i.l ^ i i li 1 - t » 5 I i\' 6^X^ The date shovycvhen this volume was taken. 14 ?.1AY iiiU \ All books ndt in use for instruction or re- search are limited to f four weeks to all bor- rowers. ' Periodicals of a gen- eral, character should be returned as soon as possible ; when needed beyond two weeks a special request should he made. . ; I/imited borrowers are allowed five vol- umes for two (weeks, with renewal privi- leges, when a book is not needed by others. Books not needed during recegs periods should be returned to the library, or arrange- ments made for their retnrn during borrow^ er'sabspnce, if wanted. Books needed by more than one person are placed on the re- serve list. HJ8622.4''?S24 ""'"'"*" '""'"^ Apoloo olin 3 1924 030 228 757 16% A.POLOaY FOR SINKING-FUNDS: BY WILLIAM LUCAS SAEGANT, Author op "Sooiai Innovators," &c. LONDON : WILLIAMS AND NORGATE, HENRIETTA ST., COVBNT GARDEN, AND SOUTH FREDERICK STREET, EDINBURGH. 1868. ® A'3/s^y^ / — ——--^ r ') BIKMINGHAM : PRINTED BY MAKTIN BILLING, SON, AND CO., IIVEKY STKEET. PEEEACE. IN the last generation, the National Debt was a bugbear which oppressed the spirits of English- men. Taxation was burdensome to a degree hardly conceivable by the young men of to-day : and of the scores of millions annually raised, more than half went to pay interest due to the public creditors. Elderly men remember the time when the subject was discussed at the fireside of everyone who read a newspaper: when Attwood's "little shilling" and Gobbett's "sponge," divided the allegiance of the middle classes. Gradually, the nation became inured to the load : as prosperity returned, as population multiplied, as opulence grew, the weight was less, felt. Besides ; though the principal of the debt re- mained nearly stationary, the rate of interest was much reduced ; and frugality was forced on the government by the public. During the twenty years between 1831 and 1860* the taxes were only about 2£ a head of population ; less by a fifth than they had been between 1821 and 1830, and about half what they had been towards the close of the war. Increasing opulence and decreasing taxation brought a sense of relief. The minds of men too, * L. Levi, Taxation 25. IV were diverted to political questions : to the repeal of the Test Acts ; to the emancipation of the Roman Catholics; to the severe and long struggle which carried the Reform Bill ; to the extinction of slavery ; to the repeal of the Corn Laws ; to the reconstruc- tion of our fiscal system. The National Debt was forgotten. It is high time however, that our memory should awake from its slumber : that we should remember how large a portion of our public revenue goes to pay the national creditors : and that we should inquire what is our present duty as to the debt. The Reform Bill of 1867, has shifted the centre of gravity of the constituent body : although perhaps, the House of Commons may appear little changed, the Members will find an alteration in the influence exercised by their electors. I look without alarm, I look even with much hope, at this great change : I anticipate a renewed energy and a spirit of enter- prise, in the conduct of our government. But I feel that those who have incurred our vast debt, and those who have allowed it to remain undiminished during the last thirty years, must be prepared to answer the question which may be put to them in a voice of thunder, whether that debt is to go down unliquidated to our children's children. The new constituents will doubtless be appealed to by writers and speakers on this grave subject ; by new Cobbetts and new Attwoods : it requires no familiarity with Latin verses or with the Calculus, to understand that eight hundred millions were bor- rowed by our progenitors, that we and our fathers have been paying interest ever since, and that unless some new efforts are made, our posterity will go on paying interest for centuries to come. Plain men will learn with indignation, that even the moderate sinking-fand which was in existence ten years ago in the form of terminable annuities, has been seriously diminished : that it has been reduced from three millions to a million and a half.* That politician too, must be a fool, or worse than a fool, who would flatter us with dreams of unbroken peace. England, no- doubt, has ceased to be the knight-errant of Europe, rushing into every quarrel, claiming to arbitrate in every dispute, interfering in every variation of the shifting balance of power, pretending to protect or avenge every oppressed nationality. Strong but self-restrained, we are too moderate and too formidable to run much danger of being insulted. Yet sooner or later war will come, by thei madness of other nations or by unusual follies of our foreign oflS.ce : war which will cost us, not a few miUions like our Abyssinian expedition, but scores or hundreds of millions. Even in time of peace disasters may overtake us ; disasters more formidable than the depression of commerce which follows our decennial inflation and madness. Our coal may fail us : the competition of other nations may rob us of foreign markets ; or may so far lower the prices of manufactures as to greatly reduce our rates of wages and profit : our artisans may prefer emigration to poverty ; and our population, instead of increasing as heretofore, may become stationary, or may diminish like that of Ireland. The English would still be a great nation : great in historical freedom, great in agricultural resources, great above all in stubborn force of character. But their greatness would give them no immunity from the pressure of taxation. We can now raise our Economist 1227. 236. ool. 1. VI seventy millions without any intolerable sacrifice : hereafter the same burden may seem too much to be borne. Ought we not therefore, to inquire seriously what 'it would cost us to reduce our debt : what, to ex- tinguish it in a hundred years ? In this volume, I have put together facts and reasonings which, I hope, may aid the inquiry. I have come to the conclusion that at a small cost we might estabhsh such a fund, as by mere natural growth would relieve our posterity from all the pre- sent debt : that it might be raised in such a way as to interfere in no wise with readjustment of taxation, and not at all to hinder the due accumulation of capital : that it would be free from the insuperable objections which attach to terminable aunuities : that it would be taken out of the jurisdiction of the Chancellor of the Exchequer, and would therefore escape the danger of manipulation and reduction in the annual budget : that it would -be intelligible to the whole nation, and would consequently exist under the soundest of all securities, the guarantee of public opinion. CONTENTS OF OHAPTBKS. PAGES 1 to 27 28 to 82 83 to 114 CHAPTER I. — First Principles .... II. — History of British Sinking-Funds III. — Illustration and Explanations IV. — Progress of Debt and Repayment : British and Foreign . . . 115 to 147 V. — Our Present Duty .... 148 to 220 VI. How WE SHALL BEST PERFORM OUR DuTY 221 tO 247 CHAPTEE I. FIE ST PEINCIPLES. THE term Sinking-Fund is familiar to us all ; but it may be useful to recall its exact meaning. Illmtration: I 'wiU suppose tiat I am fortunate lamded estate : enough, to succeed to an estate yielding debt on it. £10,000 a year ; burdened however, with a debt of £60,000. I propose to pay off this debt. For simplicity I will call the rate of interest 5 per cent., and my annual payment for interest therefore, £3,000. Aimual III order to lessen the debt, I may discharge of take the obvious course of paying off £1,000. £1 jOOO of the principal each year : if I am so singularly fortunate as to enjoy the estate sixty years, I shall discharge the whole debt. By this means the drain on me for interest will diminish each year : for at the end of the first year I shall pay off £1,000 of the principal ; and therefore, in the second year my debt will be only £69,000, and my interest £2,950 instead of £3,000 ; in the third year my interest will be £2,900 ; in the seventh year £2,500 ; in the twenty-first year £2,000 ; in the forty-first year £1,000 ; in the sixtieth year £50. The srvpouncl. years, I should discharge only £28,000 of debt ; by the annual payment of £1,000 plus the compound interest on that sum, I should in the same 28 years discharge the whole £60,000 of debt : the extinction with compound interest would be more than double what it would be with simple interest. Here again, I must repeat that this is not tbe result of any trick of figures : that it is the result of my self-denial in continuing to pay annually a total of £4,000 instead of paying constantly diminishing ■ sums, £4,000, £3,950, £3,900, &c. I might put The same result might be obtained in £20,000 into another way. Say that on my succeed- a trust. {jjg ^Q ^Q estate, I at once put into the hands of a trustee a farm worth £20,000, and yielding £1,000 a year ; and that he undertakes to invest this £1,000 a year at 5 per cent, compound interest. We know that in about fourteen years, the £20,000 will have become £40,000 ; and that in 28 years it will have become £80,000. At the end of the 28 years, therefore, the trustee can pay off" the £60,000 debt, and restore me my £20,000. As in the former cases, I pay the £3,000 a year interest during the twenty-eight years : i.e., I diminish my income during that period by £4,000 a year ; viz., £3,000 which 1 pay for interest, and £1,000 the rent of the farm in trust, ImigUlornno Could I do the Same thing by bor- £20,000 Mid rowing money ? I certainly could. I put into a trust, mean by this that I might borrow at first to form a fund : I do not mean that by bor- rowing alone I could do anything. Borrow or not, the discharge of the debt can only be effected by the self-denial necessary to save. Instead of putting into the hands of a trustee, a farm worth £20,000, and yielding £1,000 a year, I may borrow £20,000 and put that sum into the hands of the trustee ; in about 28 years the £20,000 will multiply into £80,000 ; and the trustee can then pay off both the original £60,000, and the subsequent £20,000. But during the 28 years I shall have had to pay the same £4,000 a year, as in the former cases ; viz., the interest of £60,000 and of £20,000. I gain nothing by my borrowing the £20,000 : I have even the disadvantage of all the expenses and discredit of borrowing. Borrmuing at It is true that I do what has been called siii^le, accu- borrowins: at simple interest and accu- compound hi- Di-ulating at compound mterest ; but the terest. whole advantage of the arrangement arises from my paying an uniform sum of £4,000 during the 28 years ; i e., after the first year, a sum greater than the simple interest on the debts. It is not the borrowing at simple interest which discharges the principal of the debt : it is the paying off each year a part of the principal. It is convenient to know, that by paying this uniform £4,000 during about 28 years, I shall get rid of the debt of £60,000 ; this knowledge furnishes a motive for making this annual payment : but no trick of figures will relieve me from paying the whole £60,000 out of my income. We shall see afterwards however, that this is not the whole truth. II. Dr. Price's rTlHIS notion of borrowing at simple principle: j_ interest, and accumulating a fund called Utopian, at compound interest, was preached by Dr. Price and accepted by Mr. Pitt and his friends : though it was no new discovery, "it was reproduced as a sure mode of relieving the nation from the load of debt by which it was oppressed. At the present day, the expectation of relief by such means is re- garded as of no more value than the expectation of the indefinite perfectibility of man, and the conse- quent cessation hereafter of pain and death. Price's "Reversionary Annuities," and Godwin's "Political Justice," are put side by side on the Utopian shelf. Tried lij I have shown that the reduction of private case, my debt on the estate is effected by no trick of figures, but by saving from my income. But let us see whether this is the whole truth. Let us say that on succeeding to my estate, I at once set aside for 28 years £4,000 a year ; of which £3,000. goes to pay the annual interest, and £1 ,000 is invested at 5 per cent, compound interest, and therefore amounts at the end of about 14 years to £20,000, and at the end of about 28 years to £60,000. If I had discharged no principal, I should have paid £3,000 annually during the 28 years ; and therefore my additional payment has been £1,000 a year during 28 years, or £28,000. Next let us imagine that during the first fourteen years after I had succeeded to my estate, I spent the whole income ; but that at the end of the fourteen years I set aside for the second fourteen years £2,000 a year, besides the £8,000 for interest. By the end of the 28th year I should have given up 6 towards payment of principal, £2,000 a year during 14 years, or £28,000. On both these suppositions I have made the same sacrifice of income, viz., £28,000 : the only difference being that in the former case I have sacrificed £1,000 in each of the 28 years, and that in the latter case I have sacrificed £2,000 in each of the latter 14 years. But though the sacrifices are the same the results are different. I Have Accumulated : At the end of 14 years, At the end of 28 years. In the 1st. Case : r 14 years at £1,000 ■) 1 Compound Interest f C £20,000. ; /• 28 years at £1,000 ) Compound Interest 1 + C £60,000. In the 2nd Case : Nothing. r 14 years at £2,000 J Compound Interest (. £40,000. In the first case I have accumulated £60,000 ; in the second case only £40,000. This shows how vital an element time is ; it indicates that the date at which the sacrifices are made is of the highest importance ; and if of im- portance during the life of a man, far more so during the longer life of a nation. By supposing a larger debt, and carrying on the process some steps further, we shall find striking results. 1st case, extended. I and my successors set aside £1,000 a year for a very long period; still con- tinuing to pay, out of income, interest on the debt. At the end of 14 years, we have accumulated £20,000 28 „ „ 60,000 42 „ „ 140,000 56 „ „ ...... 260,000 The sacrifices we have made amount to £1,000 for56 years =56,000 2nd case, extended. I and my successors go on during 42 years, spending the whole income left after discharging the annual interest on the debt. At the end of the 42nd year we set aside £4,000 a year as a sinking-fand. At the end of the 56th year we shall have aocumulated £80,000 Our sacrifices will have been 14 x £4,000 = 56,000 Comparing these two extended cases, the sacri- fices in both cases being £56,000, in the former there is an accumulation of £260,000, in the latter only £80,000. So important an element is time Leant posdhle It appears therefore, that the earlier sacrifice. J begin to save, the less will be the sacrifice required'. To reduce the sacrifice to the lowest possible point, I should, on succeeding to the estate, apply the greater part of the income to constitute a fund. Say that during the two first years, out of the two years' income, I set aside £16,000. After the end of the second year, I should only have to pay £3,000, the interest on the debt, just as if I had not constituted any fund. All my sacrifice will have been £15,000. If we imagine that my successors leave this fund to grow, they will find that at the end of 58 years after I first came into possession, the fund amounts to £240,000. But we found before that £1,000 a year for 56 years amounts to little more, viz., £260,000, and this with the sacrifice of £56,000, or nearly four times as much. The prmcijjle. The principle therefore, is indisputable : begin your fund as early as possible ; and thus take full advantage of the accumulation by com- pound iuterest. Suppose mt I 'W-ill now take a different case, as a laiid, but means of estimating the force of an nwney, objection commonly made. Instead of land, let it be £200,000 in personalty that has been bequeathed to me. m a btismess Say further, that this consists of capital engaged in a manufacturing business yield- ing 10 per cent, on the capital employed : the debt of £60,000 being a mortgage on the factory and land. inca/paUe of If the business is incapable of judicious exteiidon extension, I may wisely appropriate part of the two first years' profits to form a fund, as in the case of the estate ; and if my sons and grandsons leave that fund to grow at 5 per cent., they wUl find, at the end of 58 years, that it amounts to . £240,000 ; all obtained at the trifling sacrifice on my part of the gratifications purchasable with £15,000. or capable of But what if the business is capable extension. of judicious extension ? What if the £15,000, invested in new buildings and machinery and stock, would yield me the same 10 per cent, that I obtain on my other capital ? In that case I should get a far larger money advantage by so investing it, than by forming a sinking fund with it. Even if I got only 6 per cent, by such a business investment, I should lose by applying the £16,000 to a fund at 5 per cent. It might, even then, be more prudent to form the fund ; but it would not be more profitable. Distinotion, Even in the case of the land, if I Capital, and couM use the £15,000 in draining and Self-mainte- building, SO as to get 5 per cent, upon nance, ^^^ j gj^Q^j^j ^^^^ nothing by forming a fund with it ; if my gain upon it would be 6 per cent., I should lose by forming such a fund. But in all my previous remarks, I have assumed that the fund is formed by saving from personal expenditure, and not by applying sums which would otherwise be used as capital : I have assumed that instead of spending £7,000 a year on housekeeping, and hunters, and travelling, I have spent only £6,000 a year ; or that instead of beginning such expenditure immediately on succeeding to the estate, I have deferred the greater part of it for two years. or saving a/nd The distinction between personal ex- spending. penditure and saving, is at the root of the question. If I save £1,000 and use that sum productively, I earn an income from it : if I again save that income and use it productively, my income is farther increased ; and if I only get 5 per cent., my first £1,000 becomes in about 14 years, £2,000 : or if I save £1,000 every year, in about 14 years I shall have £20,000. But if in the first year I spend the £1,000 on a well furnished table and men servants and horses, the money is finally gone : there is no accumulation : the expenditure may be a wise one ; but it causes no increase of any kind. If I save this £1,000 each year and put it out to 5 per cent, interest, at the end of about 14 years I possess £20,000 ; if I spend the j^l,000 each year, at the end of the 14 years I have nothing but the memory of past pleasures. Debt cannot be paid without self-denial : but if self-denial be exercised, it matters not whether the result of it goes to form a separate fund, or is laid out as capital at an equal rate of profit. We shall see, in the same way, that a national sinking-fund ought to be formed by taxation, and by such taxation as will cause a diminished expenditure on the part oT the people. 10 III. Evils of T)UT why should we not borrow ? It lorroiviwj. _D is conceded tliat, individually, we ought not to borrow unless we are compelled to do so, or unless we propose to use the loan as a capital. But why should we not individually borrow to supply our current expenditure ? 1st. When we spend only the income we work for, or what our property furnishes, we have a natural limit to our outlay ; but " borrowing dulls the edge of husbandry." 2nd. Even if our habit of expense be not increased, as in the case where a man borrows to buy books or pictures, and fills his shelves or his walls, yet we are left with a debt which we have to repay. We have first enjoyed the pleasure of acquiring, and afterwards we have to deny ourselves other and accustomed pleasures. 3n?, payinrj But besides these evils there is a third repeatedly. and a formidable one : that on which Dr. Price insists with great energy. Among the Hebrews of old, a lender could only reclaim from one of his nation the sum he had lent : among the Mahometans also, interest is forbidden. Among Christian nations, the taking of a reasonable interest is just as reputable a practice as the taking a price for a house or for a load of wheat. Not only have I to return the £1 ,000 I borrowed, but I have further to pay £50 a year for the use of it : so that, at the end of 20 years, if I have allowed the debt to stand so long, I shall have paid £1,000 for interest, and shall still owe the original sum. Applied to a Great Britain has paid the interest on nation. its debt with punctuality ; ' but how vast 11 lias been the amount ! Calling our average pay- ment since 1815, 30 millions £ a year, we shall have paid altogether in 53 years, no less than 1,590 millions £ : nearly twice over what we owed in 1815. Our debt is now 800 millions £ ; and at an average interest of 24 millions £ a year, we shall pay the 800 millions £ in about .24 years, and shall still owe our present debt. This is the frightful evil against which Dr. Price lifted up his voice. TtBo principles. We have now arrived therefore, at two principles : 1st, that the fund should be com- menced as early as possible, in order to get the advantage of compound interest ; 2ndly, that it should be formed of such savings from expenditure as would. not be otherwise used as capital. DisUndioii: It should be observed here however, individiud and that my reasonings so far have reference nahon. principally to a private estate : I propose to show afterwards that the case of a nation is in one respect different ; that though we think of the nation as a unit, it really consists of millions of persons, and of various classes ; and that these persons and classes may be differently affected by the modes of national saving. Wisdom in JFew persons would dispute the wisdom indimdual. of my supposed conduct, on my imaginary succession to a burdened estate. It may seem obvious too, that a nation loaded with debt would act with equal prudence in creating a sinking-fund. WJiij not in How is it then, that little is done, 7iation ? and that little by annuities and other stealthy means ? If in any budget, during peace, the national expenditure were shown to exceed the income, the Chancellor of the Exchequer would have to give place to a successor : even during war the people w'ould rather submit to a large income- 12 tax than resort principally to loans ; witness the fourteen and sixteen pence in the pound, of the Crimean War. Puhlic We shrink from contracting debt : we indifferenoe. decline all formal means of discharging it. Sir G. 0. Lewis made an effort ; but in vain : Mr. Gladstone has made several efforts ; but with little success. Example, the Last year Mr. Gladstone proposed a " Spectator." scheme, too complex to be understood by many persons, but approved by competent judges and by a hostile successor, by which, at a moderate annual charge, a considerable amount of debt would be extinguished in the present generation. Now there is no more thoughtful journal than the Spectator ; no journal which a reader may rely upon with more safety. The editor of that paper spoke, I believe, the sentiments of reflective and high- minded men, when he slighted this scheme of Mr. Gladstone's. Casual remarli. We Can often judge better of a man's sentiments from what comes out indirectly, than from his reasonings when he is on his guard. It is a casual expression of the Spectator on which I rely. The paragraph has reference to furnishing the army with breech-loading rifles : " We are spending fifteen millions a year upon the army, and then the bureaus are agitated because we spend a million, once for all, to make that army efficient. Let General Peel take the million, if necessary, which was to have gone to the National Debt, but let him get the work done, done quickly and done well, and the country will support him." Shows the I do not dispute the importance of pro - indifference. viding the army with efficient weapons : I grant that the cheapest of all warlike proceedings 13 is to keep our forces in sucli a state of efl&ciency, as to warn off trespassers from the soil of England : if the cost were, not one million, but twenty, I should not grudge it. But why should the Sjjedator fix on the particular million in question, when a penny in the pound added to the income-tax would be more than sufficient ? Evidently because in his eyes, all sinking-funds, however unassailable logically, are of no real value : because those funds, established again and again in England and France, have ended in nothing. He can admire the discharge of debt in the United States, and the vast project of dis- charging it all within a generation ; but the very name of an English sinking-fund carries his mind to Utopia. Such, I believe, are the sentiments of most educated men. Statistical So- A confirmation of this fact is found in ciety neglects, the transactions of the Statistical Society; which is carried on principally by men who are the first to recognise the value of such a proceeding as a sinking-fund : by leading actuaries, secretaries of insurance companies, permanent heads of Govern- ment offices, with a few amateurs. Now in the Statistical Journal, there are abundant papers on Mortality, Crime, Education, Taxation, Wages, and Indian Affairs, but scarcely anything about payment of the National Debt. Why is the It is easy to understand why the public indif- public has no affection for a sinking- ferent ? fund, which means, in the first instance, increased taxation : when we are told in Parliament and in the newspapers, that all such efforts have failed, and in the nature of things will fail, we inevitably draw back from useless increased taxation : we have come to regard all such projects as means for drawing money out of our pockets under false pretences. 14 IV. 7ir7 41 T BT US now see the arpfuments on Why are the I -,.1,1 -, -, p ■ ■ i leaders of JJ whicli the leaders 01 opinion nave opinion indis- relied. Mr. McCnllocli was lately re- posed ? garded as a high, authority, and he thus stated his opinion.* McCulloch. '' For upwards of twenty years this pitiful juggle was kept up ; Parliament and the nation believing, notwithstanding the most decisive experience to the contrary, that it was rapidly diminishing the public debt ! Dr. Hamilton, of Aberdeen, had the merit of dissipating this delusion, the grossest, certainly, that ever imposed on any people. He showed, in his work on the National Debt, published in 1813, that the sinking-fand, instead of diminishing, had really added to the debt ; and he proved to demonstration, that the excess of revenue above expenditure is the only sinking-fand by which any part of the National Debt can ever be discharged." But Hamilton, That the latter part of this statement himself. is true I do not dispute : debt can be paid only by saving in the first instance ; though, as I have shown in the case of a private person, the time when the saving is effected is a matter of the highest importance. As to the former part of the sentence, let Dr. Hamilton speak for himself, t " In regard to increase of taxes, we are of opinion that the sinking-fund has had a real effect in calling forth exertions, which, although they might have been made as well and as effectually, would not have * McCuUocli's "Adam Smith." Ib39, 618. f Hamilton's "Inquiry as to the National Debt.'' 1813, 153. 15 been made, unless to follow out the line wliich that system required. A loan is made, and the revenue considered as charged, not only with the interest, but a certain proportion of the principal, annually. Taxes are imposed to meet the one as well as the other. If the sinking-fund had not been in view, it is likely taxes would have been imposed for the interest only. " If the sinking-fand could be conducted without loss to the public, or even if it were attended with a moderate loss, it would not- be wise to propose an alteration of a system which has gained the confidence of the public, and which points out a rule of taxation that has the advantage, at least, of being steady. If that rule be laid aside, our measures of taxation might become entirely loose. " But if the loss attending the sinking-fund be great (and the foregoing computation evinces that it has been so) it seems proper to inquire whether a plan might be followed that would deliver us from this loss, and at the same time carry on the necessary measure of increased taxation. The present pro- portion of one per cent, on the nominal capital might be continued ; not, perhaps, as the most ehgible, but as possessing the advantage of being established. If a loan of 20 millions be transacted in the Three per Cents., the sinking-fund attached to it, on the present system, is £333,333. Now taxes may be imposed to that extent, besides what are required for interest ; and that sum, instead of being made over to commissioners, may, be de- ducted °fi:-om the loans. Thus, the nation would save the loss it at present sustains, of borrowing on lower, and paying on higher terms ; the imposition of £333,333 additional taxes, which is the only measure of real eflSciency, would be the same as before." 16 Hamilton s Before comparing these statements appcwent made by McCuUocli and Hamilton, I contradiction, ^j^ explain an apparent contradiction. Hamilton was unwilling to give up the actual system of taxation in connection with tlie sinking- fund ; and only recommended the abandonment of the Commission because it caused a loss to the public. But if it caused a loss, why was he unwilling to abandon it ? Illustrated hy A recent financial operation will explain a recent this. A few years ago, Mr. Gladstone, proceeding. ^g Chancellor of the Exchequer, wanting to borrow a considerable sum, and being unwilling to permanently increase the debt, proposed to grant terminable annuities, instead of the ordinary per- petual annuities. Mr. Hubbard afterwards calculated the result, and explained to the House of Commons, that this was an improvident measure : that in borrowing on terminable annuities, the country paid a higher rate of interest than in adding to the Three per Cents. Mr. Gladstone had not pretended that he borrowed at a lower rate on terminable annuities : what he proposed was to secure a sinking-fund ; and whether, knowing the loss, he would repeat such a proposal, is another question. Now, Mr. Hubbard, in showing that this loan on terminable annuities was borrowed at a high rate, did not express any opinion of the propriety of establishing a sinking-fund : he only complained of the loss occasioned by this mode of borrowing. A friend to sinking-funds might join with an enemy to them, in denouncing the improvidence of this par- ticular loan. The friend to sinking-funds might say to Mr. Gladstone : I quite approve of your arranging for the extinction of this debt, by a sinking-fand ; but I object to your scheme of terminable annuities. because this is a dear way of doing it ; because by doing it directly you would do it at less cost, and because therefore, your mode causes a loss to the public. Hamilton's This was exactly Hamilton's meaning. real meaning. He approved of the sinking-fund : he conceded that its existence led to increased taxation ; but he maintained that its actual form was not the best ; and as in another form it would be carried on far more cheaply, he pronounced that the actual operations caused a loss to the public. Sis recommen- Hamflton did not recommend that the dation. sinking-fund should be abandoned. He said that it had produced a real effect in calling forth exertions which would not otherwise have been made ; and that if the country should abandon the rule, on each fresh loan, of adding to the taxation specifically for the sinking-fund, " our measures of taxation might become entirely loose." What he did recommend was this : — that the separate estab- lishment of sinking-fund commissioners and their accounts, should be abolished ; and that the ad- ditional sums previously raised by taxation, should still be raised, and should be at once deducted from the loans. In timie of wajr. It must be remembered that he wrote during the war, and towards the close of that interminable war which made loans inevitable and immense. Yet even under these most adverse cir- cumstances, he still advised that the sinking-fund should be continued, but in a different form : just as Mr. Hubbard might advise Mr. Gladstone, not to abandon the project of diminishing the National Debt, but to efiect it directly, instead of indirectly. MoGulloch's We can now estimate the value of error. Mr. McCulloch's censures : he said that 18 tKe sinking-fund was a " pitiful juggle ; " that it was a " delusion, the grossest, certainly, that ever im- posed on any people : " and that Dr. Hamilton had the merit of dissipating that delusion, by proving that the sinking-fund, " instead of diminishing, had really added to the debt." Dr. Hamilton, as I have shown, did not regard the sinking-fund as a pitiful juggle, or a delusion : he did not contend that it had added to the debt : he did not recommend its abolition. He held, on the contrary, that the sinking- fund had caused increased taxation and a diminution of debt : he only proved that the form was not the best possible, and that by a change of that form the diminution of debt would be more effectually carried out : he recommended that the sums obtained as a sinking-fand, instead of being invested in the hands of commissioners, should be deducted from loans raised. Lord Oi-emville Mr. McCulloch cannot have troubled 011 Hamilton, himself to read Dr. Hamilton : he must have known him only at second-hand. Now Lord Grenville who has the credit of giving the fatal blow to the system, did know what Dr. Hamilton recommended, and did express his own disagreement.* " With respect to the distinguished writer whom I have named, there are not a few of the topics on which I have most dwelt, as well as some others which I have not had occasion so particularly to notice in this essay, respecting which his opinons, if I rightly apprehend them, differ, I regret to say it, very much from mine." When we find such carelessness in a laborious compiler of statistical works, we cannot be surprised at misapprehension on the part of men generally. A recent debate in the House of Commons, famishes examples. * 2nd Edition. 1828, vii. viii. 19 V. Souse of Com. QN" the 4th April, 1867, Mr. DisraeH mons debate, ^ brought forward his budget, and trnt^on's F ^^^V^^^ in it Mr. Gladstone's plan of the '""■■• previous year, for getting rid of a con- siderable amount of debt. The discussion that followed well exhibits the ordinary sentiments of educated men, SirG.Bmmjer, Sir George Bowyer, though he has written a good deal, and though he is a distinguished defender of the faith he has adopted, has probably not paid any particular attention to financial topics ; and therefore fairly represents the predominant notions of highly educated men, few of whom, in England, do turn their attention to finance, unless compelled by the necessities of politics. condemned it. Sir George* objected to the plan for the reduction of the National Debt, as he had ob- jected to it in 1866. " The plan was nothing more than that of a sinldng-fund. When the £24,000,000 was wiped off at the end of 18 years, there would be a surplus created of something more than £1,500,000, but we had got very nearly that now, so that the thing was as broad as it was long. As to our public credit, he thought that if we had to go into the market, we should have a better chance of making good terms if we could say that we had a million surplus, than we should have if we told borrowers that, at the end of 18 years, £24,000,000 of our National Debt would be extinguished In the event of a war breaking out, the Chancellor of the Exchequer would not be able to borrow * Times, 5th April, 1867 ; p. 6, col. 6. 20 money more advantageously than if these prospective reductions had not been determined on ; but, on the contrary, he would then have reason to regret that he had pledged himself to this increased annuity. Indeed the scheme was worse than the old sinking- fund, which might be given up at any time, and the surplus revenue taken. In the present instance, however, a pledge was made to give up the surplus revenue for 18 years, and even if a war broke out, the arrangement could not be changed." The leading idea in these remarks is, I believe, that the old sinking-fund was, beyond all question, bad ; and that not in form only, but even in sub- stance. The scheme now on foot is condemned, first, because it is nothing more than a sinking-fund ; and secondly, because it is worse even than the old sinking-fund. Mr. Huhhm-d. Mr. Hubbard followed, and also con- demned the proposed plan. His career as a London merchant and bank director, has so far modified his opinions, that he refrained from absolutely con- demning an attempt to. diminish the debt : but he showed the faintness of his desire [to do it, by declaring that so long as the duty on fire insurances is not again considerably reduced, the reduction of the National Debt ought to be postponed. As Uclitor of I showed before that the Spectator " Spectator." suggested the re-arming our forces at the expense of this proposed fund : Mr. Hubbard would reduce the fire insurance duty at the expense of the proposed fund : a penny in the pound added to the income-tax would accomplish both purposes. The Spectator and Mr. Hubbard agree in estimating at a very low rate the duty of reducing the National Debt. Mr. Laimg. I am more surprised to see the same side taken by Mr. Laing ; whose course of life 21 as a distinguislied mathematician, railway chairman, and Indian finance minister, should have set him free from ordinary prejudices. In the debate of the 4th April, he suggested a postponement for further con- sideration ; though a year's previous postponement would seem enough for any man. But his subsequent remarks showed his real disinclination to all sinking- fands. He said that the nation, hke an individual landowner, "might adopt either of two principles. It might either better its condition by paying off the National Debt by instalments ; or, continuing the payment of interest, it might apply aU surplus revenues to the improvement of the estate Por a long series of years the latter principle had been the one pursued. In the words used by the late Lord Sydenham, then Mr. Powlett Thomson, ' the money was left to fructify in the pockets of the people.' " Did it not occur to Mr. Laing that there were not two, but three ways of applying a certain individual revenue ? First, it might be applied to pay off a part of the principal of the national debt : secondly, as Mr. Laing says, it might be saved by the owner, and capitalized : thirdly, it might be. finally spent by the owner. Mr. Laing assumes that the money left in the taxpayer's pocket, will be saved, and used productively. But he should remember that far the greater part of men's incomes is spent. Even during the late prosperity, before the commercial crash of 1866, it was calculated that out of an aggregate income of 600 or 700 milhons, the saving was only 130 or 150 millions ; and this was regarded as an immense amoimt. In the same proportion, if it were proposed to levy a million a year for a sinking-fund, and instead of this the million was left to fructify in the people's pockets, the accumulation would be, not a million, but only one-fifth of that sum. 22 Conclusion so We See then, why the public looks far ; as to the askance at a sinking-fund : it does not public, i^Q ^}yQ taxation necessary for it ; and it is told by most of its leaders that the taxation ■would be wasted. It paid cheerfully, the sixteen- pence income-tax to sustain the national honour in the Crimean war ; but it grudges a penny income- tax to raise the national credit. The public is so far right ; for in a matter that has been rendered so complex as this, it must take its opinions from its leaders : it can no more be its own financier, than each man can be his own lawyer or his own physician. and as to the If the political leaders are generally leaders. wrong, as I believe they are, there is less excuse for them. They have no right to take their opinions from writers even of reputation : they are bound to judge for themselves. It is a consola- tion however, to find such eminent exceptions as Sir Gr. C. Lewis, Mr. Gladstone, and Mr. Disraeli : men who have had their eyes opened by dealing with the facts of the annual budget. YI. Modern T)AIIT of this national and political prosperity. J_ apathy, probably the greater part, is traceable to the remarkable course of events during the present century : to the rapid increase of popu- lation, and the still more rapid accumulation of wealth. Since 1815 the English population has doubled and the English wealth has probably trebled. As a consequence, the credit of the British Govern- ment has risen so high that the rate of interest 23 on the debt has been reduced to a very low point. The principal of the debt is less than it was in 1815 ; the interest, which was more than 32 millions in 1815, is now only 26 millions, including the ter- minable annuities. "We forget how heavily taxation pressed on us in 1815 ; that it was as though we had now to pay 100 milhons a year for interest on the debt, instead of one-fourth of that amount. If our debt had grown to 2,000 milhons, and our interest to 100 millions, we should have heard abundant outcry as to the necessity of reducing both. A sinking-fund would have been the text of many political discourses. Will it last ? We are so accustomed to the wonders of recent industrial successes, that we cease to ask how long this prosperity is to continue. We have been lately startled by a statement that our coal, the basis of our manufacturing success, is in a way to be exhausted. WhetJier this is true or not, it is certainly the dictate of wisdom, that during pros- perity we should prepare for adverse circumstances. England would no doubt, continue to be a very considerable country, even if its manufacturing pre- dominance ceased ; as it was a considerable country before that manufacturing predominance existed. Its land and its agricultural skill, with the security attending its orderly but free government, must keep it in the first rank of European nations. But a failure of manufactures, and therefore of com- merce, would involve a diminishing population, a falling revenue, and a pressure of taxation. If that time should come, I fear that our posterity would curse the apathy of their progenitors, who at a trifling sacrifice to themselves, might have made such arrangements as to wipe ofi" the debt they had incurred. 24 VII. Supposed oon- QOMB persons imagine that to main- fiscation of KJ tain a sinking-fund is impossible ;* smking-fund for that even if it were established during m war tvme. peace, it would be confiscated for war purposes on the breaking out of hostilities. But this objection is founded apparently on a vague notion that a sinking-fund consists of something that either is tangible property, or that can be converted into tangible property. Now a sinking- fand is only a surplus of taxation beyond expendi- ture, formally applied to the reduction of debt : the sinking-fund of 1716 pretended to nothing more : that of 1786 attempted to add the application of compound interest ; so that a million £ of surplus taxation applied this year, should accumu- late at compound interest, and amount in 14, 18, or 20 years to 2 millions £ : both these sinking- fands diminished the debt. It is true that on the breaking out of war, and the consequent raising of loans, as the surplus taxation ceased, the operation of the sinking-fund ceased in reality if not in name. But there was no confiscation ; there was only cessation : so far as the sinking-fund acted, it diminished debt and that was all. * They may quote the authority of Adam Smith (V. III. pa. 418 Ed. 1 839) , who says that a sinking-fuud is certaiil " to be misapplied towards defraying all the extraordinary expenses which occur in times of peace." But. he founds this opinion on another ; that in times of peace, a people will not submit to a new tax. He wrote just before 1 786, the year in which Pitt established his sinking-fund, and provided a million a year of surplus taxation to feed it : this fund, as we shall see, was carried on in good faith, so long as peace continued. If Adam Smith therefore,^ had written ten years later, his opinions would have been qualified by his own experience. Probably Pitt, who was a, disciple of Adam Smith, acted partly under the advice of hia master. Beality of That national debts can be diminished dnking-fvmls. ig proved by facts. To say nothing of the results of Mr. Pitt's scheme, our debt was diminished between 1727 and 1739, by 6 millions £, an amount perhaps as great as 50 or 100 millions £ would be now : after the conclusion of the Seven Tears' War, between 1763 and 1775, our debt was again diminished by 6 millions <£, an amount perhaps as great as 30 or 50 millions £ now: between 1815 and 1838 it was diminished by nearly 74 millions £, an amount perhaps as great as 150 millions £ would be in 21 years from the present time. In the United States the Federal Government has more than once paid off the whole of its debt, and at one time after having done this had a surplus income which it lent to the particular States, and is still owing by them. But the most remarkable example is that of Holland. According to M. Maurice Block,* the Dutch Govern- ment, between 1850 and 1861, paid off nearly 200 millions of florins ; that is, taking the florin at Is. 8Jd., the sum paid off was nearly 1| millions £i a year; a sum as great as 11 or 12 millions a year would have been for us. The table given by M. Blockjt for the longer period, 1847-61, makes the reduction of debt only about a million a year, or a sum as great as 8 millions £ a year would have been for us. If for this longer period of 14 years, we had done our duty as the Dutch did theirs, we should have lessened our debt by 112 millions, instead of allowing it to grow to a rather higher amount than that of 1838. If we had done the same thing since 1838, our debt would now have been 550 millions instead of 800 millions £. ' Puissance Comparee," Gotha, 1862., p. 99. t lb-, P- 164.. B 26 In the face of these facts, it is trifling to talk of any impossibility in maintaining a sinking-fund ; unless it should be whimsically maintained that to save by fits and starts is more efl&cacious than to save with system and regularity. VIII. CONCLUSIONS. THE conclusions then, at which I arrive in this chapter are the following. An efficient sinking-fund is not to be obtained by any trick of figures, but by an honest surplus of national income above national expenditure. At the same time, the amount of sacrifice required from the ratepayers, depends very much on the time when the sacrifice is enforced : a sum less than the cost of a single year's war, levied now and left to accumulate at compound interest, would in a hundred years pay off" our whole debt ; the same sum levied a hundred years hence, would do little more than pay one year's present interest. This fund however, ought to be so raised as not to diminish the productive powers of the country : if it were so raised as to render capital scarce, the national loss might be greater than the national gain. Since however, the sum would not be spent but would only change hands, and since it would not be half or perhaps a third of the annual savings of the nation, any fear of mischief in this way, seems to me futile. The public distaste to a sinking-fund is accounted for principally by the failure of that of 1786, which 27 was continued with modifications till 1829 : this failurej as I shall show afterwards, was not so decisive as we have been told ; and it is altogether untrue that Dr. Hamilton condemned sinking-funds generally : the dreadful wars between 1793 and 1815 are responsible for the disappointment. Besides this, we have become so familiar with debt, that we forget the great and inciu-able evil attached to it : we overlook the fact that in each generation we pay as much for interest as the amount of the priucipal, without thereby diminishing the debt : that since 1815 we have paid the debt nearly twice over. I show that since 1838, the principal of our debt has not dimitiished : but that it is possible to reduce the amount, is proved by our own successful efforts in the reign of George II., and again between 1763 and 1775, between 1786 and 1798, between 1815 and 1838 : it is proved by the action of the United States' Federal Government formerly ; it is proved above all by the example of the Dutch, who have paid off in 14 or 15 years an amount so large that if we had made equal efforts, our debt would 'have been reduced by 250 milHons £. CHAPTER II. HISTORY OF BEITISH SINKING FUNDS. IN my former chapter, I have recalled those first principles on wHcli all repayment of debt must be founded. I have shown also, that the very- name of a Sinking-Fund is become unpopular, and is regarded even by judicious men as a word of reproach ; so that to pronounce any financial scheme to be a sinking-fund is to say that it is worse than Utopian ; that it is something like a swindle on the public. I propose in the present chapter, to lay before my readers a brief history of past sinking-funds ; that it may be seen by what means these notions arose, and how far they are well founded. II. Origm of our f\^^ ancBstors till towards the close of debt : \J the Stuart dynasty, knew nothing of a National Debt : the King owed money which he had spent for private or for public purposes ; but the credit of the nation was not pledged for repayment. In 1688, the whole national debt was little more than half a million. after 1688. During the reign of William and Mary* * Mc.Cnllooli's " Adam Smith " 1839. 619. 29 liowever, large loans were contracted for carrying on the war against Louis XIV. ; by 1702 the debt had increased to 16 millions ; and since at that time it was as difficult to raise 5 millions of taxes as it would now be to raise 100 millions, a debt of 16 millions was a very considerable one. Queen Anne. But the "War of the Succession, ending in the Peace of Utrecht, led Queen Anne and her Parliament to borrow still more largely : at the close of her reign the nation owed 54 millions. There was an audacity in the proceeding which "resembled the recent one of the United States in borrowing an amount ten times as great. In the eyes of the nation, excepting the Jacobite minority, the money was well spent : for though the Peace of Utrecht was believed to have weakly given up the advantages we had gained, and to have shamefully abandoned our allies the Catalans, yet the effect of the whole war was to reduce the French nation to the utmost distress, and to so quell its restless spirit that for eighty subsequent years Europe was free from French dictation. However audaciously a debt has been incurred, the interest must be paid ; and the finance minister must have looked with dismay at the necessity of providing 3J millions, which was the annual charge. To us this appears a small sum, but it was a large proportion of the public revenue, which at the beginning of the eighteenth century was only 5 millions, and which was thought to have increased wonderfully, when, during the reign of George II., it reached 8-^ millions.* The alarm that was felt lest the nation should be unable to bear this heavy burden, and lest its credit * Leone Levi, " Taxation " 15. 30 should be so impaired that future war loans would be impossible, led to the establishment of our first sinking-fund : and so steadily and honestly was this fand managed, that during the years between 1721 and 1 738, the debt instead of being increased, was diminished by 8 millions, while the annual interest was diminished by one-fourth. III. Smkmg-ftmd QINKING-FUNDS are no new inven- 1716; Dr. ^j tion : Adam Smith* speaks of one in Price' saccowit. Holland in 1655, and of another in the Ecclesiastical State in 1685. A French writer how- ever,t seems to attribute the invention to us. As to the measure of 1716, Dr. Price J gives the following account. " The sinking-fund was established in the year 1716, or soon after the accession of the present family, at a time" when the public debts, though not much more than a third of what they are now,** were thought to be so considerable as to be alarming and dangerous. It was intended as a Saceed Deposit never to be touched; the law which established it declaring, that it was to be applied to the payment of the principal and interest of such national debts and incumbrances, as had been incurred before the 25th o{ December, 1716; and to no other use, intent, or purpose whomever. — The faith of Parliament, therefore, as well as the security of the kingdom, * " A. Smith," V. iii. pa. 418 of ed. 1839. f ^c*' <*« I'Econ. Pol. Vol. I. 684 2. J Price, " Berersionary Payments," 4th ed. I. 208. ** That is before the debt contracted for the American war. Dr. Price wrote on the subject first in 1V72. (Hamilton 1813 pa. 98.) 31 seemed to require, that it should be preserved carefully and rigorously from alienation. But, not- witlistanding this, it has been generally alienated ; and the produce of it employed, in helping to defray such current expenses as the exigencies of the state rendered necessary, " In order to justify this, it has been usual to plead, that when money is wanted, it makes no difference, whether it is taken from hence, or pro- cured by making a new loan. But in truth the difference between these two methods of procuring money is no less than infinite. For by employing the SiNKiNG-FuND in bearing current expenses rather than borrowing new money or new fands ; the state, in order to avoid giving simple interest for money, is made to alienate money, that must have otherwise been improved at compound interest : and which, in time, would have necessarily increased to any sum. Had a faithful use been made from the first, of only one Thied of the produce of this fund, the greatest part of our present debts would now have been discharged." Hisfmida- This quotation exhibits Dr. Price's mental notions, leading notions : first, that a nation should borrow at simple interest, and accumulate a sinking-fund at compound interest ; secondly, that when the Government has to procure funds beyond the produce of the taxes, the necessary sum should be borrowed rather than taken from the sinking- fund. I will postpone further consideration of these two propositions till my next chapter; because I have undertaken in this chapter to supply only a history of facts and opinions. Br. Hamilton's Dr. Hamilton in his account is, accotont. natiirally, free from that enthusiasm which distinguishes Dr. Price ; who when writing. 32 thouglit himself the first inventor of the sinking-fund at compound interest; though he afterwards candidly- confessed that he had found himself anticipated, in a pamphlet of 1726, which had reached at least four editions.* " SIR ROBERT WALPOLB'S SINKING-FUND. " The first plan for the discharge of the National Debt, formed on a regular system, and conducted for some time with a considerable degree of firmness, was that of the sinking-fund, established in 1716, under the administration of Sir Robert Walpole. The taxes which had been laid on before for limited periods, being rendered perpetual, and distributed among the South Sea, Aggregate, and General Funds, as has been mentioned already,! and the produce of these fiinds being greater than the charges upon them, the surplus ses were united under the name of the sinking-fiond, being appropriated for the discharge of the National Debt. The legal interest had been reduced from six to five per cent, above two years before, and as that reduction was conformable to the commercial state of the country, Government was now able to obtain the same reduction on the interest of the pubhc debt, and apply the savings in aid of the sinking-fund. In 1727, a further reduction of the interest of the public debt from five to four per cent, was obtained, by which nearly £400,000 was added to the sinking-fund. And in the year 1749, the interest of part of the debt was again reduced to three and a half per cent, for seven years, and to ■ three per cent, thereafter ; and in 1750, the interest * Price, " Beversionary Payments." 1. 209. + Hamilton's Inquiry. 1813. 95. J lb. pa. 67. 33 of the remainder was reduced to three and a half per cent, for five years, and to three per cent, there- after, by which a further saving of near £600,000 was added to the sinking-fund. " The opinion, strongly urged since by Dr. Price, seems to have been entertained at that time, of the importance of applying the produce of the sinking- fund invariably to the discharge of the National Debt, or borrowing by new loans when the public exigencies required it. Accordingly the following sums were borrowed towards the supplies, from 1718 to 1731, being a period of peace. In 1718 £505,995 1719 312,737 1720 500,000 1721 1,000,000 1722 1723 1724 1725 500,000 1726 370,000 1727 1,750,000 1728 1,230,000 6,168,732 In 1729 £550,000 „ 1730 1,200,000 „ 1731 500,000 8,418,732 " The sums applied from the sinking-fund to the discharge of the National Debt, from 1716 to 1728, amounted to £6,648,000, being a very little more than the additional debt contracted in that time. " In 1728, the sinking fund was charged with the interest of the loan, and this was also done in the loans of the following years, and the additional taxes imposed for the payment of the interest of the loans, were applied directly to that fund. " Soon after, the plan of preserving the sinking 34 fund inviolate, and borrowing by new loans, was abandoned. In 1 733, £500,000 was taken from the sinking-ftmd towards the supplies of the year. In 1734, £1,200,000 was taken from it for the same purpose; and in 1735, it was anticipated and mortgaged. Since that time, the operations of the sinking-fund, in time of peace, have been feeble, its produce being often diverted to other purposes : and at that time, the nation had no other free* revenue, except the annual land and malt taxes, which were inadequate to the expense of a peace establishment on the most moderate scale. It was therefore necessary to have recourse to the sinking-fund, or to the inefl&cient system of discharging old debts and contracting new ones. In the peace which followed the treaty of Utrecht, being a period of 26 years, the longest which the nation ever enjoyed, the amount of debt discharged was only £7,328,355. In time of war its produce was applied to the service of the year, and loans only made for the additional sums wanted. " The produce of the sinking fund at its com- mencement, in 1717, was £323,439 Medium annual prodtice, from 1717 to 1726, both inclusive 577,614 1727 to 1736 1,132,251 1737 to 1746 1,062,170 1747 to 1756 1,356,578 1757 to 1766 2,059,406 1767 to 1776 2,584,250 * By free revenue is meant, I believe, a revenue not pledged for payment of interest of a particular loan. At that time, and long afterwards, the Government when it borrowed, pledged some permanent tax for payment of the interest ; just as Mexico or Turkey now borrows, and pledges the custom duties for the interest. The free revenue was the revenue not so pledged. This explains the term Junds, about which Gobbett made himself merry : people, he said, imagined the existence of a strong box in which these funds were locked up j and they had no notion that the fimds had been already spent. But so long as a loan was contracted on the pledge of a specific tax, the funds meant, the proceeds of the tax so hypothecated. 35 " It seems -unnecessary to trace the operations of this sinking-fund further. It was continued nominally in the accounts of the exchequer, until the establishment of Mr. Pitt's sinking-fund in 1786, but did little in time of peace, and nothing in time of war, to the discharge of the national debt. Dr. Price says, that at the time he wrote, in 1772, it had afforded about 20 millions towards the payment of the national debt in 66 years, being nearly £357,000 annually, at an average. If from this sum of 20 millions, we subtract the debt contracted from 1716 to 1728, the remainder is nearly equal to the debts discharged in the periods of peace which followed the treaties of Utrecht and Aix-la-Chapelle." Price and It will be Seen that Dr. Price and Dr. Hamilton Hamilton differ much in the spirit which compared. animates them : Dr. Price regards the sinking-fund as a Saceed Deposit; Dr. Hamilton analyses it with the coolness of a professor. Prwe and Dr. Price and Lord Grenville differ Grenville no less. Lord Grenville attributes the compa/red. alienation of the fund to the sagacity of Sir Eobert Walpole. " The ministers," he says,* "frequently supported their sinking-fund by bor- rowed 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 con- temporaries. By measures which, notwithstanding all the clamour of his opponents, it would be very difficult to censure on any just ground of reasoning, * Grenville, Essay, 1828, 16. 36 he diverted tlie sinking-fund from these unreal and simulated operations." Dr. Price's view of the alienation is singularly different from this.* " From some publications in ] 726 it appears that some persons had been led to apprehend this zeal of the ministry would not be permanent, because it was not their interest to pay off the public debt, on account of the dependence and influence created by it. In answering this objection, the writers on the side of the court called such an apprehension a,n indecent jealousy , and took upon them to assure the public, ' that in no possible exigence of affairs could our ministers ever approve of or recommend the alienation of the sinking-fund.' Happy would it have been for Britain had this proved true : But in a little time it appeared, that the apprehensions which had been styled indecent jealousies, were too well grounded. Men in power came soon to see, that this fund was advancing too fast in its operations, and to change their zeal for it into a resolution to destroy it." Over-refim- Both Lord Grenville and Dr. Price seem merds. to me to have given over-refined reasons for a plain matter. Lord Grenville regards Sir Robert Walpole's proceedings as the result of extra- ordinary financial sagacity : Dr. Price regards them as the result of a fear that the nation should too soon get out of debt. I fancy that if Sir Robert had anticipated such assertions, a horse-laugh would have been his reply. Walpole's al- Walpole was, no doubt, a very saga- Jeged sagacity, cious statesman : the aim of his policy was to keep the Jacobites from upsetting the settle- ment of the crown on the Brunswick line : to do * " Eeversionary Payments." 1783. I. 216. 37 this it was highly important to avoid irritating the country with heavy taxes. This explains why in 1 733,* when, " in order to keep the land tax at one shilling in the pound, it was necessary either to borrow half a million for the current service, or to take half a million from the sinking-fand, the last method was chosen." Probably a wise proceeding; but the sagacity was political, not financial. Alleged fears -^^ ^o ^r. Price's explanation, that of extliidion Walpole and his friends feared to see the of delt. nation out of debt, some proof should have been offered of the existence of alarms so unusual. Many nations have repudiated their debts : many have partially repudiated them by arbitrarily lowering the interest : I never heard of an authen- ticated instance of national lamentation over the disappearance of debt. Explanation. The entire proceedings seem to me simple. After the peace of Utrecht, the novelty of a large public debt caused great alarm : the Patriots proclaimed national ruin : the Whigs feared that if war broke out again, the exhaustion which had actually overtaken France, would be our fate too. The debt must be diminished. The' sinking-fund therefore was established. As the result, the prin- cipal payed off was not very great ; but the return of prosperity and public credit enabled the Govern- ment to lower the rate of interest, just as happened a century later, after the battle of Waterloo had wound up the Napoleonic drama. From 6 per cent, the rate was reduced to 6, 4, and long afterwards to 3 : and the annual charge fell between 1718 and 1738 from 3 millions to 2 millions. Our annual charge has fallen from 32 millions to 26 : the fears which * Price's " Beversionary Payments." 1783. 217. 38 oppressed us in 1816 have ceased. The nation then, like the nation now, was unwilling to be taxed for further reduction of the debt. There is no need to resort to further explanations ; neither to the extraordinary financial sagacity of Walpole, nor to the indecent jealousies of politicians. IV. 1716 fo 1786. DURING the seventy years that fol- lowed 1716, nothing new was done. A thinker here and there may have grumbled at the national carelessness which failed to diminish the debt, and after 1741 much increased it. I have mentioned the candour of Dr. Price in confessing that a pamphet of 1726, which went through several editions, anticipated his scheme of a fund at com- pound interest. 1727 to 1763, Any large addition to the debt, seems wnd to 1775. generally followed by a cry for a sinking- fund. During the reign of George II. there was such an addition ; for including the three first years of George III., during which time the seven years' war was concluded, the debt rose from 52 millions to 132 millions. Yet there was no new sinking fund. That of 1716 however, still kept its place in the accounts of the exchequer: efforts were .actually made to reduce the debt; and in the twelve years ending with 1775, there was paid off no less than 6 millions. 1775 to 1784. Then, unfortunately, broke out the war with the American colonies ; which cost us vast sums unprofitably spent, and left us with a debt of 245 millions : a sum nearly twice as great as that of 1763, and nearly five times as great as that of 1727. 39 Tlie annual charge was comparatively low; for it was only 9i millions, or less than 4 per cent. ; whereas in 1714, on the small amount of 36 millions, it had been above 8 per cent. National dis- The nation however, was greatly dis- couragement : couraged by its failure to conquer the Adami SmUh. Americans ; by its loss of old colonies ; and by the extravagant debt it had incurred. Even the philosophical Adam Smith, who clearly saw the fallacies of the colonial system, appears to have felt humihated at the reduction of the empire ; just as many philosophers among ourselves would feel, if our Indian possessions w^ere suddenly torn from us. The following are the last sentences of the "Wealth of Nations," which was published at the opening of the war. " If the colonies, notwithstanding their refusal to submit to British taxes, are still to be considered as provinces of the British empire, their defence in some future war may cost Great Britain as great an expense as it ever has done in any former war. The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire ; not a gold mine, but the project of a gold mine ; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost immense expense, without being likely to bring any profit ; for the efiects of the monopoly of the colony trade, it has been shown, are to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realise this golden dream, in which 40 they have been indulging themselves, perhaps, as ■weU as the people, or that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be g-iven up. If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should- free herself from the expense of defending those provinces in time of war, and of supporting any part of their civil or military estab- lishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances. This was written at least seven years before the conclusion of peace ; and it seems that Adam Smith regarded the probable loss of the colonies as a reduc- tion of the empire to a mediocrity of circumstances, and as a humiliating necessity. We may guess how it must have been felt by other men of a less dis- ciphned character, or who believed that the colonies were a source of profit. The war went on, until the European aid given to the Americans made the struggle hopeless; and the French, whom we had turned out of Canada twenty years before, saw us turned out of New England and New York and Virginia, and all the thirteen provinces. Gen&ralreso- The debt would have been heavy lution to lessen enough if it had been accompanied with the deU. success : with failure added it could hardly be borne. There was an outcry for a re- duction : not by repudiation or unjust lowering of interest, but by repayment of principal. So obvious was the necessity of doing something, that it was unnecessary to prove it. Mr. Pitt* "began with * Annual Register, " Hist. Europe," 1786. 114. 41 observing, that the necessity we were under of adop- ting some means or other for the diminution of our National Debt, was a point upon which aU persons and parties were universally agreed," Dr. Price, 17 73. Dr. Price, as early as 1773, had urged the dangerous condition of a nation which was always borrowing and never paying.* " The practice of raising the necessary supplies for every national service, by borrowing money on interest, to be con- tinued till the principal is discharged, must be in the highest degree detrimental to a kingdom, unless a plan is settled, for putting its debts into a regular and certain course of payment. When this is not done, a kingdom by such a practice, obHges itself to return for every sum it borrows, infinitely greater sumss and, for the sake of a present advantage, subject, itself to a burden which must be always growing heavier and heavier, till it becomes insupport- able. " This seems to be now the very state of this nation. At the Revolution, an era in other respects truly glorious, the practice I have mentioned began. Ever since, the public debt has been increasing fast, and every new war has added much more to it, than was taken from it during the preceding period of peace No resources can be sufl&cient to support a kingdom long in such a course. 'Tis obvious, that the consequence of accumulating debts so rapidly ; and of m.ortgaging posterity, and funding for eternity, in order to pay the interest of them; must in the end prove destructive. Rather than go on in this way, it is absolutely necessary, that no money should be borrowed, except on annuities, which are to termi- * Eerersionary Payments, 1783, 1. 181. G 42 nate* within a given period. Were this practised, there would be a Limit beyond which the national debts could not increase ; and time would do that necessarily for the public, which, if trusted to the oeconomy of the conductors of its affairs, might pos- sibly never be done." Apology for In Order to do justice to Dr. Price, Br. Price. the whole of his opinions ought to be taken into account. If the population of Great Britain had been stationary, the progress of the debt would have been ruinous. Let us look again at the amounts of principal and interest, f Principal. Interest. Annual Payments. 1689 £661,263 £39,855 say 40 thousand £ 1703 £16,394,702 61,310,942 say 1^ millions. 1714 £54,145,363 £3,351,358 say 3i millions. • 1763 £138,865,430 £4,852,051 say 5 millions. During the wars of William and Mary, an annual taxation of 6 millions was regarded as heavy : sixty years later the same 5 millions only paid the interest of the debt. With a stationary population such an augmentation of charges must have issued in national bankruptcy. Population ^^^ population indeed, was not sta- not really tionary. Nor did Dr. Price believe that stationary. it was Stationary. He thought it was worse than this : he offered proof that it had diminished. He shared this error with many other thinkers : no thanks to the Bishops, who by their votes and influence in the House of Lords f had thrown out at the close of George the Second's * Terminable annnities are still the favourite resource of speculatiTe financiers. It is conceded however, that they are a very improvident form of sinking-fund, and open to precisely the objection made to Mr. Pitt's scheme, that of doing their work at the expense of a great loss to the nation. I will enter on this topic again. + Mc CuUoch's " Adam Smith." 1889. 619. J Lord Colchester's Diary, 1. 84., says about the year 1753 or 1^54. 43 reign, a bill for numbering the people. Price had taken pains to satisfy himself as to the facts ; he had compared the deaths and baptisms of the town of Northampton : he had assumed erroneously, that all children born were baptised; and finding that the deaths outnumbered the baptisms, he concluded that Northampton was gradually being depopulated. This seems to us a slender foundation to rest on ; just as a writer now would be deemed to build on a slender foundation, who told us that the population of Macclesfield is stationary, and therefore the population of England is stationary. I do not sup- pose however, that Price founded his own opinion on the ^orthampton facts: probably these only sup- ported a foregone conclusion in his own mind, and furnished the means of impressing the public. But if it had If population were stationary, the lem. progress of the debt was alarming : if population were diminishing, bankruptcy was in- evitable. Even with a diminishing population indeed, wealth may increase : we see now, that in an over-peopled country, a reduction of population is the very thing wanted to increase wealth ; just as in a besieged town, to turn out the non-combatants adds to the resources of the defenders. But the theory of population was not then understood. It was not known that by the progress of civilization, and the consequent reduction of infant mortality, there had arisen a tendency in western Europe to over-popula- tion : it had not been discovered that the tendency to depopulation, which is still found among the Eed Indians, and in parts of European Russia, had quite ceased among ourselves. Aoimal iMcvease. In 1 801 the population of England was 9 milHons : it is now more than 20 millions. Sup- pose that instead of more than doubling it had fallen 44 to 8 or 7 millions. Dr. Price's vaticinations would have proved true : we could not have paid our debts and maintained our place among European nations. Girammtcmces We are justly proud of being able to favoured us. say, that since the Revolution, nearly two hundred years ago, the nation has never failed in its engagements ; nor can it be denied that the fact is just matter for rejoicing : but we ought to remember that circumstances have favoured our sense of justice; and that without the growth of manufactures, naturally followed by the extension of commerce, and also of agriculture, we must have broken down under the burden of our- debt. Dr. Price, on his own hypothesis of a decreasing popu- lation, was perfectly right. Y. 1786: Pitt's npHE war with the American colonies sinhing-fvmd : J_ then, and the vast additional debt Kim.g's speech, caused by it, had driven the nation to resolve on a new sinking-fund : the King's speech prepared the Houses for an intended measure. Cormnittse The Annual Register* gives the fol- appointed to lowing statement. " Mr. Pitt had early investigate in this session taken notice of that part finances ^f jjjg Majesty's speech which related to the necessity of providing for the diminution of the National Debt ; he had at the same time given the House to understand that such was the present flourishing condition of the revenue, that the annual national income woidd not only equal the annual * Annual Eegiater. " History of Europe." 1786. p. 111. 45 national disbursements, but would leave a surplus of considerable magnitude ; tliis surplus, he said, lie meant to form into a permanent fund, to be con- stantly and invariably applied to the liquidation of the public debt. In pursuance of this information to the House, and in order to ascertain the amount of the surplus in question, Mr, Pitt, previous to his entering into the state of the finances, or ways and means for the present year, moved, " That the several accoimts and other papers presented that session, relating to the public income and expenditure, be referred to the consideration of a select committee, and that the said committee be directed to examine and report to the House, what might be expected to be the annual amount of the income and expenditure in fiiture." Tlieir report. The committee presented this balance sheet. EECEIPT. From Michael- From 5th mas 1784, to January 1735 • Michaelmas to 5th 1785. January 1785. 1 Total net payments into the Ex- chequer, from Michaelmas 1784 to Michaelmas 1785 £12,321,520 Deduct therefrom the respited duties paid by East India Co. £401,118 Excess beyond future amt. of window duties 46,189 447,307 11,874,213 1 Total net payments into the Ex- chequer, from 5th January 1785 to 5th January 1786 12,499,916 The respited duties paid by East India Co £401,118 Excess beyond future amt. of window duties 56,101 457,219 2 Further produce of window duty imposed by the 24th George III 3 Further produce of duty on two-wheel and four- wheel carriages Carried forward £12,313,650 12,403,417 380,056 12,042,697 253,534 59,281 107,186 46 Brought forward £12,313,650 12,403,417 4 To complete {sic.) the former duty on male ser- vants 26,803 42,444 5 Further produce of the duties on horses, wagons, and carts 56,829 73,610 6 Further produce of taxes imposed, 1784 103,000 22,000 7 Ditto ditto ditto, 1785, including the improvement of the medicine duty 265,000 242,000 8 Paid at the excise and alienation ofi&ce, in part of eivillist 14,000 14,000 9 Produce of the land and malt .". 2,600,000 2,600,000 £15,379,182 15,397,471 EXPENDITUEE. 10 Interest and charges of public debt £9,275,769 11 Exchequer bills 258,000 12Civillist 900,000 13 Charges on aggregate fund 64,600 14 Navy 1,800,000 14 Ordnance, (sic.) 848,000 14 Army, (sic) 1,600,000 15 Militia 91,000 16 Miscellaneous services 74,274 17 Appointed duties 66,538 14,478,181 14,478,181 Annual surplus 901,001 919,290 Besults. It would be out of place here to ana- lyse this Balance Sheet : but a recent Chancellor of the Exchequer might be excused some regrets, on finding that our present peace establishment for army and navy is six times as great as that of 1786 : though, as Mr. Pitt said, " the committee, in calcu- lating the expenses of the different services, had purposely gone upon the largest and most expensive establishments" (p. 114, col. 2); and that the estimate with respect to the navy, army, and ordnance, "was large and ample, as calculated for times of peace" (p. 115). On the other hand, the 9i millions for interest and management of debt, was a far heavier burden, population and wealth considered, than our present 26 or 26 millions. 47 The account Tte Committee's Balance Sheet is far not a Bvdget more favourable than might have been lut a general expected, at the conclusion of a long es una e. -^ar^ carried on at a great distance, with a profusion then unexampled. But Mr. Pitt's speech explained that the balance sheet was not what we understand by a Budget : that it was only an estimate of what might probably be the permanent income and expenditure of the country if peace were maintained. Ample, he said, as were the amounts stated for military and naval expenses, " as calculated for times of peace, and as they were to stand in future, yet it fell infinitely short of what was the actual ex- penditure for those establishments for the present year, or what would be for two or three years to come. The effects of the late tedious and expensive war would be felt for some time longer ; and the neces- sary claims it had left on the public purse were such as it was wise and politic to comply with. Thus, for instance, the naval half-pay and pension lists were unavoidably much increased, and a number of ships which were now on the stocks, were to be completed, in order to save the expense that had already been incurred by them, and which otherwise, from the total decay of the vessels, would be lost." There was a similar actual excess of expenditure in the army. Taking the two services together, " these exceedings above what was stated in the report as the amount of their permanent expenditure, was above £760,000." However, " this was a sum, which from its very nature would gradually diminish, and' in time be reduced to nothing. Supposing it to last four years, it would then be equal to a sum of 3 mUhons." Mr. Pitt beheved that this would be provided for without any fresh taxation ; " such were the extraordinary resources of the country." 48 These estimates may have been well founded : England was feeling the results of that manufac- turing and commercial prosperity which had for some time set in. But everything depended on the maintenance of peace. Pitt assumed that England would have no farther wars for many years ; nor is it any discredit to him that he did not foresee the French Revolution, the subversion of European order, and the genius of Napoleon. A few years afterwards we were hiu-ried into hostilities with France, and for twenty years expended men and money to an extent never dreamed of by the wildest politician. The French Revolution spoilt all. Additional Yet this effort appears to have done taxation. something, for it caused an increase of taxation. In order to make up the necessary annual amount for the proposed sinking-fund, Mr. Pitt at once levied a fresh tax on spirits, which with a slight addition from another source, was expected to realise £100,000 a year. This indeed, was a small sum even for that period. But it is probable enough that in the absence of this project for paying off debt, the taxation might have been reduced, either at once', or before the French war broke out seven years later. The measure M^. Pitt then, proposed that " in proposed. order to insure the due application of this fund to its destined object" Parliament should " vest in a certain number of commissioners the full power of disposing of it in the purchase of stock for the public in their own names. These commissioners should receive the annual million by quarterly pay- ments of £260,000 to be issued out of the exchequer before any other money, except the interest of the National Debt itself ; by these provisions, the fund would be secured, and no deficiencies in the national 49 revenues could affect it, but such must be separately provided for by Parliament. The atnomvt. " The accumulated compound interest on a million yearly, together with the annuities that would fall into that fund, would in 28 years amount to such a sum as would leave a surplus of foar milhons annually, to be applied if necessary to the exigencies of the state." How obtained. The amount of terminable annuities that would fall in, is not given in this abridged report. It must have been considerable ; for a million a year, with compound interest, would not produce anything near what is mentioned. If the rate of interest were 5 per cent., and the expenses of management were otherwise defrayed, the million a year would amount in about 14 years to 20 millions ; in about 28 years to 60 millions : the interest on this, still at 6 per cent, would be 3 "millions, against the 4 millions mentioned. Now it can hardly be sup- posed, if peace had continued, and if the credit of Government had. been steadily improved by the operation of the proposed fund, that the rate of interest on public loans would have been 5 per cent. During the peace after 1763,* the three per cents, had ranged from 80 to 90 ; i.e., the rate of interest was much under 4 per cent. Towards the close of the American war indeed, the three per cents, had fallen to 64 ; i.e., the rate of interest was above 5|- per cent. On the whole, it could not be expected that the average future rate would be so high as 5 per cent ; and even if it should prove to be 5 per cent, the fund accumulated by a million a year, would at the end of about 28 years, yield 3 and not 4 millions. Therefore, the terminable annuities to fall in, must have formed a large part of the fund. * McCulloch. " Commercial Dictionary." 1840. 589. H 50 Mr. Pitt's ac- I do not mean to express doubts as to cumcij not the accuracy of Mr. Pitt's calculations : disputed. they were explained to tlie House of Commons in the presence of Mr. Fox and his party, who constituted a very unfriendly opposition. That party however, was not remarkable for support of valuable administrative measures. Mr. Fox himself was a magnificent partisan, and not a legislator : he was desirous of repealing Lord Hardwicke's Marriage Act, because he feared that it would hinder a due ■ increase of population : it was not he, but Mr. Pitt, who welcomed the advances of the French govern- ment, which resulted in the commercial treaty of this very year, 1786: it was Pitt, and not Fox, who studied and adopted the doctrines of Adam Smith. Mr. Pitt's calculations therefore, were not likely to receive intelligent investigation fi^om Mr. Fox; and the liberal party out of doors, would probably be so pleased to see the adoption of the scheme of Dr. Price, an eminent dissenter of acknowledged financial ability, that they would conceal any doubts they might have as to the accuracy of these calculations. The Gommis- Mr. Pitt proposed to entrust the fund sioners. to Commissioners: and he said "he should endeavour to choose persons of such weight and character as corresponded with the importance of the Commission they were to execute. The Speaker of the House of Commons, the Chancellor of the Exchequer, the Master of the Rolls, the Go- vernor and Deputy Governor of the Bank of Baigland, and the Accountant General of the High Court of Chancery, were persons who, from their several situations, he should think highly proper to be of the number." Mr. PMs Mr. Pitt concluded by the following recapitulation, recapitulation. "First, that the yearly 51 income of the State exceeded the permanent level of its* expenditure, by a sum of £900,000. Next, tbat this sum would be increased to a million by means in no ways burthensome to the people. Thirdly, that although the present establishment exceeded in certain instances the same establishments as stated in the report of the select committee, yet there were ample resources, and contingent and outstanding receipts, sufficient to overbalance such excesses, without having recourse to any fresh taxes. And lastly, that the ways and means for the present year would be sufficient to farnish the supplies, together with the sum of £250,000, to be applied quarterly towards the establishment of a new fund ; and after - all, would leave a considerable balance to be carried to the next year." Mr. Pitt's Mr. Pitt then moved, " That the sum motion of One million be annually granted to certain Commissioners, to be by them applied to the purchase of stocks, towards discharging the public debt of this country ; wliich money shall arise out of the surplusses, excesses, and overplus moneys, com- posing the fund commonly called the sinking-fund." LordGrenville's Forty years later. Lord Grenville pro- support. posed the abolition of this fund. As a member of the House of Commons in \ 786, and as brother of Lord Buckingham, he had highly approved of Pitt's propositions. In his pamphlet of 1827-8, he thought it necessary to apologise for his change of opinion : his rather haughty and inflesiblet spirit unwillingly confessed that the experience of a long poHtical life had compelled this variation in his opinions. " The writer J of these pages was himself * This ought to have been " of its peace expenditure." t Lord Stanhope's Pitt. 2. 122; 3. 52; 4. 115. J Essay. 1828. 2. 52 a party to the too sanguine hopes of those whoi framed and proposed that law ; confidently believing it one of the greatest services which could then be rendered to their country. To that opinion he long adhered ; and even, now, after the lapse of more than forty years, he feels it still painful to renounce so flattering a persuasion. But the interests of truth and science are paramount to all such considerations ; and he who was formerly among the warmest ad- vocates of a sinking-fund, is, on that account, the more strongly bound to avow, on every fit occasion, the distrust which he now entertains of its efficacy and real benefit. This is the true consistency of public duty." Hamilton's ac- Hamilton gives a concise account of count of ihe this measure.* fuinl. " MR. PITT'S SINKING-FUND. " The present sinking fund was established under Mr. Pitt's administration, in 176G. The various branches of revenue then existing were united under the name of the Consolidated Fund. One million taken from that fund was vested annually in the hands of Commissioners for the Redemption of the National Debt, to be applied for purchasing capital in such stocks as they should judge expedient, at the market prices. To this fund was to be added the interest of the debt redeemed and annuities fallen in by the failures of lives, or the expiring of the terms for which they were granted. When this fund amounted to four millions, it was enacted that the interest of the redeemed debt, and annuities fallen in, were no longer to be applied to it, but remain at the disposal of Parliament." * Inquiiy. 1813. 99. 53 Limitation to Tliis limitation to four millions is 4 milliom. liiglily approved by Lord Grenville : * " tlie principle of unlimited accumulation was ex- pressly excluded from that law, by a provision which limited to four millions the sinking-fund then estab- lished. A wise precaution, showing an early and just apprehension of the evils since felt from an op- posite policy." The limitation is also mentionedf by Lord Stanhope. LordGrenville's I have mentioned that in Hamilton's admission. opinion, the sinking-fund though it did not act so beneficially as it might have done, yet certainly reduced the debt, by causing increased taxation. Lord Grenville does not deny the in- creased taxation, though he strongly dissents | from Hamilton's conclusions. He says§ that Mr. Pitt, " with an ardent and generous spirit, devoting all its energies to the national prosperity, 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 main- tain. This was no light sacrifice, nor did he feel it as such." Lord Grenville does not tell us what became of the proceeds of this large additional tax- ation. Hamilton says it went in reduction of the debt. Parliamentary Mr. Pitt's measure met, of course, with ohjections,1786. opposition. \\ Sir Grey Cooper, Mr. Fox, Mr. Sheridan, and Mr. Hussey, stated objections " to what they termed the insufficiency, and in some instances the impohcy, of the mode which Mr. Pitt had adopted to accomplish so great and so desirable an end. 1828., ix. + Life of Pitt, 1. 290. J Grenville Essay, 1828. viii. § It. 20. 1| Annual Eegster, 1786, 117. 64 " These objections were of a two -fold nature: Isfc, sucli as tended to stow that the supposed excess of £900,000 in the national income over its expenditure, arose from false and mistaken calculations and con- clusions in the report of the select committee, and such as the real state of the finances of the country by no means warranted : 2nd, such as went to the purposed mode of- applying that excess or sur- plus, provided it existed. Mr. Sheridan subsequently moved resolutions to this efiect ; but they were negatived without a division." Borro^dng fr