cent. stocks were worth more than ninety per centum in money, it might not be very prudent to calculate such a progress as could not be realised but by a great diminution of their value. While at this time Mr. Pitt was providing for the extinction of any future debt, the very flourishing state of the revenue induced him to propose some addition to the sinking fund already established. He proposed to give to it £400,000 out of the receipts for the current year, and to provide that £200,000 should be annually granted to it afterwards by vote of parliament. The principle, therefore, was adopted, that such an addition would be expedient, but the application of it was left to the annual discretion of the legislature, guided by contingent circumstances. In one point, which has since been of considerable importance, these plans of Mr. Pitt appear to us to have been deficient, though we by no means impute any blame to him on that account, being well aware that often the most convenient way to accomplish all that may be wished is to begin with that part only as to which any prejudices and difficulties may be most easily surmounted. Without doubt all debt contracted by authority of parliament is alike national; the national faith is equally pledged for all of it in whatever shape it may exist, without any difference between the funded and unfunded parts of it. This distinction, indeed, is rather technical than essential, for both cause annual charges on account of interest, which alike subtract from the contemporary revenue sums which might otherwise have been applicable to civil and military purposes. Temporary annuities include, in addition to common interest, a compensation, during the time which they last, in lieu of the capital originally paid for them, and therefore no sinking fund is wanted for them; but all other national debts bearing interest, whether funded or unfunded, must continue to be chargeable till they are repaid or redeemed, and therefore the reason for appropriating a sinking fund extends alike to all of them, if not otherwise provided for. A part, indeed, of the unfunded debt may very properly be considered as only nominal, and merely existing in account, because it is balanced by sums due to the government for revenue in arrear, and from public accountants, or is only an anticipation of sums which will in regular course become due, and by which any money advanced on their credit will be replaced. To this extent no sinking fund can be wanted, because the means of repayment already exist; and it is but justice to add, that in 1792 the unfunded debt did not so much exceed the means of regular repayment as to be an object of any considerable importance. Still it must be regretted that Mr. Pitt's plan in 1792 did not provide a sinking fund in due proportion to any sort of debt which might afterwards be contracted without some other appropriated provision for its repayment. The unfunded debt in exchequer, navy and ordnance bills, which in January 1793 only amounted to £14,802,375 had increased before the year 1801 to £35,628,099. According to the system of finance hitherto followed, an unfunded debt does not require any specific appropria tion of revenue to pay the annual expense of interest, which is defrayed out of the expenses of the year, and included in the sum that must be annually borrowed; whereas with respect to funded debt, if due provision is made, as it ought to be, by additional taxes, for payment of the interest of any addition to it, there is no subsequent increase of the debt on account of the charge of interest. Without doubt many advautages result from allowing a considerable increase of debt to remain unfunded during a war; but the temptation to suffer it to continue in this state rather than encounter the obloquy of proposing an adequate increase of taxes is very considerable; and a debt in this state counteracts the principle of the sinking fund. Experience has shown that it may be very greatly increased without exciting much observation, and in this manner it is left to future ministers and future parliaments to provide, after a war, for the interest as well as the extinction of debts swelled to a great magnitude, of which, till then, the interest had only been paid by an equal increase of money annually borrowed, but on account of which, on the return of peace, either new taxes must be levied or war-taxes must be continued. The true principle of British finance, as respecting all debt bearing interest, is that an annual revenue should be provided by taxes levied for that specific purpose, in full proportion to all the interest which must be paid; and also that for all the debt which must continue until redeemed, similar means for extinguishing it should be provided. The important deviation from this principle, as respecting the unfunded debt, probably commenced without much observation, while the excess of that debt beyond the actual means of repaying it was inconsiderable. In 1792 the national revenue probably needed no addition to it on account of the annual charge for the unfunded debt, and therefore no blame can be imputed on that account, nor do we mean to censure the omission of an addition to the sinking fund at that time, when the amount unprovided for by other means was immaterial; but the heavy increase of debt which was incurred during the latter years of the war, and the heavy burden on the revenue which must long remain, in consequence of this deviation from that sound principle of finance, both as to borrowing and redeeming, is obviously alike applicable to every part of a real national debt. In the year 1798 an important deviation took place from the plan of providing a sinking fund, which had been established in 1792, and which was also adopted in the two subsequent years. In the former year the aid and contribution tax' was imposed, for which the income tax' was afterwards substituted. The principle now adopted was, that after certain appropriations of the produce of these war-taxes, and particularly to pay the interest of any sums which were borrowed on their credit, the whole surplus (if any had arisen) should be transferred to the commissioners for redeeming the national debt, to be applied by them until the whole debt funded on this specific basis should be redeemed, instead of transferring to them one per cent. per annum, according to the capital created. The tax was to continue until the whole debt charged on it should be redeemed. Without doubt, when this measure was adopted, it was hoped that the tax might be continued without inconvenience, and that the surplus would greatly exceed one per cent, and therefore would supersede the propriety of adopting that rate of appropriation. After the peace of Amiens various reasons concurred to make it necessary to repeal the income tax; and, therefore, to substitute new and permanent taxes to a great amount, to provide for the interest of the debts charged on it, and also for the further sum which was then to be funded for the current charges of the year, amounting in all to £86,796,375. If, therefore, an addition to those taxes had been provided at the rate of one per cent., established in 1792, it would have amounted to no less than £867,963. It is now, we believe, generally well known, that by the advice, and at the instance, of Mr. Pitt, recourse was had on this occasion to a plan which has in some respects a very close resemblance to that of Sir Robert Walpole in the year 1717. In both cases all the antecedent sinking funds which had been specially appropriated to redeem particular debts were consolidated, and their duration was on both occasions prolonged until the whole funded debt which then existed should be redeemed not only these parts of it for which they had been specially provided, but also all those parts for which either no provision had been made, or where, as was the case with respect to the debt on the income tax, the intended provision had been repealed. So far the agreement extends between the two plans; but in another respect there is this very important difference, that in the former case not only the taxes, till then granted for a limited time, were continued until the whole debt should be repaid, but also other additions were made to the means to be employed for redeeming the debt, in full proportion to those parts of it on account of which no previous appropriation for that purpose had been made. But, in the second instance, no other provision was made for redeeming the additional charges on the united inds than by providing that they should continue until the whole debt should be redeemed. Without presuming to know the motives to the plan adopted in 1802, and respecting which we have always regretted that it was not found convenient to follow Sir Robert Walpole's example more closely, we may yet be permitted to conjecture that the necessity which was felt of allotting as large a proportion as possible of the taxes imposed in that year to an additional provision for the peace establishment, induced the government of that day to depart from the established rules of the funding system. Some also might expect that very soon another awful contest with a powerful and inveterate enemy would call for more expensive exertions; and therefore, on the whole, might think it better to protract the redemption of the existing debt than to diminish the mean. of providing for loans which might soon be wanted." We have already given an opinion of the plan of redemption which was introduced by lord Henry Petty in 1807. We may add another remark respecting it, which is connected with the system of war taxes that had been previously adopted. There is considerable danger of ultimate inconvenience when debt is charged on any taxes of such a nature, that either they cannot properly be made permanent, or that if made permanent they may cease to be sufficiently productive. The repeal of the income tax, on the former occasion, had been a measure of obvious propriety; but that repeal created the necessity of levying new taxes to a great amount instead of it, and also of contriving an expedient to prevent a much greater amount of them. Probably the great inconvenience which was felt on that occasion might be a principal motive for adopting a different principle from that which was acted upon in 1798, when afterwards a very great addition to the revenue was made by war taxes in 1803. In the former case the extraordinary revenue was originally levied for the twofold purposes of increasing the present means, and providing a basis for borrowing and redeeming to the extent in which the present means might be deficient; but the war taxes of 1803 were provided for the single purpose of increasing the revenue so long only as the increase of expense should continue. Such taxes might very properly be adopted for this single purpose as would be altogether unfit for appropriation in a funding system of any kind. In the year 1807, therefore, there was not only an innovation against a salutary limitation; but if the new system had been followed till now, accompanied by such an expense as has been actually incurred, there would have been a necessity, not only of laying on very heavy taxes to support the supplementary part of it during the war, but also of substituting others to a considerable amount, on the return of peace, in lieu of a part of the war taxes themselves. Only £21,000,000 were borrowed according to the regulations of that plan, which would have been redeemed in fourteen years if an adequate profit could be made of the money taken for that purpose from the revenue previously destined to support the contemporary expense of the war. So much as by this measure that revenue has been annually diminished, so much more must have been annually borrowed; wherefore, when the debt contracted in 1807 shall have been redeemed, an equal sum will have been, on that account, added to the unredeemed debt, together with all expenses of negociating the loan, and all charges of its redemption. In 1809 political circumstances, which need not now be explained, appear to have induced Mr. Perceval to have recourse once more to the war taxes as a basis for funding, rather than impose additional taxes, to be appropriated for the new debt which was then to be created. He, in fact, adopted the form of the sinking fund of 1792, but even more widely departed from its principle than lord Henry Petty had done; for in this case, no additional revenue having been created to meet the charges, all that is annually paid on account of that loan must be annually borrowed, and the debt will increase by compound interest so long as further loans may be required. The next changes in the mechanism, rather than the principle of the sinking fund, were introduced by Mr. Vansittart. We have already reviewed his plan in our article FUNDS, although with more brevity perhaps than was suitable to its importance; but our additional space must be devoted to the recent observations of lord Grenville on the entire subject. His lordship's Essay on the Supposed Advantages of a Sinking Fund is confessedly an incomplete work; the bare and unshadowed outline' of the view which he had taken of the subject and the whole community, but especially ministers and the legislature, must regret that the declining health of the accomplished and experienced writer has prevented the completion (as we understand him) of the second part. An analysis of what he has contributed, however, to the further consideration and adjustment of this great question, cannot fail to be interesting to all who have looked into it. While we cannot, from what has yet appeared of them, adopt the new convictions of the writer, additional attention is perhaps to be given to them for the circumstance of his original personal connexion with the establishment of the sinking fund, and his known admiration (still retained) of Mr. Pitt. His lordship avows (Introduction, p. 2) a total change of sentiment' on this subject and thus supplies the three general principles' on which it is founded. These are, 1st,' he says, the entire dependence of every sinking fund on an actually existing surplus of revenue: 2dly, the consequent inutility of all borrowed sinking funds: and, 3dly, the no less evident impossibility of deriv ing benefit from a sinking fund operating in times of war, or of otherwise deficient revenue.' i. In discussing the first of these principles he observes, Under no circumstances can any sinking fund be productive of real benefit, except where the ordinary income of the state has been carried to an amount permanently exceeding its current expenditure. To the neglect of this fundamental truth, a very large proportion of the errors which have prevailed in this branch of financial policy, is, as I think, mainly to be ascribed. Without such an exceeding, firmly established and invariably applied, a sinking fund may indeed exist in name, but it can have no solid operation. Even when the revenue of a state is most deficient, some portions of it may, as we know, both from our past and present experience, be nominally appropriated to the purposes of a sinking fund: but, by such appropriations, the public debts are in no degree diminished. The veriest prodigal may annually discharge a part of what he owes; but if, on the whole, he expends within the year much more than he receives, he will find, at its close, his encumbrances not lessened, but considerably increased. To reduce debt is the only object of a sinking fund. To the efficacy, therefore, and consequently to the wisdom of such an institution, two conditions are indispensable: 1st, the continued existence of the surplus from which it is to be supplied; and, 2dly, the uninterrupted appropriation of that surplus to the reduction of debt. The very name of a sinking fund implies the recurrence of fixed payments at regular and stated periods: the casual application of occasional resources is a notion quite distinct from that of such a fund. ii. He now passes to the inutility of borrowed sinking funds." This first principle,' he continues, simple and obvious as it is, dispels at once the greatest of all the misconceptions by which this subject has been but too long obscured. It proves beyond all power of dispute, what I do not hesitate to term the utter worthlessness, the total and hopeless inutility, of a borrowed sinking fund. A nation may often find it useful, sometimes absolutely necessary, to eke out a deficient revenue by loans raised for its current service. But to resort to any such expedient in the establishment or support of a sinking fund, created for the reduction of debt, is a policy self-contradic tory, and for the most part deeply injurious to its own purposes. of There is indeed one well-known case in which the repayment of debt from borrowed money is advantageous to the debtor. A general fall in the rate of interest may enable him to compel his creditor, if such be the nature of their contract, either to consent to a similar reduction in his own case, or to accept of the repayment his capital, to be effected by money borrowed elsewhere at a cheaper rate. This course, we know, has often been successfully followed by our own legislature. But such a measure has nothing in common with that which we are here considering. It differs completely, both in principle and in effect, from the application of a borrowed sinking fund, to purchase stock at its market-price. In the first of these two cases it is an evident benefit to the community to release itself from a more burdensome contract by mo ney borrowed on terms of less disadvantage. But to the second no such reasoning applies. Can it be profitable to any man to buy up in the open market his own engagements, with money raised at the same moment, and in the same market, by a corresponding issue of similar securities? Would not the mere fact of his resorting to such an operation be more likely to injure than to improve his credit, if for no other reason, at least from the total want which it would imply of all judgment and intelligence in the conduct of his affairs? The exchange of two equal par cels of the same commodity, two yards of the same cloth, or two ounces of the same ingot, would at best be a mere loss of time and trouble. But the similar operation which takes place, when debt is redeemed by a fresh creation of debt, is much worse than nugatory: it is almost always prejudicial to the debtor. pecially the case with respect to the pecuniary transactions of the state. The extent and urgency of the public necessities operate in these dealings strongly against the government. A considerable profit must accrue to the contractor, by the intervention of whose capital these large exchanges are effected. And, when the loans wanted for other public services are on this account augmented, the whole must be raised on terms of proportionally increased disadvantage. And this is most es I am well aware how entirely this unqualified condemnation of all borowed sinking funds is opposed to the practice, which has now for so long a course of years been followed by our I own country, and imitated by so many others. But I cannot with truth profess, even on that account, any distrust of the judgment which I have here ventured so confidently to express. It is sanctioned, if I do not greatly deceive myself, by a very general change in the public opinion on this point. Here, as in almost every other branch of political science, a better philosophy has in these later days established far sounder principles, both of enquiry and of judgment. Nor is it at all surprising that the progress of knowledge, in all these cases, should have so much outrun its practical application. Great changes in government and legislation are scarcely ever expedient until there has arisen in the community, not merely a speculative preference of the better course, but an active and growing desire for its adoption. And such a sentiment the public discussions now to be expected on this question, are, I trust, well calculated to produce. If, therefore, even in the present year (1827) money has again been borrowed by our government for upholding a deficient sinking fund, we may not the less reasonably hope that this will, at least in England, be the last instance ever to be exhibited of such a policy. It was, in this case, suggested only as a temporary expedient which might give room for the promised revision of the whole system; and, on the result of that enquiry, who will now propose that we should again recur to schemes of borrowed sinking funds? To reduce debt by borrowing to the same amount on terms of equal or greater disadvantage, is a manifest fiction in finance;-a fiction in that branch of government in which, above all others, fiction is most to be condemned. Its mischief is nothing less than this; it disguises from the country, and in some degree from the government, and from parliament itself, the real state of some of our most important interests; throwing over them a false color of progressive improvement in the very moments when the public debt is most rapidly increasing, and when the public revenue has become most unequal to its charge. That the British parliament should at any time have lent itself, and under whatever misconception, to a measure capable of producing these groundless impressions, all men, I think, must now regret; and who more than those who once participated in that delusion? But when, at last, the fallacy has ceased to deceive ourselves, it would ill become us to impose it upon others. Never again may any just legislature, or any enlightened community, forget that the only surplus from which a nation can, with sincerity and truth, reduce its debt, is a surplus accruing, not from loans, but from revenue. iii. The inefficiency of sinking funds operating in war,' is thus briefly stated.-'If the foregoing reasonings are correct, there necessarily follows from them another most important limitation of the whole question to be now submitted to parliament. No sinking fund, it is thus evident, can truly exist, except in periods of peace; and in reference therefore to those periods only can the revival or abandonment of such a system be reasonably made matter of debate. In war, no man expects that our income will ever equal our expenditure: how then can it afford an ex cess of millions for the reduction of debt? Whatever surplus may have been created for that purpose in peace, a new war will at once absorb; and, in that moment, vanishes all possibility of benefit from the sinking fund. A visionary permanence may indeed even then be given to it by law; its useless forms may be continued, in vain semblance of that which once was powerful and active; but its vital spirit we cannot so preserve. When the dog-star has drunk up the stream, what provinces will its empty channel fertilise?" In a fourth section of his first chapter; his lordship examines the opposition of these principles to our present sinking fund, and as this comprises, as he contends, the whole substance of the decision now expected from parliament' we shall subjoin it entire. 'It must not however be disguised that the opinions thus stated, as fundamental to this whole subject, lead at once, and by inevitable conclusion, to no modification or change, but to the total abandonment of our present sinking fund. The laws of that institution, and its whole course and operation, are, not incidentally or partially, but essentially and universally opposed to all which has here been said. Though first established in peace, and founded in an assumed surplus of revenue, it has been nominally continued through long periods of war; and, during the far greater part of the more than forty years of its existence, it has been either wholly or partially supported by loans heaped on loans. The failure of its original surplus was, in the very first moment of returning war, supplied by borrowing; and we have, ever since that time, to a greater or less amount, and in various, though sometimes not easily intelligible forms, borrowed again, with little intermission, throughout its whole continuance. This indeed was its natural and necessary course, and this the very principle of its existence. By no other means than these could its operations, such as they are prescribed by law, have been carried on during this long period of difficulty and pressure. The facts are here stated, therefore, without any the most distant purpose of censure or reproach on those under whose councils the system has been thus adininistered. Far otherwise. The course pursued was of the very essence of the measure to which it was applied. The avowed principles of that measure were, and still are, that the operations of the fund which it established shall be continued in war, no less than in peace, and that its consequent deficiencies shall be made good by borrowing. Take from it this support, feeble as it is, and the whole fabric crumbles into the dust. 'More than a century ago, and in the very outset of a sinking fund, its first authors adopted this expedient as an essential part of their system. And, at a later period, Dr. Price, whose suggestions so powerfully contributed to its revival, founded on the same basis all his hopes of its promised utility. Periods of public distress, he contended, would, by the depression of the funds, accelerate its operation: and he even brought himself to believe, that the rate of interest on which the state might thenceforth borrow money would thus become comparatively indifferent. 'For the higher the interest,' he says, 'the sooner would such a fund pay off the principal;'-the more violent the fever, the greater would be the power of the medicine to relieve it! This theory, self-evident as he imagined it, completely erroneous as it now appears, he urged with ceaseless vehemence, loading with reproach the government and legislature of his country, by whom these vain imaginations had been, after some experience of them, for nearly half a century utterly renounced. The sinking fund,' he says, was established in 1716, and began its operations in 1719.' It was at first strictly appropriated to the reduction of debt; and so well,' he adds, 'did our ministers then understand the nature and importance of this fund, that rather than encroach upon it they frequently borrowed money to defray the necessary expenses of government.' In other words, they frequently supported their sinking fund by borrowed surpluses, and this not in war only, but in peace. They seem to have thought it no contradiction to increase debt in the very moments of professing to reduce it. But so great an inconsistency did not long escape the sagacity of Walpole; a minister, who, in some other instances, no less than in this, seems not a little to have outrun the wisdom of his contemporaries. By measures which, notwithstanding all the clamor of his opponents, it would be very difficult to censure on any just ground of reasoning, he diverted the sinking fund from these unreal and simulated operations, to fresh exigencies of the public service as they successively arose; thereby saving to his country the imposition of new taxes, or the creation of new debt. For about forty years afterwards the same policy governed our councils, under some of our best and wisest statesmen. They judged it the most beneficial course, as it unquestionably was the most natural, to attempt the reduction of debt in those periods only when the revenue of the state exceeded its expenditure. Nor did they show much solicitude to increase the taxation of their country for the purpose of providing it with such a surplus. Their reductions of debt were principally, though not wholly, effected by the falling in of annuities, and by the diminutions successively made in the rate of interest on the public securities, by such tenders of repayment as I have above adverted to. But, in the days of Price, the principles of 1716 regained the public favor; and, in 1786, they were re-established by almost universal acclamation, as the main bulwark of our finance, and the unfailing sources of incalculable benefit. To this change the circumstances of the moment powerfully contributed. At the close of the American war, the loss of our long-cherished colonies, to our possession of which such false notions of advantage had been attached, the magnitude of the debt incurred in that fruitless contest, and the deficiency of the revenue created to defray its charge, had thrown over our financial prospects a cloud of distrust and apprehension, scarcely to be imagined but by those who witnessed it. Nor were wanting strong grounds for these impressions, exaggerated as they were. The real pressure of our burdens was, at that time, extremely severe : more grievous perhaps in proportion to our wealth, than in any succeeding period of our greatest difficulties. The nation gave way therefore to an almost universal panic on this subject. The ordinary course of our finance was thought no longer adequate to our necessities: resort must be had for safety, it was said, to some new, or, at least, to some long untried expedient. Under these circumstances it was, that the project of establishing a new sinking fund, which should accumulate, uninterruptedly, at compound interest, through every vicissitude of peace and war, and which, on that assumption, would be demonstrably capable of being carried, at least in figures, to any assignable amount, captivated all imaginations. The country grasped, almost without enquiry, at promises of relief so specious and so ample; adopting, with unbounded confidence, a remedy proclaimed on no light authority to be of efficacy nothing less than omnipotent. 'It can be no reproach to any individual to have partaken largely in these feelings;-no reproach, I trust, to any public man to have cooperated with earnestness and zeal, both in preparing and in supporting a measure so consonant to the wishes of his country. And least of all can censure be attached on this account to that able and excellent statesman, who framed and carried through the act of 1786. Allowing for the impressions at that time so generally prevalent, there is, on the contrary, much of his conduct on that occasion, for which he is justly entitled to the highest praise. With an ardent and generous spirit, devoting all its energies to the national prosperity, he risked, and in no small degree surrendered, his highly valued popularity to the necessity of the large additional taxation which that measure compelled him to establish and to maintain. This was no light sacrifice, nor did he feel it such. But he anticipated in return, with unspeakable delight, the full tide of wealth which, in some distant but auspicious moment, the results of these disinterested exertions were to pour in upon his country. What he so ardently wished, he wil lingly believed. His persuasion of the great advantages of a sinking fund to be continued in war, and to be upheld by borrowing in all periods of deficiency, was therefore deeply rooted, not in his judgment only, but also in his feelings. To these opinions he clung with unvaried fondness; and his provisions for giving effect to them, although, on more than one occasion, widely departed from by his successors, still form, even in the present moment, the leading features of the system, in so far as it can still be said to exist at all. 'Yet shall we now, in deference to his great authority, seek to revive this nearly extinguished project, or to re-construct on the same foundations any similar institutions? If we have learnt, from the improved knowledge of the present age, that this structure, which he believed to be a main tower of our strength, rests on a basis unequal even to its own support, shall we not act as he would himself have acted under a similar conviction? Shall we not labor to devise some other less objectionable plan, under which his purpose may be executed? or, if this be |