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been incurred by that system since 1793; and stances which we believe are very little known, which overlooks that in certain proportions of even to those who have a general acquaintance comparative prices it may be highly probable, with the history of our finances ; many of whom that, in an arithmetical balance of loss and gain, will perhaps be surprised to hear that the plan a considerable present and ultimate saving may of providing one per cent., in addition to the inarise from borrowing at a reduced rate of in- terest or perpetual annuity for the redeemable terest by creating a greater amount of capital. capital of debt incurred, was actually adopted This was evidently true on a comparison of three in the very first instance in which any such debt per cent, and four per cent. stocks for some time was created. It was not indeed persevered in, after the latter fund was created.

and appears to have been totally forgotten; nor The only correct way to ascertain the compa- is there any reason to suppose that Mr. Pitt was rative loss or gain which has resulted from the aware of it in the year 1792 when he adopted different systems of borrowing which have been precisely the same principle in his modification adopted since 1792 is by a comparison of the of his system for extinguishing the national debt, market prices of the respective stocks and of ex- as applied to any future increase of it. chequer bills when each loan was contracted; During many years after the revolution money and also by considering what might be the dif- was obtained for the public service, in addition ference of depreciation consequent on funding a to the revenue, by selling annuities for lives or large sum rather than a small one in any par- for terms of years. Portions of the revenue were ticular stock, and for which the contractors would appropriated as funds for securing the regular expect in some way or other to be indemnified. payment of those annuities; and hence the origin For these reasons we more than doubt the accu- of the distinction between funded and unfunded racy of professor Hamilton's inference, from the public debt. Large sums also had been borcomparison he has instituted between the cost rowed of the bank of England, and other trading of raising money by loans, and by funding ex- companies, at stipulated rates of interest until chequer bills from February 1793 to February redeemed ; but without any specific provision 1812. The method of comparison is inaccurate; for their repayment. and, if accurate, the inference from it depends The first instance of procuring money for the entirely on assuming that the whole debt might public use by creating what have since been have been borrowed in a five per cent. stock, with called perpetual annuities was in the year 1711, po greater loss by allowance for depreciation than when Harley, afterwards earl of Oxford, was small sums might produce. We by no means deny chancellor of the exchequer. The legal interest that, during this period, it has been sometimes of money at that time was six per cent.; and more profitable to borrow by creating five per in the preceding year £1,500,000 had been cents. than three per cents., and that probably this procured by giving for it annuities to continue might have been done with advantage to a some- thirty-two years, at the rate of nine per cent. what greater extent; but we doubt whether the during that period. Two acts were passed in difference of cost would have been in any pro- the year 1711 (9 Anne) for borrowing money at portion so great as may be inferred from the six per cent. interest, and the principal to be restatement we have referred to; and we must paid. As in the former year the annuities creconsider the question as depending very materi- ated were only to last during thirty-two years, ally on contemporary circuinstances as to pecu- and consequently the burden on the public which niary profit. We, however, attach no small im- was caused by them would then terminate, so portance to a reduction of the nominal magnitude in this year a provision for the debt and its inof the funded capital, believing that, in spite of terest was made, to continue only during an equal all dry calculations, a debt of £500,000,000, term of thirty-two years, beyond which period though at three per cent. interest, sounds more no fund or security was provided, either to disformidable than one of only £300,000,000 at five charge the interest or repay the principal money per cent. We therefore should gladly see realised which had been borrowed. the professor's idea of creating no more funded Instead of this, however, so much public capital than the amount of the loan, and making revenue was created and appropriated as would up the difference by some other arrangement. not only pay the annual interest, but give a surWe cannot think that this could be economically plus sufficient to repay the money borrowed done by giving a long annuity in all cases, but during the period of its continuance and approprobably the political benefit would amply com- priation. pensate any small increase of expense. We By the first of these acts £1,928,570 was borwill only add upon this subject that, for a con- rowed, and the annual sum of £135,000 during siderable time, there has been an evident dispo- thirty-two years was appropriated, being (with sition on the part of those who have directed the excess of a very small fraction) six per cent. our finances to keep down as much as possible for interest, and one per cent. to pay off the the nominal magnitude of the funded debt; and principal. But one per cent. annually employed that, if borrowing by a five per cent. stock has to pay off portions of the principal debt at six not hitherto been adopted to the extent that per cent. interest, together with the redeemed might be wished, it has been because, in that ex- interest in like manner employed, or, in other tent, it has usually been impracticable without words, one per cent. per annum, improving at great loss by depreciation.

six per cent. compound interest, was not quite To the account given by professor Hamilton of enough to extinguish the debt within the period the progress and manner of conducting the limited, and the deficiency was made up by an funded debt, we wish here to add some circum- adequate addition to the annual sum appropriated

Debt created.





by the second act of the same year. By that act tion he had obtained an act for reducing the 12,602,200 was borrowed, and the annual sum legal rate of interest on all private debts from of £186,670 was appropriated. Six per cent. six to five per cent. In March 1716-7, he for interest, and one per cent. for a sinking or introduced his plan in the house of commons, redeeming fund, as provided in the former in- and fourteen resolutions were agreed to, which, stance, would only have required an appropria- if they had afterwards been adopted in their tion of £182,15+; but £1 a year, improving at the full extent, would have provided the means of rate of six per cent. compound interest, would paying off the whole debt, including the temnot amount to £100 in less than almost thirty- porary annuities, within about thirty-tive years. three and a half instead of thirty-two years. It A part of his plan was to commute the tempowas therefore necessary either to prolong the rary annuities for redeemable capital at five or tırm, or a little increase the annual appropriation, four per cent. interest, whichever, according to and the latter course was adopted. By adding the terms proposed, might be most agreeable to 2:1510 a year, on this occasion, a sufficient pro- the present proprietors of them. But a change vision was made (if strictly employed) to pay of ministers took place hefore the bills, founded off both the debts within the limited term. on his resolutions, were introduced, in conse

quence of which this important part of his plan Principal

Sinking was abandoned. On this occasion three acts

were passed, by one of which several former £

funds, which had been created to pay the interBy the first act 1,500,000 1,928,570 19,285 est and principal of certain debts, were united By the second act 2,000,000 2,602,200 30,538 into a general fund, and a provision was enacted

to make good any deticiency of it in any quarter By both united

4,530,770 49,823 of a year in which it might happen, out of the

first aids granted by parliament. The amount These united funds, improved at six per cent. of this general fund was £724,839 6s. 104d. compound interest, would, in thirty-two years, The two other bills related to the reduction of amount to £4,528,392 16s., or only 12377 4s.

interest paid to the bank and the South Sea less than the sum to be discharged; but, as some Company. of the duties imposed for this purpose were to As very considerable mistakes have been made take place at an earlier time than the commence- respecting the produce of the sinking fund, ment of the interest, this circumstance more than established by these bills, we have referred to the compensated the above-mentioned small defi- journals of the house of commons, and the

various acts which bear on the question, and we It is evident, therefore, that, in the very first believe the following statements are very nearly commencement of our funded debt, the princi- correct. ple, though not the name, of a sinking fund, was The general fund was made up in the followsystematically adopted, and the appropriation ing manner :to pay off each debt respectively was, in the first Annual 'sunis appropriated instance, at the rate of one per cent. of the debt

for interest and to repay to be redeemed, and afterwards, just so much

the capital of debts con-
inore as (if duly employed) might pay it off in

tracted in 1711 and 1712,
about thirty-two years.
We have been the more desirous to explain Average surplus of taxes im-

by lottery loans

£657,676 0 0 fully the principle and extent of the provision to pay off debt contracted as it was first intro

posel on account of those

debts, which
duced by Mr. Harley, on account of its remark-

added to the previous ap-
able agreement with the plan of Mr. Pite in the
year 1792, to provide for the separate redemp- Annual sums which had been

tion of every debt which might after that time
be funded, by an amual appropriation of one

appropriated to pay bank

ers' annuities.
per cent., in proportion to the capital created.
In this first instance, the money borrowed was

1724,849 6 101
only, as already stated, £1,500,000, but the
appropriation was one per cent. on the debt In the first of these annual sums was included

£104,806, originally appropriated beyond the Not long after the peace of Utrecht various interest of the capital debts created and added plans were proposed for accelerating the repay- to repay them, and also 122,399 15s. which ment of the whole national debt; and the great was the amount of interest of debt that had reduction of the rate of interest at which money been paid ofi. might be borrowed by private persons, naturally Various debts were charged on this general suggested that by a similar reduction of the in- fund, for which no provision had been preterest paid by the public an important annual viously made, or the temporary taxes approsaving might be made, which might be advan- priated to them has expired. tageously employed in redeeming the principal the South Sea Act (6 Geo. I. 1719) it appears money of the national debt. Sir Robert Wal- hat the total charge for interest of the original pole was at that time chancellor of the exehe- debts, on account of which parts of this fund quer, and as a preliminary step to such a reduc- lid been previously appropriated, amounted




27,317 11 3

39,855 15 75


By the recital in



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£476,717 17 8 this act established, shall be appropriated, reAnd for the debts added

served, and employed to and for the discharging by authority of the act, in

the principal and interest of such national debts cluding two large sums 102,036 13 2 and incumbrances as were contracted before the for deficiences and army

25th day of December, 1716, and are declared debentures

to be national debts, and are provided for by And by two subsequent

act of parliament, in such manner and form as 5,539 0 3} shall be directed and appointed by any future

act or acts of parliament, to be discharged there

£584,293 11 1} with or out of the same, and to or for none other The author o the History of Debts and use, intent, or purpose whatsoever.' Taxes states this sum as only £520,000 a year; of the national debt was connected with the

The next considerable reduction of the interest and Rapin more nearly at £570,580. The surplus, therefore, made applicable to

South Sea scheme, by means of which the part

of Sir Robert Walpole's original plan that repay off the debts charged on this fund was

lated to a commutation of the temporary annu

£140,555 15 81% ities was carried into effect; and at length, by The difference saved by the bank reduction was

the ultimate arrangement in settling the affairs 130,332 9 113

of the company after their bankruptcy, there And by the South Sea} 100,000 0 0

resulted, from this commutation and other cirreductions

cumstances, a reduction of the annual payment

for interest and annuities which amounted to In all £370,888 5 8% about £377,000. The profit of money employed The surplus of the general fund was made in private loans continuing to dininish, Mr. subject to any deficiencies of the South Sea fund Pelham was enabled to make a third reduction below the original appropriation of £608,000; of the interest of the national debt in 1749, by and on the other hand might be increased be- which an annual saving was made of about yond the amount of £724,849 6s. 10;d., if the £565,000. All these measures, if in each case taxes should produce more than that sum, for it the saving had been applied solely to pay off was provided that the wbole surplus produce of pre-existing debt, and for none other use, inthose taxes, beyond the interest payable out of tent, or purpose whatsoever,' would have been them, should be applied to pay the principal very efficient. money, and that any deficiency below this sum If the original sinking fund had been strictly in any year should be supplied out of the gene- employed, according to its original intention, it ral revenue.

would have redeemed the whole funded debt It is evident, therefore, that (subject to varia- which then existed, and which amounted to tion from these causes) the original sinking fund about £33,700,000, within thirty-six years; and, amounted to £370,388 5s. 83;. We know not although the subsequent reductions of interest on what grounds Sir John Sinclair has stated its would have diminished the profit derived from actual amount at £336,000 only, and professor employing the fund and its gains, yet they would Hamilton at only £323,439, for it appears by the have at once increased its amount so much as recitals in the act Geo. I. when part of the to shorten considerably the period in which its produce of the new sinking fund was applied to object would have been accomplished. Nothing assist in paying off exchequer bills held by the indeed can be clearer than the meaning of the bank, that during the preceding year its arount

act by which it was established; but plausible had been as follows :

reasons were given for the application of a porGeneral fund £320,436 15 113

tion of its revenue to pay the interest of new

debts, and for other contingent purposes; and South Sea 19,577 10 0

the consequence was, that little progress was Aggregate 196,444 18 3}

made in redeeming the debt during peace, that £536,459 4 253

in war it continued to accumulate, and, at last,

any regular system for redeeming it was abanAs the clause in the general fund act, by which doned, and no progress at all was made but by these surplusses were appropriated, has been more the casual employment of any surplus of the than once incorrectly quoted, we give the words whole revenue which might be saved during a as they stand in it. The clause enacts, that all peace. the monies to arise from time to time as well of It may be doubted, whether the unfortunate or for the excess or surplus of an act made deviations from the original plan, which took this session for redeeming the funds of the place at an early period, would have happened governor and company of the bank of England, if there had been any thing alarming in the state and of or for the excess or surplus by virtue of of public credit. If at that time the transferrible one other act made likewise this session for value of the stocks had been in a declining state redeeming the funds of the governor and com- from any causes, however foreign to the funding pany of merchants of Great Britain, trading to system, or the magnitude of the debt, a strict the South Seas and other parts of America, and application of the whole sinking fund would for encouraging the fishery, as also of or for the have been necessary to quiet the fears of the pubexcess or surplus of the duties and revenues by lic creditors; and periodical evidence would this act appropriated as aforesaid; and the over have been called for of the progress made in replus monies of the said general yearly fund, by deeming their depreciated property at its ori


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ginal value. But at that time circumstances, the recurrence of similar circumstances, and even wholly unconnected with our national debt, con- to an extent which may make it dishcult to carry tributed to lower very much the profit which on the progress of a sinking fund on any other could be made by lending money to private per- than a very moderate scale; and altogether imsons; and consequently, not only to increase the possible to carry it on with the increasing rapitransferrible value of all irredeemable incomes, duty of compound interest. On the former ocbut also of any others of which the repayment casion, the operation was suspended before the would probably be distant. It cannot be ex- experiment could fairly be tried; but it may pected that there would be any strong feeling of hereafter be found, that the difficulty of employ. the propriety of an undeviating application of ing the means of paying off a great natioral the sinking fund to its original purpose, at a time debt is at least equal to the difficulty of providing when the public creditors were necessarily more them; equally attended with such private inconafraid of being called on to receive the money veniences as are sure to be exaggerated by the due to them, than that it never would be paid off clamors of faction, and alike proiluctive of many illall. The state of the English public funds, moral and political disadvantages. for many years, was such that the stockholders mean these remarks, and others which we shall received much less than the legal rate of interest hereafter make on the same subject, as adverse to for their capitals invested in them.


great the principle of a sinking fund when properly cause of this was the very low profit of money regulated, but as cautionary against the very danin a neighbouring country, with which, at that gerous opinion that we may contrive to toil up wine, we bad most extensive commercial and pe- hill as speedily as we have descended, and need cuniary connexions. By a long period of great take no concern for the magnitude of debt conindustry, economy, and commercial prosperity, tracted relying on the omnipotence of compound Holland had acquired an immense superabun- interest for its easy redemption. dance of capital, beyond what it could continue The two reductions of interest of the national to employ at home with any adequate advantage; debt, which have led to these remarks, can by the commerce of that country having already no means be considered as having had for their passed its greatest extent. Contented with small primary object the diminution of the capital of annual returns, rather than to let their capitals re- the national debt by increasing the means of remain wholly unprofitable, the monied inen of the paying it, although that consequence might conrepublic continued therefore to invest large sums tingently have followed, but as intended to imin our funds, notwithstanding the reduced rate of prove the revenue for general purposes. In fact, interest, because it still continued higher than in therefore, after the commutation of the temporary their native country. To them, shares of our na- for perpetual annuities, which was a part of Sir tional debt were a much more convenient pro- Robert Walpole's original plan, and was the perty than debts from private persons in a foreign foundation of the South Sea scheme, no attempt country, and therefore they would be satisfied was made to augment the sinking fund originally with smaller protit from them than the common established, nor any one measure adopted to enrale of private interest; and would oblige those force its due application. among ourselves who might choose to purchase We have thus at the hazard of some prostock, to give as high a price as they were ready lixity traced the history of this important fund to do. At that time the very high credit, or to the state in which it was when Mr. Pitt herather marketable value of our stocks, was not came minister. A long and very expensive so much a proof of our own prosperity as of the war had greatly increased the funded debt, superabundance of capital in Holland; and the and left an immense floating deb!, at a ruinous annual interest paid to that country absorbed a discount, wholly unprovided for; the public considerable proportion of the produce of our credit was very low, the value of lands and of industry. In such a state of things the succes- their produce had fallen, consequently the value sive reductions of the annual interest of the na- of the capital and income pledged for the pay, tional debt were measures of obvious and un- ment of the interest and principal of the national questionable policy, and would have been debt seemed to be diminishing ; many works of exceedingly advantageous, if, instead of pro- great expense which had been undertaken still moting an increasing indifference respecting the remained half finished; and although there can redemption of the debt, they had been accom- be no doubt that some increase of the intrinsic panied by such regulations as would have pre- wealth of the country had taken place, even served the original sinking fund in full activity. during the war which led to these consequences, As the reduction of interest on the capital to be yet the pecuniary means of giving to it its afterwards redeemed or repaid would have di usual commercial value were grown scarce

. In minished the rate of increase of the sinking fund this situation of things we do not so much extol by compound interest, and as the amount of the political courage of Mr. Pite in proposing that diminution was a question of easy calcula- an efficient sinking fund (for some very strong tion, so much therefore out of the saring effected measure to restore the opinion of the efficiency of by •hese reductions might have been added to it the national resources was become necessary) as would have been a compensation for the di- as we feel the prudence with which he consminution of its profit, and the remainder might dered the defects of the mechanism of the plan have been fairly applied to the general use of the adopted in the year 1717, and the good sense of nation. Instead of this, the whole system was the regulations by which he corrected them.

We are the more desirous to impross The most important defects in the mechanism these observations, because we can anticipate of the plan adopted in 1717 were, that it did

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not separate the fund from the general account all temptation to misconduct was count"acted in such a manner as to make it ever after a dis- by the certainty that it must be discovered. tinct object of political observation; that it did The progress of redemption might have been not, by creating for it a separate administration, exactly the same, if, considering the stock purincrease the ministerial difficulty of perverting chased by the commissioners as cancelled, the it from its original purpose; and did not con- periodical reports should only have stated the template that the progress of 'such a fund, at increase of the fund, omitting any statement of compound interest, might increase to an unne- the capital redeemed; but their conduct would cessary and even inconvenient exter:. When not in that case have been so distinctly laid open Mr. Pitt proposed his new sinking fund, in the to public inspection, and the efficacy of the year 1786, the reduction which had taken place system would have been much less striking than in the original interest of the ancient national by the method which has been adopted, because debt, and the plan, which had been adopted to the sum redeemed so very much exceeds the a great extent, of borrowing money at a low sum employed, that the magnitude of the effect rate of interest on a capital of far greater no- is far more impressive than the annual amount minal amount than the sum borrowed, made it of the means by which it is produced. By these necessary to propose that, instead of attempting arrangements a security has been given to the to repay the existing debt according to its no- new sinking fund which the former wanted. The minal value, a plan should be adopted by which whole benefit being oftea presented to public it might be at all times redeemed according to inspection in the most favorable point of view, its actual value, by employing fit agents to pur- the consequence has been that the principle of chase stock at the market price for the public the system is now generally regarded as of too benefit. Well aware that the actual public re- much importance to be ever abandoned, and venue of Great Britain at that time was barely many persons feel a sort of timid bigotry reequal to the cost of a moderate peace establish- specting the mere mechanism of the plan, which ment, and that without a real surplus of revenue will allow po adaptation of it to times and cirany attempt to reduce the heavy load of national cumstances. debt would be a mere illusion, he had the cou- Six years after the establishment of this sinkrage to propose an addition to the taxes great ing fund, in the early part of 1792, when the reenough to allow of an annual payment of venue had become very productive, when the £1,000,000 to commissioners appointed to act as prices of the stocks had become very high, and managers for its employment in redeeming the while as yet few persons in this country anticidebt, and as trustees for the portion of it which pated the tremendous consequences of the French by these means might be transferred to them for revolution, Mr. Pitt very fortunately, as we think, the use of the nation.

proposed a plan for the separate redemption of Every precaution was adopted to provide that any future debt by appropriating one per cent. the new sinking fund should be so promptly and annually for that purpose until the whole should regularly employed as to derive the greatest be paid, to be computed in proportion to the practicable increase by the profit of compound capital created, and not to the sum which might interest, until it should have grown to such a be borrowed. At the commencement of the magnitude as to make its future improvement no funding system, while the interest of the debt longer necessary, or even perhaps expedient. was at the rate of six per cent. and a right to pay We are not aware of the reasons which induced the whole or any part of it at any time was reMr. Pitt to fix on the sum of £4,000,000 a year served; one per cent. appropriated for that puras the highest amount of his fund; but it is evi- pose, together with its accumulating profit, dent from this limitation that he did not adopt would, if duly applied, with certainty pay off the the profit of compound interest as a permanent principal money of any corresponding debt in and essential principle of his system, but only little more than thirty-three years. Money being as a very convenient aid in augmenting his fund in 1792 at a much lower rate of interest, the intill it should become great enough to be after- crease of one per cent. per annum, by the profit wards employed in redeeming the remaining of its employment, should of course be computed debt by equal annual paymients. Though he at a lower rate; and no other than a conjectural readily and skilfully availed himself of every computation could be made of the time when hope which his plan was calculated to excite, the redemption might be completed, not only yet he had too strong a judgment to have adopted because the system of purchasing stock at the this restriction for no better reason than to dis- market price must make the actual profit uncerplay the remote prospect of a gradual and very tain, but also because the proportion of the sinkslow diminution of the heavy burden of the ing fund appropriated to the value of the capital debt, after twenty or thirty years of patient sub- created would depend on the stock in which the mission to an additional million a-year. Nothing new debt might be funded. On this occasion so frivolous could be the motive which prompted Mr. Pitt assumed that any future debt might be Mr. Pitt to introduce this very important res- redeemed within forty-five years, at the latest, triction. Every precaution was also taken by by employing for that purpose one per cent. per him to make the progress of redemption by his annuni,computed according to the capital created, sinking fand as regular and as public as possi- together with its profit by compound interest. ble. Its management by being laid open might Perhaps even at that time it was probable that be constantly scrutinised by numberless persons the intended redemptions might be made in well qualified to detect any frauds or errors, and a much-shorter space, but while the three per

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