli advises rulers to be very generous with the plunder taken in war, since it does not belong to one's own people:

Because for a Prince who leads his armies in person and maintains them by plunder, pillage, and forced contributions, dealing as he does with the property of others this liberality is necessary, since otherwise he would not be followed by his soldiers. Of what does not belong to you or to your subjects you should, therefore, be a lavish giver...for to be liberal with the property of others does not take from your reputation, but adds to it. What injures you is to give away what is your own.

Here, as elsewhere in the treatise, Machiavelli advises leaders to weigh policies by their consequences. If liberality will not hurt anyone that matters, as is the case with confiscated war booty, then the prince should pursue exactly that policy, which will earn the prince the reputation of being liberal without actually having to make any real sacrifice. If it will eventually hurt the state's finances, leading to more confiscatory taxation that will anger the people, then it should not be pursued. In short, being seen as miserly will not incur the same degree of hate as will the results of having to tax to raise the resources necessary to be seen as liberal. 

If you start to read Chapter XVI of The Prince, you will think that Machiavelli is saying that a ruler should be liberal.  However, you will soon find that he is really saying the opposite. Machiavelli argues that a ruler who is liberal will destroy his country.

Machiavelli starts by saying “I say that it would be well to be reputed liberal.”  However, he soon goes on to say that this is not practical in the real world.  If a ruler tries to be liberal with everyone, he (people in Machiavelli’s time did not think about women rulers much) will have to give away tremendous amounts of money to keep up that reputation.  He will end up having to tax people too much to keep up his generosity.  People will come to hate him because of the high taxes.

Instead, Machiavelli says a prince should be stingy.  People might initially dislike this, but they will eventually come around because the prince will not tax them very highly.  The prince will have enough money to do all the things that are necessary because he will not waste money trying to look liberal.  As Machiavelli says, the prince will be respected because he will be able to defend his country and will be “able to engage in enterprises without burdening his people.”

So, Machiavelli argues that it is better to be stingy because

a prince should guard himself, above all things, against being despised and hated; and liberality leads you to both.