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CHAPTER III. OF PUBLIC DEBTS.
In that rude state of society which precedes the extension of commerce and
the improvement of manufactures; when those expensive luxuries, which
commerce and manufactures can alone introduce, are altogether unknown; the
person who possesses a large revenue, I have endeavoured to show in the
third book of this Inquiry, can spend or enjoy that revenue in no other
way than by maintaining nearly as many people as it can maintain. A large
revenue may at all times be said to consist in the command of a large
quantity of the necessaries of life. In that rude state of things, it is
commonly paid in a large quantity of those necessaries, in the materials
of plain food and coarse clothing, in corn and cattle, in wool and raw
hides. When neither commerce nor manufactures furnish any thing for which
the owner can exchange the greater part of those materials which are over
and above his own consumption, he can do nothing with the surplus, but
feed and clothe nearly as many people as it will feed and clothe. A
hospitality in which there is no luxury, and a liberality in which there
is no ostentation, occasion, in this situation of things, the principal
expenses of the rich and the great. But these I have likewise endeavoured
to show, in the same book, are expenses by which people are not very apt
to ruin themselves. There is not, perhaps, any selfish pleasure so
frivolous, of which the pursuit has not sometimes ruined even sensible
men. A passion for cock-fighting has ruined many. But the instances, I
believe, are not very numerous, of people who have been ruined by a
hospitality or liberality of this kind; though the hospitality of luxury,
and the liberality of ostentation have ruined many. Among our feudal
ancestors, the long time during which estates used to continue in the same
family, sufficiently demonstrates the general disposition of people to
live within their income. Though the rustic hospitality, constantly
exercised by the great landholders, may not, to us in the present times,
seem consistent with that order which we are apt to consider as
inseparably connected with good economy; yet we must certainly allow them
to have been at least so far frugal, as not commonly to have spent their
whole income. A part of their wool and raw hides, they had generally an
opportunity of selling for money. Some part of this money, perhaps, they
spent in purchasing the few objects of vanity and luxury, with which the
circumstances of the times could furnish them; but some part of it they
seem commonly to have hoarded. They could not well, indeed, do any thing
else but hoard whatever money they saved. To trade, was disgraceful to a
gentleman; and to lend money at interest, which at that time was
considered as usury, and prohibited by law, would have been still more so.
In those times of violence and disorder, besides, it was convenient to
have a hoard of money at hand, that in case they should be driven from
their own home, they might have something of known value to carry with
them to some place of safety. The same violence which made it convenient
to hoard, made it equally convenient to conceal the hoard. The frequency
of treasure-trove, or of treasure found, of which no owner was known,
sufficiently demonstrates the frequency, in those times, both of hoarding
and of concealing the hoard. Treasure-trove was then considered as an
important branch of the revenue of the sovereign. All the treasure-trove
of the kingdom would scarce, perhaps, in the present times, make an
important branch of the revenue of a private gentleman of a good estate.
The same disposition, to save and to hoard, prevailed in the sovereign, as
well as in the subjects. Among nations, to whom commerce and manufacture
are little known, the sovereign, it has already been observed in the
Fourth book, is in a situation which naturally disposes him to the
parsimony requisite for accumulation. In that situation, the expense, even
of a sovereign, cannot be directed by that vanity which delights in the
gaudy finery of a court. The ignorance of the times affords but few of the
trinkets in which that finery consists. Standing armies are not then
necessary; so that the expense, even of a sovereign, like that of any
other great lord can be employed in scarce any thing but bounty to his
tenants, and hospitality to his retainers. But bounty and hospitality very
seldom lead to extravagance; though vanity almost always does. All the
ancient sovereigns of Europe, accordingly, it has already been observed,
had treasures. Every Tartar chief, in the present times, is said to have
one.
In a commercial country, abounding with every sort of expensive luxury,
the sovereign, in the same manner as almost all the great proprietors in
his dominions, naturally spends a great part of his revenue in purchasing
those luxuries. His own and the neighbouring countries supply him
abundantly with all the costly trinkets which compose the splendid, but
insignificant, pageantry of a court. For the sake of an inferior pageantry
of the same kind, his nobles dismiss their retainers, make their tenants
independent, and become gradually themselves as insignificant as the
greater part of the wealthy burghers in his dominions. The same frivolous
passions, which influence their conduct, influence his. How can it be
supposed that he should be the only rich man in his dominions who is
insensible to pleasures of this kind? If he does not, what he is very
likely to do, spend upon those pleasures so great a part of his revenue as
to debilitate very much the defensive power of the state, it cannot well
be expected that he should not spend upon them all that part of it which
is over and above what is necessary for supporting that defensive power.
His ordinary expense becomes equal to his ordinary revenue, and it is well
if it does not frequently exceed it. The amassing of treasure can no
longer be expected; and when extraordinary exigencies require
extraordinary expenses, he must necessarily call upon his subjects for an
extraordinary aid. The present and the late king of Prussia are the only
great princes of Europe, who, since the death of Henry IV. of France, in
1610, are supposed to have amassed any considerable treasure. The
parsimony which leads to accumulation has become almost as rare in
republican as in monarchical governments. The Italian republics, the
United Provinces of the Netherlands, are all in debt. The canton of Berne
is the single republic in Europe which has amassed any considerable
treasure. The other Swiss republics have not. The taste for some sort of
pageantry, for splendid buildings, at least, and other public ornaments,
frequently prevails as much in the apparently sober senate-house of a
little republic, as in the dissipated court of the greatest king.
The want of parsimony, in time of peace, imposes the necessity of
contracting debt in time of war. When war comes, there is no money in the
treasury, but what is necessary for carrying on the ordinary expense of
the peace establishment. In war, an establishment of three or four times
that expense becomes necessary for the defence of the state; and
consequently, a revenue three or four times greater than the peace
revenue. Supposing that the sovereign should have, what he scarce ever
has, the immediate means of augmenting his revenue in proportion to the
augmentation of his expense; yet still the produce of the taxes, from
which this increase of revenue must be drawn, will not begin to come into
the treasury, till perhaps ten or twelve months after they are imposed.
But the moment in which war begins, or rather the moment in which it
appears likely to begin, the army must be augmented, the fleet must be
fitted out, the garrisoned towns must be put into a posture of defence;
that army, that fleet, those garrisoned towns, must be furnished with
arms, ammunition, and provisions. An immediate and great expense must be
incurred in that moment of immediate danger, which will not wait for the
gradual and slow returns of the new taxes. In this exigency, government
can have no other resource but in borrowing.
The same commercial state of society which, by the operation of moral
causes, brings government in this manner into the necessity of borrowing,
produces in the subjects both an ability and an inclination to lend. If it
commonly brings along with it the necessity of borrowing, it likewise
brings with it the facility of doing so.
A country abounding with merchants and manufacturers, necessarily abounds
with a set of people through whose hands, not only their own capitals, but
the capitals of all those who either lend them money, or trust them with
goods, pass as frequently, or more frequently, than the revenue of a
private man, who, without trade or business, lives upon his income, passes
through his hands. The revenue of such a man can regularly pass through
his hands only once in a year. But the whole amount of the capital and
credit of a merchant, who deals in a trade of which the returns are very
quick, may sometimes pass through his hands two, three, or four times in a
year. A country abounding with merchants and manufacturers, therefore,
necessarily abounds with a set of people, who have it at all times in
their power to advance, if they chuse to do so, a very large sum of money
to government. Hence the ability in the subjects of a commercial state to
lend.
Commerce and manufactures can seldom flourish long in any state which does
not enjoy a regular administration of justice; in which the people do not
feel themselves secure in the possession of their property; in which the
faith of contracts is not supported by law; and in which the authority of
the state is not supposed to be regularly employed in enforcing the
payment of debts from all those who are able to pay. Commerce and
manufactures, in short, can seldom flourish in any state, in which there
is not a certain degree of confidence in the justice of government. The
same confidence which disposes great merchants and manufacturers upon
ordinary occasions, to trust their property to the protection of a
particular government, disposes them, upon extraordinary occasions, to
trust that government with the use of their property. By lending money to
government, they do not even for a moment diminish their ability to carry
on their trade and manufactures; on the contrary, they commonly augment
it. The necessities of the state render government, upon most occasions
willing to borrow upon terms extremely advantageous to the lender. The
security which it grants to the original creditor, is made transferable to
any other creditor; and from the universal confidence in the justice of
the state, generally sells in the market for more than was originally paid
for it. The merchant or monied man makes money by lending money to
government, and instead of diminishing, increases his trading capital. He
generally considers it as a favour, therefore, when the administration
admits him to a share in the first subscription for a new loan. Hence the
inclination or willingness in the subjects of a commercial state to lend.
The government of such a state is very apt to repose itself upon this
ability and willingness of its subjects to lend it their money on
extraordinary occasions. It foresees the facility of borrowing, and
therefore dispenses itself from the duty of saving.
In a rude state of society, there are no great mercantile or manufacturing
capitals. The individuals, who hoard whatever money they can save, and who
conceal their hoard, do so from a distrust of the justice of government;
from a fear, that if it was known that they had a hoard, and where that
hoard was to be found, they would quickly be plundered. In such a state of
things, few people would be able, and nobody would be willing to lend
their money to government on extraordinary exigencies. The sovereign feels
that he must provide for such exigencies by saving, because he foresees
the absolute impossibility of borrowing. This foresight increases still
further his natural disposition to save.
The progress of the enormous debts which at present oppress, and will in
the long-run probably ruin, all the great nations of Europe, has been
pretty uniform. Nations, like private men, have generally begun to borrow
upon what may be called personal credit, without assigning or mortgaging
any particular fund for the payment of the debt; and when this resource
has failed them, they have gone on to borrow upon assignments or mortgages
of particular funds.
What is called the unfunded debt of Great Britain, is contracted in the
former of those two ways. It consists partly in a debt which bears, or is
supposed to bear, no interest, and which resembles the debts that a
private man contracts upon account; and partly in a debt which bears
interest, and which resembles what a private man contracts upon his bill
or promissory-note. The debts which are due, either for extraordinary
services, or for services either not provided for, or not paid at the time
when they are performed; part of the extraordinaries of the army, navy,
and ordnance, the arrears of subsidies to foreign princes, those of
seamen’s wages, etc. usually constitute a debt of the first kind. Navy and
exchequer bills, which are issued sometimes in payment of a part of such
debts, and sometimes for other purposes, constitute a debt of the second
kind; exchequer bills bearing interest from the day on which they are
issued, and navy bills six months after they are issued. The bank of
England, either by voluntarily discounting those bills at their current
value, or by agreeing with government for certain considerations to
circulate exchequer bills, that is, to receive them at par, paying the
interest which happens to be due upon them, keeps up their value, and
facilitates their circulation, and thereby frequently enables government
to contract a very large debt of this kind. In France, where there is no
bank, the state bills (billets d’etat {See Examen des Reflections
Politiques sur les Finances.}) have sometimes sold at sixty and seventy
per cent. discount. During the great recoinage in king William’s time,
when the bank of England thought proper to put a stop to its usual
transactions, exchequer bills and tallies are said to have sold from
twenty-five to sixty per cent. discount; owing partly, no doubt, to the
supposed instability of the new government established by the Revolution,
but partly, too, to the want of the support of the bank of England.
When this resource is exhausted, and it becomes necessary, in order to
raise money, to assign or mortgage some particular branch of the public
revenue for the payment of the debt, government has, upon different
occasions, done this in two different ways. Sometimes it has made this
assignment or mortgage for a short period of time only, a year, or a few
years, for example; and sometimes for perpetuity. In the one case, the
fund was supposed sufficient to pay, within the limited time, both
principal and interest of the money borrowed. In the other, it was
supposed sufficient to pay the interest only, or a perpetual annuity
equivalent to the interest, government being at liberty to redeem, at any
time, this annuity, upon paying back the principal sum borrowed. When
money was raised in the one way, it was said to be raised by anticipation;
when in the other, by perpetual funding, or, more shortly, by funding.
In Great Britain, the annual land and malt taxes are regularly anticipated
every year, by virtue of a borrowing clause constantly inserted into the
acts which impose them. The bank of England generally advances at an
interest, which, since the Revolution, has varied from eight to three per
cent., the sums of which those taxes are granted, and receives payment as
their produce gradually comes in. If there is a deficiency, which there
always is, it is provided for in the supplies of the ensuing year. The
only considerable branch of the public revenue which yet remains
unmortgaged, is thus regularly spent before it comes in. Like an
improvident spendthrift, whose pressing occasions will not allow him to
wait for the regular payment of his revenue, the state is in the constant
practice of borrowing of its own factors and agents, and of paying
interest for the use of its own money.
In the reign of king William, and during a great part of that of queen
Anne, before we had become so familiar as we are now with the practice of
perpetual funding, the greater part of the new taxes were imposed but for
a short period of time (for four, five, six, or seven years only), and a
great part of the grants of every year consisted in loans upon
anticipations of the produce of those taxes. The produce being frequently
insufficient for paying, within the limited term, the principal and
interest of the money borrowed, deficiencies arose; to make good which, it
became necessary to prolong the term.
In 1697, by the 8th of William III., c. 20, the deficiencies of several
taxes were charged upon what was then called the first general mortgage or
fund, consisting of a prolongation to the first of August 1706, of several
different taxes, which would have expired within a shorter term, and of
which the produce was accumulated into one general fund. The deficiencies
charged upon this prolonged term amounted to £5,160,459: 14: 9½.
In 1701, those duties, with some others, were still further prolonged, for
the like purposes, till the first of August 1710, and were called the
second general mortgage or fund. The deficiencies charged upon it amounted
to £2,055,999: 7: 11½.
In 1707, those duties were still further prolonged, as a fund for new
loans, to the first of August 1712, and were called the third general
mortgage or fund. The sum borrowed upon it was £983,254:11:9¼.
In 1708, those duties were all (except the old subsidy of tonnage and
poundage, of which one moiety only was made a part of this fund, and a
duty upon the importation of Scotch linen, which had been taken off by the
articles of union) still further continued, as a fund for new loans, to
the first of August 1714, and were called the fourth general mortgage or
fund. The sum borrowed upon it was £925,176:9:2¼.
In 1709, those duties were all (except the old subsidy of tonnage and
poundage, which was now left out of this fund altogether) still further
continued, for the same purpose, to the first of August 1716, and were
called the fifth general mortgage or fund. The sum borrowed upon it was
£922,029:6s.
In 1710, those duties were again prolonged to the first of August 1720,
and were called the sixth general mortgage or fund. The sum borrowed upon
it was £1,296,552:9:11¾.
In 1711, the same duties (which at this time were thus subject to four
different anticipations), together with several others, were continued for
ever, and made a fund for paying the interest of the capital of the
South-sea company, which had that year advanced to government, for paying
debts, and making good deficiencies, the sum of £9,177,967:15:4d, the
greatest loan which at that time had ever been made.
Before this period, the principal, so far as I have been able to observe,
the only taxes, which, in order to pay the interest of a debt, had been
imposed for perpetuity, were those for paying the interest of the money
which had been advanced to government by the bank and East-India company,
and of what it was expected would be advanced, but which was never
advanced, by a projected land bank. The bank fund at this time amounted to
£3,375,027:17:10½, for which was paid an annuity or interest of
£206,501:15:5d. The East-India fund amounted to £3,200,000, for which was
paid an annuity or interest of £160,000; the bank fund being at six per
cent., the East-India fund at five per cent. interest.
In 1715, by the first of George I., c. 12, the different taxes which had
been mortgaged for paying the bank annuity, together with several others,
which, by this act, were likewise rendered perpetual, were accumulated
into one common fund, called the aggregate fund, which was charged not
only with the payment of the bank annuity, but with several other
annuities and burdens of different kinds. This fund was afterwards
augmented by the third of George I., c.8., and by the fifth of George I.,
c. 3, and the different duties which were then added to it were likewise
rendered perpetual.
In 1717, by the third of George I., c. 7, several other taxes were
rendered perpetual, and accumulated into another common fund, called the
general fund, for the payment of certain annuities, amounting in the whole
to £724,849:6:10½.
In consequence of those different acts, the greater part of the taxes,
which before had been anticipated only for a short term of years were
rendered perpetual, as a fund for paying, not the capital, but the
interest only, of the money which had been borrowed upon them by different
successive anticipations.
Had money never been raised but by anticipation, the course of a few years
would have liberated the public revenue, without any other attention of
government besides that of not overloading the fund, by charging it with
more debt than it could pay within the limited term, and not of
anticipating a second time before the expiration of the first
anticipation. But the greater part of European governments have been
incapable of those attentions. They have frequently overloaded the fund,
even upon the first anticipation; and when this happened not to be the
case, they have generally taken care to overload it, by anticipating a
second and a third time, before the expiration of the first anticipation.
The fund becoming in this manner altogether insufficient for paying both
principal and interest of the money borrowed upon it, it became necessary
to charge it with the interest only, or a perpetual annuity equal to the
interest; and such improvident anticipations necessarily gave birth to the
more ruinous practice of perpetual funding. But though this practice
necessarily puts off the liberation of the public revenue from a fixed
period, to one so indefinite that it is not very likely ever to arrive;
yet, as a greater sum can, in all cases, be raised by this new practice
than by the old one of anticipation, the former, when men have once become
familiar with it, has, in the great exigencies of the state, been
universally preferred to the latter. To relieve the present exigency, is
always the object which principally interests those immediately concerned
in the administration of public affairs. The future liberation of the
public revenue they leave to the care of posterity.
During the reign of queen Anne, the market rate of interest had fallen
from six to five per cent.; and, in the twelfth year of her reign, five
per cent. was declared to be the highest rate which could lawfully be
taken for money borrowed upon private security. Soon after the greater
part of the temporary taxes of Great Britain had been rendered perpetual,
and distributed into the aggregate, South-sea, and general funds, the
creditors of the public, like those of private persons, were induced to
accept of five per cent. for the interest of their money, which occasioned
a saving of one per cent. upon the capital of the greater part or the
debts which had been thus funded for perpetuity, or of one-sixth of the
greater part of the annuities which were paid out of the three great funds
above mentioned. This saving left a considerable surplus in the produce of
the different taxes which had been accumulated into those funds, over and
above what was necessary for paying the annuities which were now charged
upon them, and laid the foundation of what has since been called the
sinking fund. In 1717, it amounted to £523,454:7:7½. In 1727, the interest
of the greater part of the public debts was still further reduced to four
per cent.; and, in 1753 and 1757, to three and a-half, and three per
cent., which reductions still further augmented the sinking fund.
A sinking fund, though instituted for the payment of old, facilitates very
much the contracting of new debts. It is a subsidiary fund, always at
hand, to be mortgaged in aid of any other doubtful fund, upon which money
is proposed to be raised in any exigency of the state. Whether the sinking
fund of Great Britain has been more frequently applied to the one or to the
other of those two purposes, will sufficiently appear by and by.
Besides those two methods of borrowing, by anticipations and by a
perpetual funding, there are two other methods, which hold a sort of
middle place between them; these are, that of borrowing upon annuities for
terms of years, and that of borrowing upon annuities for lives.
During the reigns of king William and queen Anne, large sums were
frequently borrowed upon annuities for terms of years, which were
sometimes longer and sometimes shorter. In 1695, an act was passed for
borrowing one million upon an annuity of fourteen per cent., or £140,000
a-year, for sixteen years. In 1691, an act was passed for borrowing a
million upon annuities for lives, upon terms which, in the present times,
would appear very advantageous; but the subscription was not filled up. In
the following year, the deficiency was made good, by borrowing upon
annuities for lives, at fourteen per cent. or a little more than seven
years purchase. In 1695, the persons who had purchased those annuities
were allowed to exchange them for others of ninety-six years, upon paying
into the exchequer sixty-three pounds in the hundred; that is, the
difference between fourteen per cent. for life, and fourteen per cent. for
ninety-six years, was sold for sixty-three pounds, or for four and a-half
years purchase. Such was the supposed instability of government, that even
these terms procured few purchasers. In the reign of queen Anne, money
was, upon different occasions, borrowed both upon annuities for lives, and
upon annuities for terms of thirty-two, of eighty-nine, of ninety-eight,
and of ninety-nine years. In 1719, the proprietors of the annuities for
thirty-two years were induced to accept, in lieu of them, South-sea stock
to the amount of eleven and a-half years purchase of the annuities,
together with an additional quantity of stock, equal to the arrears which
happened then to be due upon them. In 1720, the greater part of the other
annuities for terms of years, both long and short, were subscribed into
the same fund. The long annuities, at that time, amounted to £666,821:
8:3½ a-year. On the 5th of January 1775, the remainder of them, or what
was not subscribed at that time, amounted only to £136,453:12:8d.
During the two wars which began in 1739 and in 1755, little money was
borrowed, either upon annuities for terms of years, or upon those for
lives. An annuity for ninety-eight or ninety-nine years, however, is worth
nearly as much as a perpetuity, and should therefore, one might think, be
a fund for borrowing nearly as much. But those who, in order to make
family settlements, and to provide for remote futurity, buy into the
public stocks, would not care to purchase into one of which the value was
continually diminishing; and such people make a very considerable
proportion, both of the proprietors and purchasers of stock. An annuity
for a long term of years, therefore, though its intrinsic value may be
very nearly the same with that of a perpetual annuity, will not find
nearly the same number of purchasers. The subscribers to a new loan, who
mean generally to sell their subscription as soon as possible, prefer
greatly a perpetual annuity, redeemable by parliament, to an irredeemable
annuity, for a long term of years, of only equal amount. The value of the
former may be supposed always the same, or very nearly the same; and it
makes, therefore, a more convenient transferable stock than the latter.
During the two last-mentioned wars, annuities, either for terms of years
or for lives, were seldom granted, but as premiums to the subscribers of a
new loan, over and above the redeemable annuity or interest, upon the
credit of which the loan was supposed to be made. They were granted, not
as the proper fund upon which the money was borrowed, but as an additional
encouragement to the lender.
Annuities for lives have occasionally been granted in two different ways;
either upon separate lives, or upon lots of lives, which, in French, are
called tontines, from the name of their inventor. When annuities are
granted upon separate lives, the death of every individual annuitant
disburdens the public revenue, so far as it was affected by his annuity.
When annuities are granted upon tontines, the liberation of the public
revenue does not commence till the death of all the annuitants
comprehended in one lot, which may sometimes consist of twenty or thirty
persons, of whom the survivors succeed to the annuities of all those who
die before them; the last survivor succeeding to the annuities of the
whole lot. Upon the same revenue, more money can always be raised by
tontines than by annuities for separate lives. An annuity, with a right of
survivorship, is really worth more than an equal annuity for a separate
life; and, from the confidence which every man naturally has in his own
good fortune, the principle upon which is founded the success of all
lotteries, such an annuity generally sells for something more than it is
worth. In countries where it is usual for government to raise money by
granting annuities, tontines are, upon this account, generally preferred
to annuities for separate lives. The expedient which will raise most
money, is almost always preferred to that which is likely to bring about,
in the speediest manner, the liberation of the public revenue.
In France, a much greater proportion of the public debts consists in
annuities for lives than in England. According to a memoir presented by
the parliament of Bourdeaux to the king, in 1764, the whole public debt of
France is estimated at twenty-four hundred millions of livres; of which
the capital, for which annuities for lives had been granted, is supposed
to amount to three hundred millions, the eighth part of the whole public
debt. The annuities themselves are computed to amount to thirty millions
a-year, the fourth part of one hundred and twenty millions, the supposed
interest of that whole debt. These estimations, I know very well, are not
exact; but having been presented by so very respectable a body as
approximations to the truth, they may, I apprehend, be considered as such.
It is not the different degrees of anxiety in the two governments of
France and England for the liberation of the public revenue, which
occasions this difference in their respective modes of borrowing; it
arises altogether from the different views and interests of the lenders.
In England, the seat of government being in the greatest mercantile city
in the world, the merchants are generally the people who advance money to
government. By advancing it, they do not mean to diminish, but, on the
contrary, to increase their mercantile capitals; and unless they expected
to sell, with some profit, their share in the subscription for a new loan,
they never would subscribe. But if, by advancing their money, they were to
purchase, instead of perpetual annuities, annuities for lives only,
whether their own or those of other people, they would not always be so
likely to sell them with a profit. Annuities upon their own lives they
would always sell with loss; because no man will give for an annuity upon
the life of another, whose age and state of health are nearly the same
with his own, the same price which he would give for one upon his own. An
annuity upon the life of a third person, indeed, is, no doubt, of equal
value to the buyer and the seller; but its real value begins to diminish
from the moment it is granted, and continues to do so, more and more, as
long as it subsists. It can never, therefore, make so convenient a
transferable stock as a perpetual annuity, of which the real value may be
supposed always the same, or very nearly the same.
In France, the seat of government not being in a great mercantile city,
merchants do not make so great a proportion of the people who advance
money to government. The people concerned in the finances, the
farmers-general, the receivers of the taxes which are not in farm, the
court-bankers, etc. make the greater part of those who advance their money
in all public exigencies. Such people are commonly men of mean birth, but
of great wealth, and frequently of great pride. They are too proud to
marry their equals, and women of quality disdain to marry them. They
frequently resolve, therefore, to live bachelors; and having neither any
families of their own, nor much regard for those of their relations, whom
they are not always very fond of acknowledging, they desire only to live
in splendour during their own time, and are not unwilling that their
fortune should end with themselves. The number of rich people, besides,
who are either averse to marry, or whose condition of life renders it
either improper or inconvenient for them to do so, is much greater in
France than in England. To such people, who have little or no care for
posterity, nothing can be more convenient than to exchange their capital
for a revenue, which is to last just as long, and no longer, than they
wish it to do.
The ordinary expense of the greater part of modern governments, in time of
peace, being equal, or nearly equal, to their ordinary revenue, when war
comes, they are both unwilling and unable to increase their revenue in
proportion to the increase of their expense. They are unwilling, for fear
of offending the people, who, by so great and so sudden an increase of
taxes, would soon be disgusted with the war; and they are unable, from not
well knowing what taxes would be sufficient to produce the revenue wanted.
The facility of borrowing delivers them from the embarrassment which this
fear and inability would otherwise occasion. By means of borrowing, they
are enabled, with a very moderate increase of taxes, to raise, from year
to year, money sufficient for carrying on the war; and by the practice of
perpetual funding, they are enabled, with the smallest possible increase
of taxes, to raise annually the largest possible sum of money. In great
empires, the people who live in the capital, and in the provinces remote
from the scene of action, feel, many of them, scarce any inconveniency
from the war, but enjoy, at their ease, the amusement of reading in the
newspapers the exploits of their own fleets and armies. To them this
amusement compensates the small difference between the taxes which they
pay on account of the war, and those which they had been accustomed to pay
in time of peace. They are commonly dissatisfied with the return of peace,
which puts an end to their amusement, and to a thousand visionary hopes of
conquest and national glory, from a longer continuance of the war.
The return of peace, indeed, seldom relieves them from the greater part of
the taxes imposed during the war. These are mortgaged for the interest of
the debt contracted, in order to carry it on. If, over and above paying
the interest of this debt, and defraying the ordinary expense of
government, the old revenue, together with the new taxes, produce some
surplus revenue, it may, perhaps, be converted into a sinking fund for
paying off the debt. But, in the first place, this sinking fund, even
supposing it should be applied to no other purpose, is generally
altogether inadequate for paying, in the course of any period during which
it can reasonably be expected that peace should continue, the whole debt
contracted during the war; and, in the second place, this fund is almost
always applied to other purposes.
The new taxes were imposed for the sole purpose of paying the interest of
the money borrowed upon them. If they produce more, it is generally
something which was neither intended nor expected, and is, therefore,
seldom very considerable. Sinking funds have generally arisen, not so much
from any surplus of the taxes which was over and above what was necessary
for paying the interest or annuity originally charged upon them, as from a
subsequent reduction of that interest; that of Holland in 1655, and that
of the ecclesiastical state in 1685, were both formed in this manner.
Hence the usual insufficiency of such funds.
During the most profound peace, various events occur, which require an
extraordinary expense; and government finds it always more convenient to
defray this expense by misapplying the sinking fund, than by imposing a
new tax. Every new tax is immediately felt more or less by the people. It
occasions always some murmur, and meets with some opposition. The more
taxes may have been multiplied, the higher they may have been raised upon
every different subject of taxation; the more loudly the people complain
of every new tax, the more difficult it becomes, too, either to find out
new subjects of taxation, or to raise much higher the taxes already
imposed upon the old. A momentary suspension of the payment of debt is not
immediately felt by the people, and occasions neither murmur nor
complaint. To borrow of the sinking fund is always an obvious and easy
expedient for getting out of the present difficulty. The more the public
debts may have been accumulated, the more necessary it may have become to
study to reduce them; the more dangerous, the more ruinous it may be to
misapply any part of the sinking fund; the less likely is the public debt
to be reduced to any considerable degree, the more likely, the more
certainly, is the sinking fund to be misapplied towards defraying all the
extraordinary expenses which occur in time of peace. When a nation is
already overburdened with taxes, nothing but the necessities of a new war,
nothing but either the animosity of national vengeance, or the anxiety for
national security, can induce the people to submit, with tolerable
patience, to a new tax. Hence the usual misapplication of the sinking
fund.
In Great Britain, from the time that we had first recourse to the ruinous
expedient of perpetual funding, the reduction of the public debt, in time
of peace, has never borne any proportion to its accumulation in time of
war. It was in the war which began in 1668, and was concluded by the
treaty of Ryswick, in 1697, that the foundation of the present enormous
debt of Great Britain was first laid.
On the 31st of December 1697, the public debts of Great Britain, funded
and unfunded, amounted to £21,515,742:13:8½. A great part of those debts
had been contracted upon short anticipations, and some part upon annuities
for lives; so that, before the 31st of December 1701, in less than four
years, there had partly been paid off; and partly reverted to the public,
the sum of £5,121,041:12:0¾d; a greater reduction of the public debt than
has ever since been brought about in so short a period of time. The
remaining debt, therefore, amounted only to £16,394,701:1:7¼d.
In the war which began in 1702, and which was concluded by the treaty of
Utrecht, the public debts were still more accumulated. On the 31st of
December 1714, they amounted to £53,681,076:5:6½. The subscription into
the South-sea fund, of the short and long annuities, increased the capital
of the public debt; so that, on the 31st of December 1722, it amounted to
£55,282,978:1:3 ⅚. The reduction of the debt began in 1723, and went on
so slowly, that, on the 31st of December 1739, during seventeen years-of
profound peace, the whole sum paid off was no more than £8,328,554:17:11
³⁄₁₂, the capital of the public debt, at that time, amounting to
£46,954,623:3:4 ⁷⁄₁₂.
The Spanish war, which began in 1739, and the French war which soon
followed it, occasioned a further increase of the debt, which, on the 31st
of December 1748, after the war had been concluded by the treaty of
Aix-la-Chapelle, amounted to £78,293,313:1:10¾. The most profound peace,
of 17 years continuance, had taken no more than £8,328,354, 17:11¼ from
it. A war, of less than nine years continuance, added £31,338,689:18: 6
⅙ to it. {See James Postlethwaite’s History of the Public Revenue.}
During the administration of Mr Pelham, the interest of the public debt
was reduced, or at least measures were taken for reducing it, from four to
three per cent.; the sinking fund was increased, and some part of the
public debt was paid off. In 1755, before the breaking out of the late
war, the funded debt of Great Britain amounted to £72,289,675. On the 5th
of January 1763, at the conclusion of the peace, the funded debt amounted
debt to £122,603,336:8:2¼. The unfunded debt has been stated at
£13,927,589:2:2. But the expense occasioned by the war did not end with
the conclusion of the peace; so that, though on the 5th of January 1764,
the funded debt was increased (partly by a new loan, and partly by funding
a part of the unfunded debt) to £129,586,789:10:1¾, there still remained
(according to the very well informed author of Considerations on the Trade
and Finances of Great Britain) an unfunded debt, which was brought to
account in that and the following year, of £9,975,017: 12:2 ¹⁵⁄₄₄d. In
1764, therefore, the public debt of Great Britain, funded and unfunded
together, am
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