effect without any general knowledge of the manner in which it acts.

In a highly improved state of civil economy there are four principal means by which property is transferred':-1. By metallic coins, which usually contain, in the materials of which they are made, nearly the same computed intrinsic value as that of the property transferred by them. 2. By transferrible securities, or acknowledg ments for debts not hearing interest, of which debts metallic coins are the known measures; securities, of which the materials have no value, but which are useful as instruments for paying and receiving, in proportion to the general confidence that the obligations contracted by them will be performed; and are valued in proportion to that confidence. 3. By transferrible securities, or acknowledgments for debts bearing interest. These have the double use of money and of productive capital; metallic coins, as before, are the measures of their nominal value; and, as instruments in paying and receiving, they are estimated by the degree of confidence which may exist that the obligations contracted by them will be duly performed, and also, as to this third kind, by regard to the profit obtained by them when compared with the general contemporary profit of lending money. 4. By the intervention, without any circulating security, of money agents or bankers, who place the money value to be transferred, as received from the one party and paid by the other, in their books of account; and by that act, with the concurrence of both parties, become substituted debtors and creditors, often transferring backward and forward for those who keep accounts with them to a very great amount, without need of any payments in money of any sort, until the whole transactions are ultimately balanced, and then only to the extent in which the obligations they have contracted to pay and to receive for any person with whom they have so contracted, are found, on the close of the account, to be unequal. Thus it may often happen that property to an immense value is transferred with little or no use of money as an instrument of paying for it. It will therefore readily be observed, how very much the extension of the private banking system adopted in this country has superseded the use of any sort of money in a great part of its local transactions.

Of these four means, by which property is transferred, the third is practised by our government to a very great extent, and is a most important step in the progress of our funding system; one, indeed, without which the means of procuring the capital periodically funded would be very deficient. A very large part of the expense of the nation is paid by exchequer and other bills, issued to obtain for that purpose other money of smaller numerical value. These bills, being readily circulated, have, in a great degree, the nature and use of money, with the advantage of being a productive capital while possessed. The two sorts of money first described, not having this advantage, do not create the same inducement to accumulate them. Metallic money, indeed, possesses within itself the guarantee of its exchangeable or commercial

value; but then it affords no profit while hoarded, and consequently will only be collected and retained by those whose revenues equal their wants and wishes, without needing any productive employment of that portion of their wealth which they treasure up in coin; or else by those who speculate, that by accumulating it for some future employment with profit, the present loss will be more than compensated by the subsequent gain. The same reason holds against any great accumulation of paper money not bearing interest.

But exchequer and other similar bills, which have for their security the moral and political guarantee of unbroken national faith, while they have the uses of money, have also the great advantage of being a profitable treasure, and are therefore willingly retained by opulent persons, who either would not or could not afford to forego the profit on the same proportion of their capital, which they must do if they hoarded it in unproductive paper money or in specie. It is evident, therefore, that by this management the means of obtaining money by the funding system are greatly facilitated. The nation in the practice of that system creates annuities, which it sells at a price agreed on with the persons contracting to purchase them. For a considerable part of the price of those annuities it receives in payment its own debts previously contracted, and, as they are called, unfunded, because no special assignment of revenue has been made to pay their interest and discharge them. A very large part of the remaining price received for the annuities created, though paid in money, is previously collected in similar securities given by the government for debts already contracted. The easy circulation of the unfunded debt, for which exchequer bills have been given, makes it convenient to hoard them till money is wanted to pay for the annuities that have been purchased; when the periods of payment arrive money is very easily procured for them, and thus the capital is only for the shortest time possible unproductive. The success therefore of the funding system evidently depends very much on the previous creation of unfunded debt; and if no such debt existed, bowever plentiful money not bearing interest might be, yet its dispersion would be too great to carry on that system equably and permanently. No doubt patriotism and self-interest would furnish ample loans out of a dispersed money capital in times of great emergency; but there could not be that confident dependence on such a resource, which is one of the peculiar and most important advantages of the present system. The provision of money for extraordinary expenses, during war more especially, must never be confided to measures of uncertain efficacy; and the failure of any one attempt to provide it, now that the success of war so greatly depends on pecuniary means, may be more dangerous, and in a nation far advanced in civil economy would create greater despondence, than the loss of an important battle.

We have been solicitous to make these remarks. at the present stage of the public opinion with regard to the work of professor Hamilton, be

cause, although we adopt nearly all the principles he has laid down, and believe that his arithmetical calculations are generally correct, yet we differ very materially from him in the practical application of them to the extinction or diminution of our national debt. We are not yet convinced that the plan first adopted by Mr. Pitt for that purpose was not far more wisely constructed, with a view to its stability and to the general good consequences arising from it, than the system of which a preference is implied in the reasoning of professor Hamilton. We cannot deny that its mechanism is somewhat more costly, but we think the difference amply compensated by its more durable construction. We do not altogether approve some of the changes of the original plan, and still less some essential deviations from it; but, with respect to other modifications of it which have been adopted, we have no doubt that they had in view the very same principles which the professor has so ably established, connected, however, with such practical arrangements as have greatly contributed to their adoption, and without which we are quite convinced that their adoption in any very useful extent would have been altogether impracticable.

The professor proposes, 1. To lay down some general principles, which if established would lead to general conclusions concerning our financial system, and in a great measure supersede the necessity of examining particular plans which have been proposed or adopted.

2. To give a narration of the manner in which we have proceeded in conducting and accumulating our public debt, and a statement of its present amount and annual charge, and an account of the plans which have been proposed or adopted for its discharge, and their operation. The necessary tables in illustration of these particulars will be subjoined in an appendix.

3. By means of these general principles to scrutinise the efficacy of the schemes to which we trust for the relief of our national burdens; and examine the propriety of the methods we have adopted in conducting our financial oper

ations.'

In conformity with this plan he begins the first part of the subsequent enquiry by stating a series of general principles of finance.' With out meaning to be hypercritical, we would rather have called them propositions, as indeed the author himself does afterwards; for instance, the unqualified statement, in the latter part of the second of them, that we are already far advanced to the utmost limit of taxation,' is neither a general principle of finance nor an inference from any principle, but an assertion of a fact which requires distinct proof, and of which no proof is given. Connected as it is with the preceding part of the sentence, it means the utmost limit of the amount of revenue obtainable by taxation, which, from his observations on the same subject a few pages after, we are sure the author cannot have intended, which allows nothing for the present rapid progress of population and intrinsic national wealth, and makes no distinction between the difficulty of multiplying taxes, or of increasing their rate; nor beVOL. XV.

tween indirect and direct taxation. We are quite convinced that the assertion is unfounded in that sense in which it is likely to be generally interpreted; and, if unfounded, without any doubt inexpedient.

He gives as a reason for examining minutely the principles which he has stated, that although they are incontrovertible, or inferred by a very obvious train of reasoning, yet measures inconsistent with them have not only been advanced by men of acknowledged abilities, and expert in calculations, but have been acted on by successive administrations, and annually supported in parliament, and ostentatiously held forth in every ministerial publication.' We readily allow that measures have been recommended upon principles, and by arguments, inconsistent with the truths which professor Hamilton has so ably established; but we must think the latter part of these assertions a great deal too unqualified; and we expect to prove that Mr. Pitt and others who have succeeded to him have not adopted measures inconsistent with his principles, but have clearly comprehended them, and regulated in conformity with them the more important parts of their arrangements for the redemption of our public debt.

In his remarks on the principle of redeeming debt by appropriated sinking funds, increasing by compound interest, professor Hamilton has given a series of perspicuous arithmetical statements, which demonstrate the futility of some opinions on the subject, that we would rather call vulgar than popular; because, as far as our observation has extended, few, if any, intelligent persons have ever been so much deceived by the magic of numbers, as to believe that the national debt can ever be diminished but by an average surplus of revenue beyond the average expenditure. The error has long since been refuted in various publications, and particularly by Sir F. D'Ivernois.

The professor states that the point at issue is, whether, taxation and expenditure being the same, a sinking fund produces any beneficial effect?' Certainly not, if this is the only point at issue. If we are to limit our views solely by arithmetical calculations of direct profit and loss, we cannot discover that a sinking fund has any peculiar advantages in diminishing debt, o. retarding its increase; and it may be that the same money may be employed with equal efficacy by less expensive mechanism. But we have before stated that the mechanism of our sinking fund appears to us to have been originally framed, and since improved, with far more extensive views of political economy.

The second part of the professor's work contains a useful history of the present public debt of Great Britain, from its commencement; and to this we beg to refer the reader as a valuable moral. The first section of this part describes concisely the methods of borrowing the funded debt which have successively been adopted, and subjoins a clear arithmetical statement of its progress. The second section is employed in describing the plans which have been adopted for the reduction of the funded debt, and their operation; and the third in stating the nature

2 II

and amount of the unfunded part of the public

debt.

The third part of the work contains an examination of plans for the redemption of the national debt, and other financial operations, in four sections; of which the first examines Dr. Price's views of finance; the second reviews Mr. Pitt's sinking funds; the third comments on the plan introduced by lord Henry Petty; and the fourth contains an examination of the system of funding by increase of capital.

The object of the examination of Dr. Price's plans is to disprove the arithmetical principle on which he founded their efficacy. To us it has always appeared that the Dr. perplexed himself, and a large proportion of the public, by a distinction without a difference between his first and second methods of employing a sinking fund; meaning, as we believe he must have done in both cases, a real fund, and not one existing in form only; that is, an actual average surplus of public revenue beyond the average expenditure for all other purposes. Without doubt this only can be a real and efficient sinking fund; but yet it appears to us that the form and mechanism of an uninterrupted sinking fund, alternately real and nominal, that is, acting during war as well as peace, though overbalanced in the former case by increasing debt for military expenses, and even itself causing some increase of expense, may, nevertheless, have peculiar efficacy in facilitating the creation of a surplus revenue.

The indistinct view which Dr. Price seems to have had of his own arguments, or his want of precision in explaining them, is, we think, evident, in an assertion quoted by professor

Hamilton.

A state may, without difficulty, redeem its debts by borrowing money at an equal or even a higher interest than the funds bear, and with out providing any other funds than such small ones as are necessary to pay the interest of the sums borrowed. In private life such a measure would be justly deemed absurd; but in a state it would be the effect of the soundest policy. It is borrowing money at simple interest, in order to improve it at compound interest.'—p. 125.

The first part of this assertion is not untrue; but yet is only a sort of arithmetical riddle, calculated to produce useless wonder, and fitter for the ladies' diary than for a practical essay on one of the most important questions of political economy. If in the next part of the sentence he had said 'increase of revenue, &c.,' instead of using funds in the double sense of capital and annual income, his real meaning would have been more correctly expressed. He goes on to make a distinction between the application of this proposition to private and public debts, which it is doubtful if he himself rightly comprehended. In truth, there is no arithmetical difference; but it may be in extent of sum and duration of time,' as professor Hamilton has clearly shown. In either case, and adopting any mechanism of finance, a continual deficiency must increase a previously existing debt; and a continual surplus, unless hoarded, may diminish it by the progress of compound interest, varying

in efficacy according to the contemporary profit of money. Yet we can conceive that such an alternately real and nominal sinking fund as we have described may, from collateral causes, be very fit to be adopted as a national measure, though little adapted to exonerate a private estate. If in either case, whether public or private, the system itself can be made efficiently instrumental in creating an increase of revenue, which might not otherwise have been obtained, that increase, in whatever manner applied to extinguish debt, whether contingently or by a strictly regulated appropriation, is substantially a sinking fund; but in neither case is one step advanced towards extinction of debt, by borrowing with one hand to redeem with the other, unless at a lower rate of interest; and then the difference saved, if so applied, is as truly a sinking fund as an equal increase of surplus income would be by an augmentation of the amount of it. If, however, the adoption of a permanent sinking fund may give to a nation means of augmenting its income, which cannot be adopted at all in private life, or can only be adopted in a very limited extent, in that case a difference arises which so far only may justify Dr. Price's distinction. Where not instrumental in increasing the revenue, so far as is necessary to pay the interest of the sums borrowed, the measure in public or private affairs will be absurd; but, if it may be made thus instrumental in the one case and not in the other, the distinction is so far defensible.

As to the latter part of Dr. Price's assertion, that it is borrowing money at simple interest in order to improve it at compound interest,' his meaning no doubt was that, if additional funds are provided to pay the interest of the sums borrowed,' the new debt will not increase by compound interest, while the old debt will be diminished in that proportion; and with this proviso the truth of his assertion is indisputable, although announced in a manner more adapted to surprise the reader than to instruct him. True it is, that either the existing revenue must be made more productive, or new taxes must be levied to add to it; and it may be that these subtract as much from private incomes as they add to the public income; but, whatever may be the pressure thus created, it would equally be felt by an equal increase of income applied to diminish debt, or retard its progress in any other manner. So far as respects the public purse the effect is the same as that of simple opposed to compound interest. We admit there is in this nothing peculiar to an appropriated and permanent sinking fund; but we think there are other solid grounds on which it may be defended.

In justice to the memory of Mr. Pitt, we must say that we cannot discover any sufficient reason for imputing to him that, dazzled by the imaginary omnipotence of compound interest, he rather looked to that for the efficacy of his fund than to its utility as a powerful instrument in obtaining the consent of the nation to make its public revenue gradually more equal to its average expenditure. His system, as adapted to the case of a preponderating increase of debt, in 1792, included a concurrent increase of revenue, even

more than necessary to pay the interest of the money borrowed for the use of the sinking fund. We are the more anxious to explain our opinions of this assertion, quoted by professor Hamilton from Dr. Price, because it appears to us that it involves the main grounds of their different views of the utility of permanently appropriated sinking funds. Both of them have viewed the question rather arithmetically than politically. We think it clear that Dr. Price is correct in his calculations of the arithmetical effects of borrowing to repay or redeem, when that system is accompanied by an increase of income in due proportion to the interest of the new debt. But we also think professor Hamilton perfectly correct in denying that this is at all peculiar to the system in question.

We, therefore, neither defend the system on Dr. Price's arithmetical principle of compound interest preponderating over simple interest in the opposite scale, nor do we think it follows that the system is erroneous because it cannot be defended on that ground, or even because, by an arithmetical calculation of direct profit and loss, it may appear that its mechanism creates a greater expense than would be incurred by other means of employing the same annual revenue to produce the same or equivalent effect. Here then is the point at which we differ from professor Hamilton. He undertakes to demonstrate arithmetically that, instead of diminishing our debt, we have increased it considerably, by unremittingly persevering in borrowing to redeem since 1792. And, indeed, in one respect this must be so far true, that the charges incurred by contracting new debts to pay off old ones can hardly be computed on an average at less than five per cent.; and the more extensively this is done the greater will be the loss, unless compensated by adequate advantages. To us, however, appears, that the system, as constructed in 1792, and usually followed since that time, has really caused a saving of expense very far exceeding this cost of it.

it

We believe the public in general are little aware of the efficacy of the system, in extinguishing that portion of the debt which is created on account of it. If the whole debt were only such that it might be redeemed in one year this would be obvious. Suppose a debt of £10,000,000, borrowed from new creditors to pay off old creditors, at the same rate of five per cent. interest on a five per cent. capital. Of the previous national revenue, £500,000 per annum was before appropriated on account of this debt, and by the transaction an obligation is incurred to add £600,000 a year more, namely, £100,000 to the fund, and £500,000 for interest to the new creditors. Wherefore, the real sinking fund created by borrowing £10,000,000 to redeem £10,000,000 on this plan, is not merely £100,000 but £600,000 or the whole addition on account of it.

The substituted debt, therefore, will be redeemed by this fund in little more than twelve years and a half, if employed at five per cent.; or than thirteen years, if employed at four per cent.; or thirteen years and a half, if at three per cent. But the charges of the transaction may average about five per cent. Consider these

as to be first deducted from the annual produce of it, and even then the terms of complete extinction of the substituted debt will only be protracted about ten months, becoming thirteen years and a half, fourteen years, or fourteen years and a half, according to the rate of compound interest. This is the true effect of the system, although its real efficacy is concealed from cursory observation by the indiscriminate manner in which the sinking fund has, in practice, been applied to the purchase of the debt.

We have no more respect than Professor Hamilton for the Stock Exchange arguments on this subject: but, if we consult the history of human nature, we think it will furnish unanswerable reasons in favor of what we consider as the true principle of the system. We do not mean to defend every modification of it, nor its adoption in an unlimited extent; for we can conceive nothing more mischievous than it would be if carried beyond convenient limits; which, indeed, was the chief objection to the plan of lord Henry Petty. On this subject the professor himself admits that, 'In regard to the increase of taxes, we are of opinion that the sinking fund has had a real effect in calling forth exertions, which, although they might have been made as well and as effectually, would not have been made unless to follow out the line which that system required. A loan is made, and the revenue is considered as charged, not only with the interest, but a certain proportion of the principal, annually. Taxes are imposed to meet the one as well as the other. If the sinking fund had not been in view, it is likely taxes would have been imposed for the interest only.'

We would here make a remark, which perhaps more directly applies to a former part of his observation on Mr. Pitt's plan, as adapted to a war system in 1792, namely, that when a loan is contracted for the two-fold purpose of defraying an actual excess of expenditure beyond the revenue, and of redeeming a part of the debt already existing, according to the manner in which Mr. Pitt's system has hitherto been carried into execution, the real appropriation for the extinction of that debt is not merely one per cent. on the new capital, but also a continuation of the whole interest of the money in this manner employed. With regard to the real increase of debt, that is, the excess of loan beyond the contemporary produce of the whole sinking fund, the appropriation, being only one per cent., operates in the manner and at the rate described in this work. If we could borrow at par in a five per cent. fund, the appropriation being six per cent. would, for the debt rcally contracted, be five per cent. to the lenders, and one per cent. to redeem the capital: but calculating the cost of the transaction at five per cent. this will be nearly, though not exactly, equal to the first five years of the one per cent. annuity. If that cost, being blended with the other national expenses, is nowhere distinctly stated, and paid in some other manner, this may alter the sums on both sides of the nationai account, but will not alter the balance. But with regard to the part of the loan borrowed to redeem former debt, and so applied, the augmentation of the fund is an annuity of about six per

cent. commencing its real operation after ten months only, instead of five years. If, in providing for our annual loans, we only levied an increase of revenue equal to the interest and appropriation for the actual increase of debt, we apprehend this would be precisely the view which the professor has taken of the question. But if a large proportion of those loans is employed to pay off debt already existing, and the effect of the system has been to induce the public to agree to an augmentation of the revenue in due proportion to this part also of the new debt, the progress towards equalisation of income and expenditure is very greatly accelerated, and also the period is greatly shortened during which in peace the debt may be extinguished.

To us the system adopted by Mr. Pitt, in 1792, has always appeared to have been a very ingenious and efficient way of rapidly approximating the income and expenditure. We have too high an opinion of his perspicacity not to believe that he had this in view at that time, or to doubt the plan he would have proposed whenever they should really be equalised. His plan has the twofold advantage, that it creates an artificial necessity of increasing the revenue whenever such an increase may be politically expedient; and that it fixes apparent and definite limits to the systematic extent of that increase it counteracts the reluctance to submit to new taxes by the former circumstance, and any fears for excessive augmentation and improper application of the public revenue by the latter.

Here we think there is possible and even probable effect of the system, which could hardly have been obtained in any other manner, and which, though it may sometimes cost ten months value of the revenue appropriated, must amply recompense this expense by its general advantages.

To give some idea of the effects of the system of 1792, if exactly followed, let us suppose, that at some period the real excess of expense beyond the revenue being only £3,000,000, but£9,000,000 of the revenue being appropriated, a loan of £12,000,000 would be wanted. This was nearly, though not exactly, the case when a new plan of finance, so severely censured by professor Hamilton, was proposed by lord Henry Petty. In a five per cent. stock at par, the requisite aug mentation of the public revenue for such a loan would be £720,000, or it would be £300,000 if the capital created were a three per cent. stock, at £60. In either case, the real increase of debt being only £3,000,000, the real appropriation for its interest would be only £150,000; but if so, then the remaining appropriation, whether £570,000 or £650,000 is nineteen per cent. in the first case, or thirteen per cent. in the second case, of the real contemporary increase of debt. The augmentation of income in the second case, which is practically more familiar, if employed at a profit of five per cent., would redeem its corresponding debt, and pay the charges incurred by the loan in little more than five years, nor would the period be much extended at four or even three per cent. We therefore really make provision in this case for redeeming the conteinporary debt in about five years; and any dura

tion of this addition to the fund beyond five years is employed in extinguishing antecedeut debt.

If, after an equalisation of revenue and expenditure, the system might conveniently be allowed to operate according to Mr. Pitt's plan of 1792; in that case most obviously the whole appropriation would be to increase the means of redeeming old debts. But, as no new debt would be contracted beyond the amount of debt redeemed, the effect might be a very inconvenient increase of the revenue beyond the actual expenditure even in war. Experience and common sense in any such case would suggest how to regulate the operation of the fund, or, it may be, show the expedience of altogether suspending it. We shall hereafter advert more fully to this topic, but at present we need only observe, that the principle on which we justify the system established by Mr. Pitt is by no means shaken, because that system may require limitation when it has already accomplished the most essential part of its duty; and because it may be found expedient to regulate its progress according to political circumstances, and in due proportion to the work which may remain to be performed.

We must refer our readers to the third section of this part of professor Hamilton's work, and to the tables connected with it, for a very perspicuous analysis of the plan introduced by lord Henry Petty. The arrangements of this plan were so ingenious (as far as they were new) that they necessarily created a great prepossession in favor of it; for a time it was popular, and, as often happens in similar cases, the more prominent feature of it was admired while its defects were overlooked, or considered as of no important consequence. The great defects of this plan were, that, so far as it was really new, it pushed to an extreme the peculiar expense of the system of borrowing to redeem, while it abandoned the only important compensation for it; for in fact it evaded the proportionate contemporary augmentation of the revenue to the extent of its peculiar loans, by selling, though for a limited period, portions of the disposable revenue which already existed. Instead of adding six per cent. to the revenue on account of those loans, it subtracted ten per cent. annually for their amount from the means already provided to carry on the war and this at a time when its expenses were already very great, but when it appeared highly probable that by perseverance in the system already established, the public revenue and expenditure would soon have been equalised. If it is alleged that the unexpected war in the Spanish peninsula would have disappointed that hope, it is equally true that the same circumstance would have overwhelmed the mechanism of the substituted system.

The fourth section of this part of the professor's work is intended to demonstrate the wasteful imprudence of funding by increase of capital. Premising that, on many accounts, we must disapprove of the system of creating a greater funded capital than the amount of the money borrowed,we yet materially differ from him in many parts of this argument, which we think very much overstates the loss which may have