been incurred by that system since 1793; and which overlooks that in certain proportions of comparative prices it may be highly probable, that, in an arithmetical balance of loss and gain, a considerable present and ultimate saving may arise from borrowing at a reduced rate of interest by creating a greater amount of capital. This was evidently true on a comparison of three per cent, and four per cent. stocks for some time after the latter fund was created. The only correct way to ascertain the comparative loss or gain which has resulted from the different systems of borrowing which have been adopted since 1792 is by a comparison of the market prices of the respective stocks and of exchequer bills when each loan was contracted; and also by considering what might be the difference of depreciation consequent on funding a large sum rather than a small one in any particular stock, and for which the contractors would expect in some way or other to be indemnified. For these reasons we more than doubt the accuracy of professor Hamilton's inference, from the comparison he has instituted between the cost of raising money by loans, and by funding exchequer bills from February 1793 to February 1812. The method of comparison is inaccurate; and, if accurate, the inference from it depends entirely on assuming that the whole debt might have been borrowed in a five per cent. stock, with no greater loss by allowance for depreciation than small sums might produce. We by no means deny that, during this period, it has been sometimes more profitable to borrow by creating five per cents. than three per cents., and that probably this might have been done with advantage to a somewhat greater extent; but we doubt whether the difference of cost would have been in any proportion so great as may be inferred from the statement we have referred to; and we must consider the question as depending very materially on contemporary circumstances as to pecuniary profit. We, however, attach no small importance to a reduction of the nominal magnitude of the funded capital, believing that, in spite of all dry calculations, a debt of £500,000,000, though at three per cent. interest, sounds more formidable than one of only £300,000,000 at five per cent. We therefore should gladly see realised the professor's idea of creating no more funded capital than the amount of the loan, and making up the difference by some other arrangement. We cannot think that this could be economically done by giving a long annuity in all cases, but probably the political benefit would amply compensate any small increase of expense. We will only add upon this subject that, for a considerable time, there has been an evident disposition on the part of those who have directed our finances to keep down as much as possible the nominal magnitude of the funded debt; and that, if borrowing by a five per cent. stock has not hitherto been adopted to the extent that might be wished, it has been because, in that extent, it has usually been impracticable without great loss by depreciation. To the account given by professor Hamilton of the progress and manner of conducting the funded debt, we wish here to add some circum stances which we believe are very little known, even to those who have a general acquaintance with the history of our finances; many of whom will perhaps be surprised to hear that the plan of providing one per cent., in addition to the interest or perpetual annuity for the redeemable capital of debt incurred, was actually adopted in the very first instance in which any such debt was created. It was not indeed persevered in, and appears to have been totally forgotten; nor is there any reason to suppose that Mr. Pitt was aware of it in the year 1792 when he adopted precisely the same principle in his modification of his system for extinguishing the national debt, as applied to any future increase of it. During many years after the revolution money was obtained for the public service, in addition to the revenue, by selling annuities for lives or for terms of years. Portions of the revenue were appropriated as funds for securing the regular payment of those annuities; and hence the origin of the distinction between funded and unfunded public debt. Large sums also had been borrowed of the bank of England, and other trading companies, at stipulated rates of interest until redeemed; but without any specific provision for their repayment. The first instance of procuring money for the public use by creating what have since been called perpetual annuities was in the year 1711, when Harley, afterwards earl of Oxford, was chancellor of the exchequer. The legal interest of money at that time was six per cent.; and in the preceding year £1,500,000 had been procured by giving for it annuities to continue thirty-two years, at the rate of nine per cent. during that period. Two acts were passed in the year 1711 (9 Anne) for borrowing money at six per cent. interest, and the principal to be repaid. As in the former year the annuities created were only to last during thirty-two years, and consequently the burden on the public which was caused by them would then terminate, so in this year a provision for the debt and its interest was made, to continue only during an equal term of thirty-two years, beyond which period no fund or security was provided, either to discharge the interest or repay the principal money which had been borrowed. Instead of this, however, so much public revenue was created and appropriated as would not only pay the annual interest, but give a surplus sufficient to repay the money borrowed during the period of its continuance and appropriation. By the first of these acts £1,928,570 was borrowed, and the annual sum of £135,000 during thirty-two years was appropriated, being (with the excess of a very small fraction) six per cent. for interest, and one per cent. to pay off the principal. But one per cent. annually employed to pay off portions of the principal debt at six per cent. interest, together with the redeemed interest in like manner employed, or, in other words, one per cent. per annum, improving at six per cent. compound interest, was not quite enough to extinguish the debt within the period limited, and the deficiency was made up by an adequate addition to the annual sum appropriated by the second act of the same year. By that act £2,602,200 was borrowed, and the annual sum of £186,670 was appropriated. Six per cent. for interest, and one per cent. for a sinking or redeeming fund, as provided in the former instance, would only have required an appropriation of £182,154; but £1 a year, improving at the rate of six per cent. compound interest, would not amount to £100 in less than almost thirtythree and a half instead of thirty-two years. It was therefore necessary either to prolong the term, or a little increase the annual appropriation, and the latter course was adopted. By adding £4516 a year, on this occasion, a sufficient provision was made (if strictly employed) to pay off both the debts within the limited term. ciency. It is evident, therefore, that, in the very first commencement of our funded debt, the principle, though not the name, of a sinking fund, was systematically adopted, and the appropriation to pay off each debt respectively was, in the first instance, at the rate of one per cent. of the debt to be redeemed, and afterwards, just so much more as (if duly employed) might pay it off in about thirty-two years. We have been the more desirous to explain fully the principle and extent of the provision to pay off debt contracted as it was first introduced by Mr. Harley, on account of its remarkable agreement with the plan of Mr. Pitt in the year 1792, to provide for the separate redemption of every debt which might after that time be funded, by an annual appropriation of one per cent., in proportion to the capital created. In this first instance, the money borrowed was only, as already stated, £1,500,000, but the appropriation was one per cent. on the debt funded. Not long after the peace of Utrecht various plans were proposed for accelerating the repayment of the whole national debt; and the great reduction of the rate of interest at which money might be borrowed by private persons, naturally suggested that by a similar reduction of the interest paid by the public an important annual saving might be made, which might be advantageously employed in redeeming the principal money of the national debt. Sir Robert Walpole was at that time chancellor of the exchequer, and as a preliminary step to such a reduc tion he had obtained an act for reducing the legal rate of interest on all private debts from six to five per cent. In March 1716-7, he introduced his plan in the house of commons, and fourteen resolutions were agreed to, which, if they had afterwards been adopted in their full extent, would have provided the means of paying off the whole debt, including the temporary annuities, within about thirty-five years. A part of his plan was to commute the temporary annuities for redeemable capital at five or four per cent. interest, whichever, according to the terms proposed, might be most agreeable to the present proprietors of them. But a change of ministers took place before the bills, founded on his resolutions, were introduced, in consequence of which this important part of his plan was abandoned. On this occasion three acts were passed, by one of which several former funds, which had been created to pay the interest and principal of certain debts, were united into a general fund, and a provision was enacted to make good any deficiency of it in any quarter of a year in which it might happen, out of the first aids granted by parliament. The amount of this general fund was £724,839 6s. 10d. The two other bills related to the reduction of interest paid to the bank and the South Sea Company. As very considerable mistakes have been made respecting the produce of the sinking fund, established by these bills, we have referred to the journals of the house of commons, and the various acts which bear on the question, and we believe the following statements are very nearly correct. The general fund was made up in the following manner : Annual sunis appropriated for interest and to repay appropriated to pay bank- £657,676 0 0 27,317 11 3 39,855 15 7 £724,849 6 10} In the first of these annual sums was included £104,806, originally appropriated beyond the interest of the capital debts created and added to repay them, and also £22,399 15s. which was the amount of interest of debt that had been paid off. Various debts were charged on this general fund, for which no provision had been previously made, or the temporary taxes appro priated to them had expired. By the recital in the South Sea Act (6 Geo. I. 1719) it appears that the total charge for interest of the original debts, on account of which parts of this fund had been previously appropriated, amounted In all £370,888 5 8 The surplus of the general fund was made subject to any deficiencies of the South Sea fund below the original appropriation of £608,000; and on the other hand might be increased beyond the amount of £724,849 6s. 10d., if the taxes should produce more than that sum, for it was provided that the whole surplus produce of those taxes, beyond the interest payable out of them, should be applied to pay the principal money, and that any deficiency below this sum in any year should be supplied out of the gene ral revenue. It is evident, therefore, that (subject to variation from these causes) the original sinking fund amounted to £370,888 5s. 8d. We know not on what grounds Sir John Sinclair has stated its actual amount at £336,000 only, and professor Hamilton at only £323,439, for it appears by the recitals in the act 5 Geo. I. when part of the produce of the new sinking fund was applied to assist in paying off exchequer bills held by the bank, that during the preceding year its amount had been as follows: As the clause in the general fund act, by which these surplusses were appropriated, has been more than once incorrectly quoted, we give the words as they stand in it. The clause enacts, 'that all the monies to arise from time to time as well of or for the excess or surplus of an act made this session for redeeming the funds of the governor and company of the bank of England, and of or for the excess or surplus by virtue of one other act made likewise this session for redeeming the funds of the governor and company of merchants of Great Britain, trading to the South Seas and other parts of America, and for encouraging the fishery, as also of or for the excess or surplus of the duties and revenues by this act appropriated as aforesaid; and the overplus monies of the said general yearly fund, by this act established, shall be appropriated, reserved, and employed to and for the discharging the principal and interest of such national debts and incumbrances as were contracted before the 25th day of December, 1716, and are declared to be national debts, and are provided for by act of parliament, in such manner and form as shall be directed and appointed by any future act or acts of parliament, to be discharged therewith or out of the same, and to or for none other use, intent, or purpose whatsoever.' The next considerable reduction of the interest of the national debt was connected with the South Sea scheme, by means of which the part of Sir Robert Walpole's original plan that related to a commutation of the temporary annuities was carried into effect; and at length, by the ultimate arrangement in settling the affairs of the company after their bankruptcy, there resulted, from this commutation and other circumstances, a reduction of the annual payment for interest and annuities which amounted to about £377,000. The profit of money employed in private loans continuing to diminish, Mr. Pelham was enabled to make a third reduction of the interest of the national debt in 1749, by which an annual saving was made of about £565,000. All these measures, if in each case the saving had been applied solely to pay off pre-existing debt, and for none other use, intent, or purpose whatsoever,' would have been very efficient. If the original sinking fund had been strictly employed, according to its original intention, it would have redeemed the whole funded debt which then existed, and which amounted to about £33,700,000, within thirty-six years; and, although the subsequent reductions of interest would have diminished the profit derived from employing the fund and its gains, yet they would have at once increased its amount so much as to shorten considerably the period in which its object would have been accomplished. Nothing indeed can be clearer than the meaning of the act by which it was established; but plausible reasons were given for the application of a portion of its revenue to pay the interest of new debts, and for other contingent purposes; and the consequence was, that little progress was made in redeeming the debt during peace, that in war it continued to accumulate, and, at last, any regular system for redeeming it was abandoned, and no progress at all was made but by the casual employment of any surplus of the whole revenue which might be saved during a peace. It may be doubted, whether the unfortunate deviations from the original plan, which took place at an early period, would have happened if there had been any thing alarming in the state of public credit. If at that time the transferrible value of the stocks had been in a declining state from any causes, however foreign to the funding system, or the magnitude of the debt, a strict application of the whole sinking fund would have been necessary to quiet the fears of the public creditors; and periodical evidence would have been called for of the progress made in redeeming their depreciated property at its ori ginal value. But at that time circumstances, wholly unconnected with our national debt, contributed to lower very much the profit which could be made by lending money to private persons; and consequently, not only to increase the transferrible value of all irredeemable incomes, but also of any others of which the repayment would probably be distant. It cannot be expected that there would be any strong feeling of the propriety of an undeviating application of the sinking fund to its original purpose, at a time when the public creditors were necessarily more afraid of being called on to receive the money due to them, than that it never would be paid off at all. The state of the English public funds, for many years, was such that the stockholders received much less than the legal rate of interest for their capitals invested in them. The great cause of this was the very low profit of money in a neighbouring country, with which, at that time, we had most extensive commercial and pecuniary connexions. By a long period of great industry, economy, and commercial prosperity, Holland had acquired an immense superabundance of capital, beyond what it could continue to employ at home with any adequate advantage; the commerce of that country having already passed its greatest extent. Contented with small annual returns, rather than to let their capitals remain wholly unprofitable, the monied men of the republic continued therefore to invest large sums in our funds, notwithstanding the reduced rate of interest, because it still continued higher than in their native country. To them, shares of our national debt were a much more convenient property than debts from private persons in a foreign country, and therefore they would be satisfied with smaller profit from them than the common rate of private interest; and would oblige those among ourselves who might choose to purchase stock, to give as high a price as they were ready to do. At that time the very high credit, or rather marketable value of our stocks, was not so much a proof of our own prosperity as of the superabundance of capital in Holland; and the annual interest paid to that country absorbed a considerable proportion of the produce of our industry. In such a state of things the successive reductions of the annual interest of the national debt were measures of obvious and unquestionable policy, and would have been exceedingly advantageous, if, instead of promoting an increasing indifference respecting the redemption of the debt, they had been accompanied by such regulations as would have preserved the original sinking fund in full activity. As the reduction of interest on the capital to be afterwards redeemed or repaid would have diminished the rate of increase of the sinking fund by compound interest, and as the amount of that diminution was a question of easy calculation, so much therefore out of the saving effected by these reductions might have been added to it as would have been a compensation for the diminution of its profit, and the remainder might have been fairly applied to the general use of the nation. Instead of this, the whole system was neglected. We are the more desirous to impress these observations, because we can anticipate the recurrence of similar circumstances, and even to an extent which may make it difficult to carry on the progress of a sinking fund on any other than a very moderate scale; and altogether impossible to carry it on with the increasing rapidity of compound interest. On the former occasion, the operation was suspended before the experiment could fairly be tried; but it may hereafter be found, that the difficulty of employing the means of paying off a great national debt is at least equal to the difficulty of providing them; equally attended with such private inconveniences as are sure to be exaggerated by the clamors of faction, and alike productive of many moral and political disadvantages. We do not mean these remarks, and others which we shall hereafter make on the same subject, as adverse to the principle of a sinking fund when properly regulated, but as cautionary against the very dangerous opinion that we may contrive to toil up hill as speedily as we have descended, and need take no concern for the magnitude of debt contracted relying on the omnipotence of compound interest for its easy redemption. The two reductions of interest of the national debt, which have led to these remarks, can by no means be considered as having had for their primary object the diminution of the capital of the national debt by increasing the means of repaying it, although that consequence might contingently have followed, but as intended to improve the revenue for general purposes. In fact, therefore, after the commutation of the temporary for perpetual annuities, which was a part of Sir Robert Walpole's original plan, and was the foundation of the South Sea scheme, no attempt was made to augment the sinking fund originally established, nor any one measure adopted to enforce its due application. We have thus at the hazard of some prolixity traced the history of this important fund to the state in which it was when Mr. Pitt became minister. A long and very expensive war had greatly increased the funded debt, and left an immense floating debt, at a ruinous discount, wholly unprovided for; the public credit was very low, the value of lands and of their produce had fallen, consequently the value of the capital and income pledged for the payment of the interest and principal of the national debt seemed to be diminishing; many works of great expense which had been undertaken still remained half finished; and although there can be no doubt that some increase of the intrinsic wealth of the country had taken place, even during the war which led to these consequences, yet the pecuniary means of giving to it its usual commercial value were grown scarce. this situation of things we do not so much extol the political courage of Mr. Pitt in proposing an efficient sinking fund (for some very strong measure to restore the opinion of the efficiency of the national resources was become necessary), as we feel the prudence with which he considered the defects of the mechanism of the plan adopted in the year 1717, and the good sense of the regulations by which he corrected them. In The most important defects in the mechanism of the plan adopted in 1717 were, that it did not separate the fund from the general account in such a manner as to make it ever after a distinct object of political observation; that it did not, by creating for it a separate administration, increase the ministerial difficulty of perverting it from its original purpose; and did not contemplate that the progress of such a fund, at compound interest, might increase to an unnecessary and even inconvenient extent. When Mr. Pitt proposed his new sinking fund, in the year 1786, the reduction which had taken place in the original interest of the ancient national debt, and the plan, which had been adopted to a great extent, of borrowing money at a low rate of interest on a capital of far greater nominal amount than the sum borrowed, made it necessary to propose that, instead of attempting to repay the existing debt according to its nominal value, a plan should be adopted by which it might be at all times redeemed according to its actual value, by employing fit agents to purchase stock at the market price for the public benefit. Well aware that the actual public revenue of Great Britain at that time was barely equal to the cost of a moderate peace establishment, and that without a real surplus of revenue any attempt to reduce the heavy load of national debt would be a mere illusion, he had the courage to propose an addition to the taxes great enough to allow of an annual payment of £1,000,000 to commissioners appointed to act as managers for its employment in redeeming the debt, and as trustees for the portion of it which by these means might be transferred to them for the use of the nation. Every precaution was adopted to provide that the new sinking fund should be so promptly and regularly employed as to derive the greatest practicable increase by the profit of compound interest, until it should have grown to such a magnitude as to make its future improvement no longer necessary, or even perhaps expedient. We are not aware of the reasons which induced Mr. Pitt to fix on the sum of £4,000,000 a year as the highest amount of his fund; but it is evident from this limitation that he did not adopt the profit of compound interest as a permanent and essential principle of his system, but only as a very convenient aid in augmenting his fund till it should become great enough to be afterwards employed in redeeming the remaining debt by equal annual payments. Though he readily and skilfully availed himself of every hope which his plan was calculated to excite, yet he had too strong a judgment to have adopted this restriction for no better reason than to display the remote prospect of a gradual and very slow diminution of the heavy burden of the debt, after twenty or thirty years of patient submission to an additional million a-year. Nothing so frivolous could be the motive which prompted Mr. Pitt to introduce this very important restriction. Every precaution was also taken by him to make the progress of redemption by his sinking fand as regular and as public as possible. Its management by being laid open might be constantly scrutinised by numberless persons well qualified to detect any frauds or errors, and all temptation to misconduct was count acted by the certainty that it must be discovered. The progress of redemption might have been exactly the same, if, considering the stock purchased by the commissioners as cancelled, the periodical reports should only have stated the increase of the fund, omitting any statement of the capital redeemed; but their conduct would not in that case have been so distinctly laid open to public inspection, and the efficacy of the system would have been much less striking than by the method which has been adopted, because the sum redeemed so very much exceeds the sum employed, that the magnitude of the effect is far more impressive than the annual amount of the means by which it is produced. By these arrangements a security has been given to the new sinking fund which the former wanted. The whole benefit being often presented to public inspection in the most favorable point of view, the consequence has been that the principle of the system is now generally regarded as of too much importance to be ever abandoned, and many persons feel a sort of timid bigotry respecting the mere mechanism of the plan, which will allow no adaptation of it to times and circumstances. Six years after the establishment of this sinking fund, in the early part of 1792, when the revenue had become very productive, when the prices of the stocks had become very high, and while as yet few persons in this country anticipated the tremendous consequences of the French revolution, Mr. Pitt very fortunately, as we think, proposed a plan for the separate redemption of any future debt by appropriating one per cent. annually for that purpose until the whole should be paid, to be computed in proportion to the capital created, and not to the sum which might be borrowed. At the commencement of the funding system, while the interest of the debt was at the rate of six per cent. and a right to pay the whole or any part of it at any time was reserved; one per cent. appropriated for that purpose, together with its accumulating profit, would, if duly applied, with certainty pay off the principal money of any corresponding debt in little more than thirty-three years. Money being in 1792 at a much lower rate of interest, the increase of one per cent. per annum, by the profit of its employment, should of course be computed at a lower rate; and no other than a conjectural computation could be made of the time when the redemption might be completed, not only because the system of purchasing stock at the market price must make the actual profit uncertain, but also because the proportion of the sinking fund appropriated to the value of the capital created would depend on the stock in which the new debt might be funded. On this occasion Mr. Pitt assumed that any future debt might be redeemed within forty-five years, at the latest, by employing for that purpose one per cent. per annum, computed according to the capital created, together with its profit by compound interest. Perhaps even at that time it was probable that the intended redemptions might be made in a much shorter space, but while the three per |