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eflect without any general knowledge of the value; but then it affords no profit while noardmanner in which it acts.

ed, and consequently will only be collecte i and In a highly improved state of civil economy trained by those whose revenues equal their there are four principal means by which property wants and wishes, without needing any producis transferred':-1.' By metallic coins, whici tive employment of that portion of their wealth usually contain, in the materials of which they which they treasure up in coin; or else by those are male, nearly the same computed intrinsic who speculate, that by accumulating it for some value as that of the property transferred by them. future employment with profit, the present loss 2. By travsferrible securities, or acknowledge will be more than compensated by the subments for debts not hearing interest, of which sequent gain. The same reason holds against debts metallic coins are the known measures; any great accumulation of paper money no! securities, of which the materials have no value, bearing interest. but which are useful as instruments for paying Bui exchequer and other similar bills, which and receiving, in proportion to the general con- have for their security the moral and political fidence that the obligations contracted by them guarantee of unbroken national faith, while they will be performed; and are valued in proportion have the uses of money, have also the great adto that confidence. 3. By transferrible secu- vantage of being a profitable treasure, and are rities, or acknowledgments for debts bearing therefore willingly retained by opulent persons, interest. These have the double use of money who either would not or could not afford to and of productive capital; metallic coins, as forego the profit on the same proportion of their before, are the measures of their nominal value; capital, which they must do if they hoarded it in and, as instruments in paying and receiving, they unproductive paper money or in specie. It are estimated by the degree of confidence which is evident, therefore, that by this management may exist thai the obligations contracted by the means of obtaining money by the funding them will be duly performed, and also, as to this system are greatly facilitated. The nation in the third kind, by regard to the profit obtained by practice of that system creates annuities, which them when compared with the general contem- it sells at a price agreed on with the persons porary profit of lending money.. 4. By the contracting to purchase them. For a considerintervention, without any circulating security, able part of the price of those annuities it of money agents or bankers, who place the receives in payment its own debts previously money value to be transferred, as received from contracted, and, as they are called, unfunded, the one party and paid by the other, in their because no special assignment of revenue has books of account; and by that act, with the been made to pay their interest and discharge concurrence of both parties, become substituted them. A very large part of the remaining price debtors and creditors, often transferring back- received for the annuities created, though paid ward and forward for those who keep accounts in money, is previously collected in similar with them to a very great amount, without need securities given by the government for debts of any payments in money of any sort, until the already contracted. The easy circulation of the whole transactions are ultimately balanced, and unfunded debt, for which exchequer bills hare then only to the extent in which the obligations been given, makes it convenient to heard them they have contracted to pay and to receive for till money is wanted to pay for the annuities any person with whom they have so contracted, that have been purchased ; when the periods are found, on the close of the account, to be of payment arrive money is very easily prounequal. Thus it may often happen that pro- cured for them, and thus the capital is only for peity to an immense value is transferred with the shortest time possible unproductive. The little or no use of money as an instrument success therefore of the funding system evidently of paying for it. It will therefore readily be depends very much on the previous creation of observed, how very much the extension of the unfunded debt; and if no such debt existed, private banking system adopted in this country bowever plentiful money not bearing interest has superseded the use of any sort of money in might be, yet its dispersion would be too great a great part of its local transactions.

to carry on that system equably and permaOf these four means, by which property is nently. No doubt patriotism and self-interest transferred, the third is practised by our govern- would furnish ample loans out of a dispersed ment to a very great extent, and is a most money capital in times of great emergency ; but important step in the progress of our funding there could not be that confident dependence on system; one, indeed, without which the means such a resource, which is one of the peculiar and of procuring the capital periodically funded most important advantages of the present system. would be very deficient. A very large part of The provision of money for extraordinary exthe expense of the nation is paid by exchequer penses, during war more especially, must never and other bills, issued to obtain for that purpese be confided to measures of uncertain efficacy; other money of smaller numerical value. These and the failure of any one attempt to provide it, bills, being readily circulated, have, in a great now that the success of war so greatly depends degree, the nature and use of money,


on pecuniary means, may be more dangerous, the advantage of being a productive capital and in a nation far advanced in civil economy while possessed. The two sorts of inoney first would create greater despondence, than the loss described, not having this advantage, do not of an important battle. create the same inducement to accumulate them. We have been solicitous to make these remarks. Metallic money, indeed, possesses within itself at the present stage of the public opinion with the guarantee of its exchangeable or commercial regard to the work of professor Hamilton, because, although we adopt nearly all the princi- tween indirect and direct taxation. We are ples he has laid down, and believe that his quite convinced that the assertion is unfounded arithmetical calculations are generally correct, in that sense in which it is likely to be generally yet we differ very materially from him in the interpreted ; and, if unfounded, without any practical application of them to the extinction or

doubt inexpedient. diminution of our national debt. We are not He gives as a reason for examining minutely yet convinced that the plan first adopted by Mr. the principles which he has stated, that although Pitt for that purpose was not far more wisely they are incontrovertible, or inferred by a very constructed, with a view to its stability and to obvious train of reasoning, yet measures inconthe general good consequences arising from it, sistent with them have not only been advanced than the system of which a preference is implied by men of acknowledged abilities, and expert in in the reasoning of professor Hamilton. We calculations, but have been acted on by succescannot deny that its mechanism is somewhat sive administratiovs, and annually supported in more costly, but we think the difference amply parliament, and ostentatiously held forth in compensated by its more durable construction. every ministerial publication.' We readily allow We do not altogether approve some of the that measures have been recommended upon changes of the original plan, and still less some principles, and by arguments, inconsistent with essential deviations from it; but, with respect to the truths which professor Hamilton has so ably other modifications of it which have been adopt- established; but we must think the latter part ed, we have no doubt that they had in view the of these assertions a great deal too unqualified ; very same principles which the professor has so and we expect to prove that Mr. Pitt and others ably established, connected, however, with such who have succeeded to him have not adopted practical arrangements as have greatly contribu- measures inconsistent with his principles, but ted to their adoption, and without which we are have clearly comprehended them, and regulated quite convinced that their adoption in any very in conformity with them the more important useful extent would have been altogether im- parts of their arrangements for the redemption of practicable.

our public debt. The professor proposes, '1. To lay down some In his remarks on the principle of redeeming general principles, which if established would debt by appropriated sinking funds, increasing lead to general conclusions concerning our finan- by compound interest, professor Hamilton has cial system, and in a great measure supersede given a series of perspicuous arithmetical statethe necessity of examining particular plans ments, which demonstrate the futility of some which have been proposed or adopted. opinions on the subject, that we would rather

2. To give a narration of the manner in call vulgar than popular; because, as far as our which we have proceeded in conducting and observation has extended, few, if any, intelligent accumulating our public debt, and a statement persons have ever been so much deceived by the of its present amount and annual charge, and an magic of numbers, as to believe that the national account of the plans which have been proposed debt can ever be diminished but by an average or adopted for its discharge, and their operation. surplus of revenue beyond the average expendiThe necessary tables in illustration of these par- ture. The error has long since been refuted in ticulars will be subjoined in an appendix. various publications, and particularly by Sir F.

'3. By means of these general principles to D'Ivernois. scrutinise the efficacy of the schemes to which The professor states that the point at issue is, we trust for the relief of our national burdens; whether, taxation and expenditure being the and examine the propriety of the methods we same, a sinking fund produces any beneficial have adopted in conducting our financial oper- effect? Certainly not, if this is the only point

If we are to limit our views solely by In conformity with this plan he begins the arithmetical calculations of direct profit and first part of the subsequent enquiry by stating a loss, we cannot discover that a sinking fund has series of general principles of finance.? With- any peculiar advantages in diminishing debt, o. out meaning to be hypercritical, we would rather retarding its increase ; and it may be that the have called them propositions, as indeed the same money may be employed with equal effiauthor himself does afterwards; for instance, cacy by less expensive mechanism. But we the unqualified statement, in th atter part have before ated tha the mechanism of our of the second of them, that we are already far sinking fund appears to us to have been originadvanced to the utmost limit of taxation,' is ally framed, and since improved, with far more neither a general principle of finance nor an in- extensive views of political economy. ference from any principle, but an assertion of a The second part of the professor's work confact which requires distinct proof, and of which tains a useful history of the present public debt 110 proof is given. Connected as it is with the of Great Britain, from its commencement; and preceding part of the sentence, it means the to this we beg to refer the reader as a valuable utmost limit of the amount of revenue obtainable moral. The first section of this part describes by taxation, which, from his observations on the concisely the methods of borrowing the funded same subject a few pages after, we are sure the debt which have successively been adopted, and author cannot have intended, which allows subjoins a clear arithmetical statement of its nothing for the present rapid progress of popu- progress. The second section is employed in lation and intrinsic national wealth, and makes describing the plans which have been adopted no distinction between the difficulty of multiply- for the reduction of the funded debt, and their ing taxes, or of increasing their rate; nor be. operation; and the third in stating the nature VOL. XV.

2 I


at issue.

of inoney.


and amount of the unfunded part of the public in efficacy according to the contemporary profit debt.

Yet we can conceive that such an The third part of ihe work contains an exa- alternately real and nominal sinking fund as we mination of plans for the redemption of the have described may, from collateral causes, be national debt, and other financial operations, in very fit to be adopted as a national measure, four sections ; of which the first examines Dr. though little adapted 10 exonerate a private Price's views of finance; the second reviews

If in either case, whether public or Mr. Pitt's sinking funds; the third comments on private, the system itself can be made efficiently the plan introduced by lord llenry Petty; and instrumental in creating an increase of revenue, the fourth contains an examination of the system which might not otherwise have been obtained, of funding by increase of capital.

that increase, in whatever manner applied to exThe object of the examination of Dr. Price's tinguish debt, whether contingently or by a plans is to disprove the arithmetical principle on strictly regulated appropriation, is substantially which he founded their efficacy. To us it has a sinking fund; but in neither case is one step always appeared that the Dr. perplexed himself, advanced towards extinction of debt, by borrowand a large proportion of the public, by a dis- ing with one hand to redeem with the other, tinction without a difference between his first unless at a lower rate of interest; and then the and second methods of employing a sinking difference saved, if so applied, is as truly a fund; meaning, as we believe he must have sinking fund as an equal increase of surplus done in both cases, a real fund, and not one income would be by an augmentation of the existing in form only; that is, an actual average amount of it. If, however, the adoption of a surplus of public revenue beyond the average permanent sinking fund may give to a nation expenditure for all other purposes.

Without means of augmenting its income, which cannot doubt this only can be a real and efficient sink- be adopted at all in private life, or can only be ing fund; but yet it appears to us that the form adopted in a very limited extent, in that case a and mechanism of an uninterrupted sinking ditlerenca arises which so far only may justify fund, alternately real and nominal, that is, acting Dr. Price's distinction. Where not instrumental during war as well as peace, though over- in increasing the revenue, so far as is necessary balanced in the foriner case by increasing debt to pay the interest of the sums borrowed, the for military expenses, and even itself causing measure in public or private atiairs will be absome increase of expense, may, nevertheless, surd; but, if it may be made thus instrumental have peculiar efticacy in facilitating the creation in the one case and not in the other, the distincof a surplus revenue.

tion is so far dcfeusible. The indistinct view which Dr. Price seems to As to the latter part of Dr. Price's assertion, have had of his own arguments, or his want of that it is borrowing money at simple interest in precision in explaining them, is, we think, evi- order to improve it at compound interest,' his dent, in an assertion quoted by professor meaning no doubt was that, if additional funds

are provided to pay the interest of the sums "A state may, without difficulty, redeem its borrowed,' the new debt will not increase by debts by borrowing money at an equal or even compound interest, while the old debt will be a higher interest than the funds hear, and with- diminished in that proportion ; and with this out providing any other funds than such small proviso the truth of his assertion is indisputable, ones as are necessary to pay the interest of the although announced in a manner more adapted sums borrowed. In private life such a measure to surprise the reader than to instruct him. True would be justly deemed absurd; but in a state it is, that either the existing revenue must be it would be the effect of the soundest policy. It made more productive, or new taxes must be is borrowing money at simple interest, in order levied to add to it; and it may be that these to improve it at compound interest.'—p. 125. subtract as much from private incomes as they

The first part of this assertion is not untrue; add to the public income; but, whatever may be but yet is only a sort of arithmetical riddle, cal- the pressure thus created, it would equally be culated to produce useless wonder, and fitter for felt by an equal increase of income applied to the ladies' diary than for a practical essay on one diminish debt, or retard its progress in any other of the most important questions of political manner. So far as respects the public purse economy. If in the next part of the sentence he the effect is the same as that of simple opposed had said increase of revenue, &c.,' instead of to compound interest. We admit there is in this using funds in the double sense of capital and nothing peculiar to an appropriated and permaannual income, his real meaning would have nent sinking fund; but we think there are other been more correctly expressed. lle goes on to solid grounds on which it may be defended. make a distinction between the application of In justice to the memory of Mr. Pitt, we must this proposition to private and public debts, say that we cannot discover any sufficient reason which it is doubtful if he himself rightly com- for imputing to him that, dazzled by the imagintprehended. In truth, there is no arithmetical ary omnipotence of compound interest

, le rather difference; but it may be in "extent of sum and looked to that for the efficacy of his fund than to duration of time,' as professor Hamilton has its utility as a powerful instrument in obtaining clearly shown. In either case, and adopting any the consent of the nation to make its public mechanism of finance, a continual deficiency revenue gradually more equal to its average exmust increase a previously existing debt; and a penditure. His system, as adapted to the case continual surplus, unless hoarded, may diminish of a preponderating increase of debt, in 1792, it by the progress of compound interest, varying included a concurrent increase of revenue, even


more than necessary to pay the interest of the as to be first deducted from the annual produce money borrowed for the use of the sinking fund. of it, and even then the terms of complete ex

We are the more anxious to explain our opi- tinction of the substituted debt will only be pronions of this assertion, quoted by professor tracted about ten months, becoming thirteen Hamilton from Dr. Price, because it appears to years and a half, fourteen years, or fourteen years us that it involves the main grounds of their and a half, according to the rate of compound different views of the utility of permanently interest. This is the true effect of the sys appropriated sioking funds. Both of them although its real efficacy is concealed from curhave viewed the question rather arithmetically sory observation by the indiscriminate manner than politically. We think it clear that Dr. in which the sinking fund has, in practice, been Price is correct in his calculations of the arith- applied to the purchase of the debt. metical effects of borrowing to repay or redeem, We have no more respect than Professor Hawhen that system is accompanied by an increase milton for the Stock Exchange arguments on of income in due proportion to the interest of this subject : but, if we consult the history of huthe new debt. But we also think professor man nature, we think it will furnish unansweraHamilton perfectly correct in denying that this ble reasons in favor of what we consider as the is at all peculiar to the system in question. true principle of the system. We do not mean

We, therefore, neither defend the system on to defend every modification of it, nor its adopDr. Price's arithmetical principle of compound tion in an unlimited extent; for we can conceive interest preponderating over simple interest in nothing more mischievous than it would be if carthe opposite scale, nor do we think it follows ried beyond convenient limits; which, indeed, was that the system is erroneous because it cannot be the chief objection to the plan of lord Henry Petty. defended on that ground, or even because, by an On this subject the professor himself admits that, arithmetical calculation of direct profit and loss, 'In regard to the increase of taxes, we are of it may appear that its mechanism creates a opinion that the sinking fund has had a real efgreater expense than would be incurred by other fect in calling forth exertions, which, although means of employing the same annual revenue to they might have been made as well and as effecproduce the same or equivalent effect. Here tually, would not have been made unless to folthen is the point at which we differ from pro- low out the line which that system required. A fessor Hamilton. He undertakes to demonstrate loan made, and the revenue is considered as aritbmetically that, instead of diminishing our charged, not only with the interest, but a cerdebt, we have increased it considerably, by un- tain proportion of the principal, annually. Taxes remittingly persevering in borrowing to redeem are imposed to meet the one as well as the other. since 1792. And, indeed, in one respect this If the sinking fund had not been in view, it is must be so far true, that the charges incurred by likely taxes would have been imposed for the incontracting new debts to pay off old ones can terest only.' hardly be computed on an average at less than We would here make a remark, which perfive per cent.; and the more extensively this is haps more directly applies to a former part of done the greater will be the loss, unless compen- his observation on Mr. Pitt's plan, as adapted to sated by adequate advantages. To us, however, a war system in 1792, namely, that when a loan it

appears, that the system, as constructed in is contracted for the two-fold purpose of defray1792, and usually followed since that time, has ing an actual excess of expenditure beyond the really caused a saving of expense very far ex- revenue, and of redeeming a part of the debt alceeding this cost of it.

ready existing, according to the manner in which We believe the public in general are little Mr. Pitt's system has hitherto been carried into aware of the efficacy of the system, in extinguish- execution, the real appropriation for the extincing that portion of the debt which is created on tion of that debt is not merely one per cent. on account of it. If the whole debt were only such the new capital, but also a continuation of the that it might be redeemed in one year this would whole interest of the money in this manner embe obvious. Suppose a debt of £10,000,000, played. With regard to the real increase of debt, borrowed from new creditors to pay off old cre- that is, the excess of loan beyond the contempoditors, at the same rate of five per cent. interest on rary produce of the whole sinking fund, the apa five per cent. capital. Of the previous national propriation, being only one per cent., operates in revenue, £500,000 per annum was before appro- the manner and at the rate described in this work. priated on account of this debt, and by the trans- If we could borrow at par in a five per cent. action an obligation is incurred to add £600,000 fund, the appropriation being six per cent, would, a year more, namely, £100,000 to the fund, and for the debt rcally contracted, be five per cent. to £500,000 for interest to the new creditors. the lenders, and one per cent. to redeem the capiWherefore, the real sinking fund created by bor- tal : but calculating the cost of the transaction at rowing £10,000,000 to redeem £10,000,000 on five per cent. this will be nearly, though not exthis plan, is not merely £100,000 but £600,000 actly, equal to the first five years of the one per or the whole addition on account of it.

cent, annuity. If that cost, being blended with The substituted debt, therefore, will be re- the other national expenses, is nowhere distinctly deemed by this fund in little more than twelve stated, and paid in some other manner, this may years and a half, if employed at five per cent.; alter the sums on both sides of the nationai acOr than thirteen years, if employed at four per count, but will not alter the balance. But with cent.; or thirteen years and a half, if at three regard to the part of the loan borrowed to reper cent. But the charges of the transaction deem former debt, and so applied, the augmentamay average about five per cent. Consider these tion of the fund is an annuity of about six per

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cent. commencing its real operation after ten tion of this addition to the fund beyond fire months only, instead of five years. If, in pro- years is employed in extinguishing antecedev. viding for our annual loans, we only levied an debt. increase of revenue equal to the interest and appro- If, after an equalisation of revenue and exper priation for the actual increase of debt, we appre- diture, the system might conveniently be allowed hend this would be precisely the view which the to operate according to Mr. Pitt's plan of 1709; professor has taken of the question. But if a in that case most obviously the whole approprilarge proportion of those loans is employed to tion would be to increase the means of redécopay off debt already existing, and the effect of ing old debls. But, as no new debt would be the system has been to induce the public to agree contracted beyond the amount of debt redeemed to an augmentation of the revenue in due pro- the effect might be a very inconvenient increas: portion to this part also of the new debt, the of the revenue beyond the actual expenditure progress towards equalisation of income and ex- even in war. Experience and common sense a penditure is very greatly accelerated, and also any such case would suggest how to regulate the the period is greatly shortened during which in operation of the fund, or, it may be, show the peace the debt may be extinguished,

expedience of altogether suspending it. We To us the systemi adopted by Mr. Pitt, in shall hereafter advert more fully to this topic, 1792, has always appeared to have been a very at present we need only observe, that the pit ingenious and efficient way of rapidly approxi- ciple on which we justify the system establisher mating the income and expenditure. We have by Mr. Pitt is by no means shaken, because thx too high an opinion of his perspicacity not to system may require limitation when it has a believe that he had this in view at that time, or ready accomplished the most essential part of its to doubt the plan he would have proposed duty; and because it may be found expedient ta whenever they should really be equalised." His regulate its progress according to political ciplan has the twofoed advantage, that it creates an cumstances, and in due proportion to the work artificial necessity of increasing the revenue which may remain to be performed. whenever such an increase may be politically We must refer our readers to the third sectioei expedient; and that it fixes apparent and defi- of this part of professor Hamilton's work, and 13 i nite limits to the systematic extent of that in- the tables connected with it, for a very perspicucrease : it counteracts the reluctance to submit to ous analysis of the plan introduced by land new taxes by the former circumstance, and any Henry Petty. The arrangements of this plan fears for excessive augmentation and inproper were so ingenious (as far as they were new) that application of the public revenue by the latter. they necessarily created a great prepossession in

Here we think there is a possible and even favor of it; for a time it was popular, and, as probable effect of the system, which could often happens in similar cases, the more pronihardly have been obtained in any other manner, nent feature of it was admired while its defects and which, though it may sometimes cost ten were overlooked, or considered as of no importmonths value of the revenue appropriated, mustant consequence. The great defects of this plan amply recompense this expense by its general were, that, so far as it was really new, it pushed advantages.

to an extreme the peculiar expense of the system To give some idea of the effects of the system of borrowing to redeem, while it abandoned the of 1792, if exactly followed, let us suppose, that only important compensation for it; for in fact at some period the real excess of expense beyond it evaded the proportionate contemporary au the revenue being only£3,000,000, but£9,000,000 mentation of the revenue to the extent of its per of the revenue being appropriated, a loan of culiar loans, by selling, though for a limited £12,000,000 would be wanted. This was nearly, period, portions of the disposable revenue which though not exactly, the case when a new plan of already existed. Instead of adding six per cent. finance, so severely censured by professor Ha- to the revenue on account of those loans, it submilton, was proposed by lord Henry Petty. In tracted ten per cent. annually for their amount a five per cent. 'stock at par, the requisite aug- from the means already provided to carry on the mentation of the public revenue for such a loan war : and this at a time when its expenses were would be £720,000, or it would be £800,000 if already very great, but when it appeared highly the capital created were a three per cent. stock, probable that by perseverance in the system alat £60. In either case, the real increase of debí ready established, the public revenue and exper: being only £3,000,000, the real appropriation diture would soon have been equalised. If it is for its interest would be only £150,000, but if alleged that the unexpected war in the Spanish so, then the remaining appropriation, whether peninsula would have disappointed that hope, £570,000 or £650,000 is nineteen per'cent. in is equally true that the same circumstance would the first case, or thirteen per cent. in the second have overwhelmed the mechanism of the substicase, of the real contemporary increase of debt. tuted system. The augmentation of income in the second case, The fourth section of this part of the prowhich is practically more familiar, if employed fessor's work is intended to demonstrate the at a profit of five per cent., would redeem its wasteful imprudence of funding by increase of corresponding debt, and pay the charges incurr- capital. Premising that, on many accounts, we ed by the loan in little more than five years, nor must disapprove of the system of creating a would the period be much extended at four or greater funded capital than the amount of the even three per cent. We therefore really make money borrowed, we yet materially differ from him provision in this case for redeeming the contem- in many parts of this argument, which we think porary debt in about five years; and any dura- very much overstates the loss which may have

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