Having laid before my reader the sentiments of Davenant on the subject of public credit, which were analogous to the then state of England, it may be instructive to compare them with those of another very great man, in a rival nation; I mean the Cardinal de Richlieu.

The constitution of Great Britain at present, is pretty much what it was in Davenant’s time: and that of France does not differ widely from what it was at the death of Louis XIII.

Britain and France are two nations, rivals in every thing worthy of emulation, and similar in those distresses which are the inseparable concomitants of modern ambition, debts and taxes.

As long as the constitution of the two governments shall stand as at present, Britain will constantly have the advantage in borrowing: France will have it in paying off her debts. It is this contrast which engages me to enter into the following detail. I consider it not only as a piece of historical curiosity, but as a subject of profound reflection, from which much instruction may be gathered.

The fate of kingly power was decided, both in Britain and in France, much about the same time. In France, it was supported by Cardinal de Richlieu; in Britain, it was broken to pieces under Charles I.

Before that time there was no fixed form of government established in either country; nor can ever a regular constitution take place any where, until the mechanism of a state becomes so complex as to render changes extremely difficult. This is becoming the case more and more every day; and upon this and nothing else will depend the stability of our present forms.

Let us now take a view of the sentiments of a great minister, delivered in writing by himself, in his political testament; the authority of which would never have been called in question, had the matter it contains been properly attended to, and well understood.

It is in the 7th paragraph of the 9th chapter of the testament, where the Cardinal shews his ability in paying off the debts of France: and in going through the subject, he casually has thrown out several things, which enable us to form a judgment of the state of taxes, and of the effects they were found to produce in his time.

“It is pedantry,” says he, “to maintain that a prince has no right to draw money from his subjects, and that he ought to content himself with the possession of their hearts. None, however, but flatterers, the pest of society, can maintain, that he may draw from them, justly, whatever he thinks fit; and that his right extends, in this particular, as far as his will.”

The taxes of France at this time had been augmented far beyond heirheir due proportion; and this had produced many strange and contradictory phænomena; which, as we shall now see, misled the Cardinal in many respects; because his experience was not sufficient to discover the causes of them.

“The augmentation of impositions on the people,” says he, “does the King so much hurt by raising prices, as to compensate all he can gain.” If we suppose that the King gained by the augmentation; that is to say, that the tax, when increased, really produced more than before, and raised prices proportionally; then the King could only lose his proportional part, but never the whole. If the tax, by being augmented, produced less than before, which was the case often, then he lost by a diminution upon his income, not by the rise of prices. But this was not the case; because deficiencies of that kind could not fall upon the King, but upon his farmers.

The true reason was, that the King paid most of his expences by assignments upon the taxes; and then, no doubt, the higher they were raised, and the more difficult to recover, the dearer every undertaking would cost the King.

This reasoning upon the effect of taxes shews, that at that time the doctrine of them was not well understood. No wonder: theory is not sufficient to lay open political consequences, even to the greatest genius. All our information as to these matters arises from experience, and all our instruction from our attention and reflection.

As a proof of this, he mentions, almost in the same place, an effect of the increase of taxes, which is quite contrary to the former.

“Consumption,” says he, “diminishes, as taxes augment.”

This is a contingent, but not a necessary consequence, as we have seen, and has the effect of lowering prices.

I mention these particulars, only to shew how little this great man had studied the principles of taxation, or combined the causes of those phænomena which he saw arising from them.

Such contrary effects could not fail to be felt, when taxes were raisedraised in the manner usual at that time, and when no method was contrived for augmenting the currency.

In Richlieu’s time the custom was to treat with the partisans, as they were called, or undertakers for the farm of taxes; and for a sum of money, valued at a certain interest, to give them a right to levy certain impositions on the people, esteemed equivalent to the rate agreed upon; some in one province, some in another, as the parties could agree. Then the partisans fell to work with the people, and committed the most horrid extortions. In the 4th §. of his 4th chapter, he says, “The abuse is carried such a length, as to be quite insupportable, and must end in the ruin of the state; the people are plundered, not taxed; fortunes are made by rapine, not industry: using the partisans like spunges is very just; but liable, on the other hand, to great abuse, when not conducted with moderation and justice.” This is a very different system of taxation from that carried on in England in Davenant’s time, and must have produced effects very dissimilar.

But it may be asked, if these partisans in France had found out means of raising money, far beyond the King’s intention; what prevented the Cardinal from examining into such means, and using them in a gentle and equitable manner, to the extent only of satisfying the creditors for the money borrowed from them?

In those days several difficulties occurred, which rendered this expedient impracticable.

1mo, The partisans would lend in no other way; they would have nothing to do with the King as a debtor: his credit was not well established; and by having the direct administration of a tax, they considered themselves as more secure.

2do, Had the King levied the money on the people, and been paymaster to the creditors himself, there would have been no gains to the partisans but what were stipulated: had they exacted more than legal interest, they exposed themselves to great danger; and consequently would not lend. So, by delivering up the people to be plundered, the King made a better bargain, he thought, than any other way; and if the partisans plundered the people, the Cardinal plundered them in his turn.

3tio, At this time there were not, as now, merchants of extensive credit, and fair character, who serve as interposed persons for the whole money’d interest in Europe, and who can fill a subscription for millions with a single name.

The partisans themselves, as the Cardinal observes, had often neither money or credit at setting out: but by parcelling their undertaking into many hands, they got together what was necessary. Thus the subaltern associates were in a moment, like locusts, spread over the whole face of the country, and plundering went on in every quarter.

This represents a quite different system of credit from what we see established, even in France, at present; where the tax-gatherers are still loudly complained of, though much more than they deserve. The mode of raising the taxes is now most exactly specified by the King; and nothing more can be exacted than according to the plan laid down; but in every case severe penalties are imposed upon frauds, and when levied, are accounted for to the farmers; but when compounded for under-hand, sink into private men’s pockets.

In a country where taxes are rightly established, industrious people have no occasion to indemnify themselves by fraud for the taxes they pay; they have a more certain method of being refunded. This shall be explained in its proper place.

By this method of oppression in the Cardinal’s time, a great part of the odium was removed from the King, and cast upon the partisans. The people resembled a dog who bites the stick with which he has been struck, instead of biting him who holds it^[21].

I have now said enough to point out the method of borrowing money in France at this time, from which the nature of the security may easily be gathered.

The Cardinal, upon the supposition of an approaching peace, enters into the plan of paying off what had been contracted. He was resolved to preserve credit; for even at that time, the consequence of that great engine was sufficiently felt by this great man, to relieve the people, and to get rid of the debts.

After a long detail of all the branches of the revenue, and after shewing how they might be improved, he draws out a general state of them, and of the debts affecting them; and then adds, “The total revenue of the kingdom amounts to near 80 millions;” (the silver was then at 27 livres 10 sols the marc fine, which, valued at 2l. 4s. sterling, makes the 80 millions worth above 6 millions sterling) “of which there is above 45 millions engaged for the debts. By good management I pretend that this immense load of debts, which seems to be the ruin of the King, shall turn out to his ease and opulence. Some imagine it would be a right measure to free the state entirely of her burthen, (a general spunge) but as she cannot, certainly, support all the burthen, so neither does reason dictate that she should be entirely set free.” No modern statesman could form a better judgment of things. The Cardinal’s ideas are just and profound; and it is astonishing how a man uninstructed by our experience should see so far into remote consequences.

He next lays down different schemes for paying the debts, upon the return of peace and tranquillity. They are all arbitrary, more or less, according to the standard of English ideas of credit. But if we abstract from one expedient lately discovered, to wit, the diminishing the interest, and allowing the capitals to remain, I doubt if any modern statesman could discover any other than those which the Cardinal has proposed.

A preliminary step to all his schemes was, by an act of power, to reduce the debts which bore a higher interest, to that of the 16 penny, or to a little more than 6 per cent. This method of reduction has constantly been and is still practised in France.

Then he proposes to enter into an account with the creditors for the sums they had received; and to consider whatever they had obtained above the legal interest, as payments in part of the capital.

This scheme however he rejects, upon examination. He says it is agreeable to equity; but that it would have the effect of totally destroying all credit for the future.

The second expedient was, to reimburse the creditors the sums which they really paid for the annuities assigned to them: but that he found impossible to verify; because they had had the address to specify, in their contracts, sums far exceeding what they really paid. For this reason he rejects the second expedient also; and adopts a third, as the best plan of any for paying off the debts. This was, to value the capitals at what they then sold for in the market, before the peace was concluded.

This method appeared to the Cardinal the most equitable, at least he says so, and the only one practicable; but in my opinion it was the most arbitrary of the three; the most liable to abuse, and the most opposite to the principles of public credit, as at present established: and yet it is a thought, which, when conducted with justice, may upon some occasions answer excellent purposes, as I shall observe in a proper place.

Had he adopted the first expedient, of ascertaining the value of the real advance, there was an appearance of justice; because the creditors were thereby represented as usurers; and by repaying them what they had advanced, by the enjoyment of an income above the legal interest, he treated them with more indulgence than the laws allow between private persons: but when money was borrowed in time of war, a higher interest should have been allowed for it than in time of peace, when it was to be paid off; and therefore to take the standard of peace, in reckoning with the creditors who had lent in time of war, was an evident injustice.

Could he, according to the second scheme, have discovered exactly the sums which had been paid for the annuities given, and offered reimbursements upon that footing, less could have been said against it; because the mentioning more in the contract than what had been paid, was a palpable fraud against the King.

The third method, which the Cardinal approves of, contains this piece of great injustice, that the antient creditors of the state who had paid 12 years purchase for their contracts, that is, those who had lent at about 8 per cent. might by this scheme be paid off with one half of what they originally paid. If it be answered, that nothing is worth more than what it can bring; I answer, that it may be worth more than what it can bring at a particular time. During a war, an annuity which had been bought at 12 years purchase in time of peace, will fall to five, providing annuities can then be bought at that rate. The new loans constantly regulate the value of the old capitals; but upon a return of peace, they will rise to the original value.

Another injustice here was, that a minister, by borrowing a sum at a very high interest, at a time he wanted to set a value on the capitals, might sink this value. And, in the third place, the greatest injustice of all consisted in this, that the Cardinal had no thoughts of any reimbursement, as we shall see by what follows.

There was, at this time, one class of annuities constituted at 8 per cent. These he proposed to reduce to 6 per cent. as above, by his preliminary operation. Such annuities sold at that time for five years purchase. These, says the Cardinal, we must fix at that value; and by allowing the proprietors to enjoy them for 7½ years, the capital and interest will be paid off.

Other annuities constituted upon the taille sold for six years purchase, which, by the same rule, were to be paid off in 8½ years.

The annuities and other debts charged at this time upon the taille alone, amounted to 26 millions a year; and by this scheme, the whole was to be paid off in 8½ years.

Besides these, there were engagements upon other branches of the revenue, which sold at different prices. All were to be set upon a proportional footing. The annuities which sold the dearest, were at 7½ years purchase, which were to be paid in 11½ years.

Thus, by the Cardinal’s scheme, the debts of France, which at this time bore an interest of about 45 millions, were entirely to be paid off, in about 12 years, without any new imposition; and when that was concluded, the lands were to be discharged of 26 millions of yearly taille, near two millions sterling, and the King was to have a clear revenue of 53 millions, or about 4 millions of our money, which with the 26 millions taken off the taille, make 79 millions; the total amount of the French revenue at that time.

I shall now point out the characteristic differences between the principles upon which the credit of England and France were established, at the two periods of which we have been speaking.

Had two such writers as Davenant and Richlieu been to be met with in the same age, and at a time when England and France were engaged in contracting debts, the contrast would have been stronger; but as it is, it suits our purpose. The debts contracted in France from 1708, when credit fell, to the end of the war in 1714, were in consequence of rapine and extortion, as in Richlieu’s time: and the operations upon them, after the peace of Utrecht, resemble those of Richlieu in some very material circumstances. Such as, 1mo, That all the debts were then, by an act of power, put at 4 per cent. without any regard to the original stipulations. 2do, That what the Cardinal despaired of accomplishing, the Regent undertook, and executed, at a great expence to the King, and with great injustice to many individuals.

He established a commission, called the visa, to inquire into the unfunded debts, which amounted to 600 millions. His intention was, to discover the effective sums which had been paid for the grounds of debt. The most favourable classes of these debts consisted in arrears of pay to the army, indemnities for pillage, and the like, constituted by notes issued from the office called the extraordinaires des guerres, which were diminished ⅕; the second class was diminished ⅖; the third class ⅗; and the last of all, sums due to brokers, usurers, &c. were diminished ⅘.

But alas! there was not the least shadow of justice in this operation; because long before the visa was established, most of the grounds of those debts had circulated from hand to hand, under the greatest discredit: so that the real sufferers were then beyond the reach of the indemnity offered; and the usurers and brokers who had bought them up, were those who made fortunes by them. The Cardinal’s plan of paying at the selling price, would have proved, in this particular case, more rational, and more according to equity, than any other: so greatly do circumstances influence our decisions in all political matters!

By the visa, the 600 millions were reduced to 250 millions, and put at 4 per cent. like all the other debts. No plan was proposed at first for paying off the capitals; but a sum was appropriated, though very ill paid, for discharging the interest. We have discussed sufficiently the famous operations of the Missisippi; by which an attempt was made to throw the whole national debt on the company of the Indies; and we have seen how it succeeded.

The distance, therefore, of Richlieu’s time, from Davenant’s, occasions very little deception in comparing the principles of French and English credit: and when we come to examine the present state of that question, I am afraid we shall find, in France, enough of the old system still remaining, to verify my observation, that the French have the advantage in paying their debts; the English, in contracting them. Where the balance of advantage may lie, will be the subject of more speculation.

The first essential difference I find between the credit of France and that of England, in the two periods we are considering, relates to the coin. In the first, the value of it had been very well preserved: no considerable alteration had been made upon it, from 1602 to 1636, that the Cardinal raised the denomination of the marc of fine silver, from 22 livres to 27 livres 10 sols, as has been said. Whereas from the revolution, until the establishment of the bank in 1695, the coin had suffered in England a debasement, from clipping, of near 50 per cent. This circumstance, more than any other, affected the credit of England, and increased the expence of King William’s war. In Richlieu’s time, circulation and trade had made more progress in France than in England at the time Davenant lived. The revenue left by Henry the Fourth was double to that of England at the revolution: and, in general, the income of the Kings of France had far exceeded that of the Kings of England, for many reigns before that of the great Henry. Borrowing also, upon a fixed and permanent interest, had been known in France so far back as Francis the First.

That Prince was the first, I find, who contracted a regular debt, at perpetual interest, upon the town-house of Paris, at about 8 per cent. when the legal interest in England, under his contemporary Henry the Eighth, was 10 per cent.

The predecessor of Francis, Louis XII. had of gross revenue, charged with his debts, which eat up near one half, above 2,500,000l. sterling. Dutot, Reflex. Pol. Vol. I. p. 204. Francis I. left to his successor in 1546, a gross revenue of 2,685,314l. sterling, and of nett income 2,287,998l. according to Dutot and M. de Sulli.

Under Henry II. and Francis II. the gross revenue stood at about 2,618,000l. sterling.

Under Charles the IXth, I have not been able to discover any thing which can be relied upon: but his successor Henry III. according to Sulli, had, in 1581, a revenue of 3,250,000l. sterling, and left only about 16 millions of livres of debt, which was no great sum.

To this Henry IV. succeeded; and by the capacity and unwearied application of his great minister M. de Sulli, it was raised to above six millions sterling, at the beginning of the reign of Louis XIII. This revenue, by his wars and expences, was left greatly incumbered; but still the taxes were established which brought it in; and so early in the reign of his successor Louis XIV. as the year 1683, his revenue extended to no less than 9,182,914l. sterling, according to Dutot. Reflex. Pol. Vol. II. p. 256^[22].

Let any man, acquainted in the least with the history of England, examine the fixed revenue there, under Henry VII. and VIII. Edward, Mary, and Elizabeth, and their successors, down to the revolution; and they will evidently see the great disproportion of wealth, proceeding from taxes, in the one and the other kingdom.

From these facts I conclude, that debts and taxes in France were much more familiarly known in Richlieu’s time, than possibly they could be in England when Davenant wrote.

Public credit had long grown up in that kingdom, under the hard influence of regal power: whereas in this it had sprung up lately, under the protection of liberty, and a most limited authority.

To that cause I ascribe the difference we find between the principles of English and French credit; and to an effect similar to the cause I ascribe the gigantic steps by which Britain has outstripped her powerful rival in the establishment of her credit, since the beginning of this century.

It is folly to prophecy, I know; but I may be allowed to conjecture, that the same causes which have raised the credit of this nation to such an amazing height, will either force the French from their old principles, or they will, some time or other, bury her credit in the dust.

Had one half of the acts of power been exerted with us, which have been so familiar in France: had half the liberties been taken, in tampering with the claims of creditors; a total bankruptcy would long ere now have been the consequence: but in Britain credit is young; and has been tenderly reared. In France she is old, and has been accustomed for many ages to rougher usage. But example works wonderful effects, especially when nations live together in this great European society; and the advantages of a security to be depended on will every day more and more engage the money’d interest to prefer this to any violent and precarious profits.

How nicely does not Davenant employ political arithmetic, in order to make true estimates of the taxes to be imposed, and appropriated for a term of years, for extinguishing principal and interest? How exactly has not the account between the state and the bank been carried on from 1695, to this day? How faithfully have not all parliamentary engagements been observed? When, in 1749, a most natural operation was performed, to reduce the interest of the debt of Great Britain, by gentle steps, from 4 to 3 per cent. what an outcry did it not make, although an alternative was left to the creditors, either to receive an actual reimbursement, or to accept of the new terms? The credit of Great Britain must have appeared to France in the light of a pettish child, educated in the house of a too indulgent parent: her own is not treated with such gentleness; and when our money-jobbers try their hand at Paris, and meet with disappointments from unexpected acts of council; to prevent the laugh going against them, for trusting to the credit of France, they turn it off by a jest, and pretend that they were only playing as at the Groom-Porter’s, or in Change-Alley.

In a word, what would totally ruin the credit of England, does not equally affect that of France. An act of power there, no doubt, throws a damp upon it for a time; and if that act of power takes place at a critical juncture, it may cost her very dear; as it has lately cost her the continent of North America; which, I think, was sold for 32 millions, withheld from her creditors, for a short time, in the end of 1759. But this act of power, and many others since, have not ruined the credit of France: many trust her still; only those who purchase in her funds, at present, take about 2 per cent. off from their interest, as a premium for the insurance of her good faith, until she recovers her mercantile reputation^[23].

CHAP. V.
Of the present state of public Credit in Great Britain.

We have, in a preceeding chapter, given a general view of the state of public credit in England, at the end of the last century. In this, I shall briefly run through the most remarkable revolutions, both in sentiments and events, which have succeeded since that time.

At the revolution the revenue of England was about two millions sterling, affected by two debts. The first was called the bankers debt, contracted by Charles II. and, by letters patent, charged upon his hereditary excise, to the amount of upwards of 1 300 000l. This debt was reduced to one half, in the last years of King William, and put at 6 per cent. perpetual annuity, to commence from 1706. The other was a debt of 60,000l. due to that Prince’s servants, neglected to be paid by his successor, and discharged after the revolution.

At the peace of Ryswick, the national debt amounted to about 20 millions. The branches of taxes subsisting at the revolution, and continued till then, produced no more than about 800,000l.; but by additional taxes laid on in the reign of King William, the whole revenue extended to 3 355 499l. of which above one million was to cease before 1700, as has been said. This reduced the revenue, at the beginning of Queen Anne’s reign, to nearly what it had been at the revolution: out of which if we deduct the interest of the national debt then subsisting, and the expence of the civil list, we shall discover the extent of the funds prepared for engaging in the war with France; and then by comparing the state of the nation at her succession, with what it was at her death, we shall form a general notion of the progress of credit, debts and taxes in England during that period.

What the exact amount of the revenue of England was at the death of the Queen, I cannot justly say. But as it may be comprehended under the three general branches of customs, excises, and other inland duties, we may form a guess at it, though imperfectly I allow, from the number of articles in each.

At her accession, the customs comprehended fifteen articles; at her death they amounted to thirty-seven: at her accession, the excises comprehended ten articles; at her death, they amounted to twenty-seven: at her accession, the other inland duties comprehended eight articles; at her death, they amounted to sixteen, including the land tax, then become in a manner perpetual, although laid on from year to year.

At her accession, the public debts amounted (as above) to near seven millions, at her death they exceeded fifty millions.

In fourteen years, from the revolution to her accession, the money granted by parliament, partly raised on the subject, and partly borrowed, or taken credit for, according to the custom of the times, amounted to above fifty-five millions. During the 13 years of Queen Anne, the money granted by parliament raised on the subject, or borrowed as above, amounted to upwards of 80 millions.

By this general sketch I do not mean to enter into exact details: facts must be sought for in books which treat of facts; our chief object is to examine the principles upon which the public credit was supported, let the exact sum of money raised be what it will.

The expences of the French war first engaged the nation to revive those taxes which had been suppressed; and to impose many others for a considerable number of years, in proportion to the money borrowed upon them, according to the principles of the former reign.

In 1702, interest was so low, that government got money at 5 per cent. It continued so till 1704, when some loans began to be made at 6 per cent. and at this rate it stood during the war.

But in 1706, the exigencies of government were far greater than what all the money to be borrowed, or raised on the subject, could supply. This opened a door to the abuse of paying the growing deficiencies upon the taxes with exchequer bills, chargeable on distant funds. These fell constantly to great discount; and the unhappy servants of the state, who received them in payment, were obliged to dispose of them to people who could wait for an usurious reimbursement by parliament.

When those exchequer bills had once got into the hands of the monied people, they had interest with government to engage the bank to circulate them at 6 per cent. interest: but as the funds upon which they were secured happened at that time, 1706, to be engaged for discharging debts previously contracted, the bank, during that interval, could receive no payment of this interest of 6 per cent. so the expedient fallen upon, was to pay the bank compound interest for all the tallies and bills they were to discount, until the funds appropriated should be relieved.

This expedient, bad as it was, and burdensome to the state in the highest degree, proved of infinite service, both in establishing the credit of exchequer bills, and relieving those who received payment in them.

This operation was quite similar to those of banks of circulation upon mortgage. The bank of England was here employed in converting into money exchequer bills, secured upon the faith of government. Banks upon mortgage convert into money the property of individuals, upon private security. Had, therefore, banks upon mortgage been established in England at this time, all those who had property would have got credits from them, and would have been enabled thereby to pay their taxes, and carry on their industry, without diminishing their consumption. The exchequer would then have had no occasion to issue discredited bills and tallies for making up deficiencies; because taxes would have been productive, and the state would have been relieved of this excessive burden of interest at 6 per cent. accumulated quarterly in favour of the bank.

What extraordinary profit must have accrued to the bank by this operation, every one must perceive. They were not here procuring funds to lend at a great expence; all they did was to augment the quantity of their paper upon government security; which they knew well would be suspended in the common circle of payments within the country; and the public borrowings were sufficient to furnish credit for the sums sent out of the country. In this view we may conclude, that almost the whole accumulated interest paid, was pure profit to the bank, and a great augmentation of the national debt.

This operation of the bank in 1706, did not prevent subsequent deficiencies, in the payment of the navy, army, ordnance, and of many other articles. In 1710, they amounted to above nine millions sterling. This was too great a sum to be borrowed; and the bank durst not venture to discount more than what domestic circulation could suspend: so that after this great debt had circulated upon the discredited obligations which had been issued for it, and in that way had fallen again into the hands of monied people, at 30 and 40 per cent. below par, the new proprietors of it were all incorporated into one great company, with a governor and directors, who got 6 per cent. for the whole capital, with an allowance of 8000l. a year for charges of management.

Thus all the real creditors for these deficiencies lost the discount; the monied people gained it, and the public paid for all.

When credit is in this languid state, every expence of government rises in proportion to the discredit of the paper with which they pay, till at last the whole sum, with interest, accumulation, and expence, falls upon the state, as if every farthing of it had been frugally expended in ready money.

This is a general view of the state of credit in Queen Anne’s reign.

Government had not, as in the former war, the inconveniences flowing from the disorder in the coin to combat with. These contributed more than any other circumstance, to raise the capital of the debts at the peace of Ryswick. Circulation, too, was considerably augmented, in consequence of the increase of taxes, public debts, and the operation of the bank in circulating exchequer bills and tallies. Yet money was still scarce, in comparison of what it might have been, had proper methods been contrived to preserve it upon a level with the occasions for it.

The incorporation, also, of nine millions capital in the hands of a corporation, which afterwards was called the South Sea Company, was an assistance to public credit, by increasing a monied interest, the principal view of which was to fill the government loans, on the lucrative conditions offered for them. And last of all, the strictly adhering to the public faith of engagements, without seeking, by acts of power, to indemnify the state for the losses it had been obliged to incur, from the circumstances of the times, laid the solid basis of national credit for the future.

Although the many additional taxes added to the former revenue, did not increase it in any proportion to the load laid upon the subject during this war, they served, however, as a good foundation for improvement, as soon as the effects of peace restored them to their full production. But the charges laid upon them having become every year greater, government was obliged to engage certain funds for thirty two years to come, and sometimes longer; and many branches of taxes, which formerly had been granted for short terms, were then made perpetual. After the peace of Utrecht, the expences of the state were greatly diminished, and money began to regorge: so that in the year 1716, the first foundation of the sinking fund was laid, by opening a subscription for paying off about ten or eleven millions sterling, at that time, charged upon several branches of taxes, the produce of which amounted annually to 724 849l. sterling.

The proprietors of these debts were allowed to subscribe into this new fund, at an interest of 5 per cent. redeemable by parliament: and in case the whole subscription should not fill at that rate, the bank and South Sea company became bound to make it up, upon receiving a like annuity in proportion to their subscriptions.

The bankers debt, of which we have spoken, the only public debt owing at the revolution, made part of those which were to be subscribed for.

The taxes which had been appropriated for the discharge of those capitals, from temporary, were made perpetual; with a clause added, that when the surplus of the fund, after payment of interest, had discharged the capitals of all the national debt due the 25th of December in that year, the whole produce of the fund itself should remain at the disposal of parliament.

After this first operation in reducing the interest, the bank was satisfied with a reduction to 5 per cent. of that paid to them; and they began to circulate exchequer bills at a more moderate interest than formerly.

Public credit was now daily gaining ground. In 1719, the South Sea company, whose capital was then swelled to eleven millions at 5 per cent. with a sum of 9397l. sterling for the expence of management, enlarged their views; and finding great profits to arise from such a fund under one administration, formed a project of acquiring a large sum of the public debts, which remained outstanding upon the original funds appropriated for them.

For this purpose they proposed to government to acquire, 1. The property of above 16 millions of redeemable debts, bearing then 4 and 5 per cent. interest; and to reduce the whole to 4 per cent. at midsummer 1727. 2. To acquire a sum of 794 000l. of annuities upon lives, and for long terms, as they should agree with the proprietors, at 5 per cent. upon the purchase-money, until 1727; and at 4 per cent. afterwards. Annuities were then valued at fourteen and twenty years purchase, according to their length: they rose, however, during the operations of the South Sea, to 25 and 30 years purchase. 3. They were to have a sum added to their former allowance for the charge of management, in proportion to this augmentation of their stock. 4. That for the advantage which might follow upon this agreement with government, they were to pay into the exchequer above seven millions sterling, toward discharging other national debts outstanding. And in the last place, they engaged to circulate a considerable sum of exchequer bills, and to pay the interest of 2 pence per cent. per diem, which should grow upon them during seven years^[25].

From the operations we have been describing, we perceive, that the point of view in England, from the peace of Utrecht, has always been to reduce the interest of the national debt; but never to leave in the hands of the creditors, any part of the savings made; in order to diminish the capital. These savings have constantly been thrown into a sinking fund, supposed to be intended for extinguishing the capital; and were it employed for that purpose for a few years only, and not diverted to other uses, I am persuaded the consequence would be, to reduce interest in England lower than ever perhaps it has been seen in any nation. That interest may be reduced, by making money regorge in the hands of the lenders, is, I think, an uncontroverted principle: that by regorging in France, anno 1720, it reduced interest to 2 per cent. is a fact indisputable. I shall not pretend to say positively, that the total appropriation of the sinking fund, and an augmentation upon annual grants, to make up the void, would in Great Britain work this effect in a few years; but I think it is very probable that it would: and if the domestic creditors, in any state, where debts, due to strangers, are swelled to such a height as to exceed the whole profits made upon trade, shall by their influence, and from a motive of present advantage, obstruct a scheme of this nature; the consequence will prove, in the first place, to discourage, and then totally to extinguish commerce, and in a little time to occasion an unavoidable bankruptcy; as shall be farther explained in a succeeding chapter. I return to the South Sea company.

The proposal of the South Sea company, mentioned above, was accepted of, and ratified by act of parliament, 6 Geo. I. chap. 4th. But the disaster which befel credit, in consequence of the ambitious views of those who were in the administration of that company, prevented the nation from reaping all the advantages which might have proceeded from it.

The reign of K. George I. though little disturbed by foreign wars, produced not the smallest diminution upon the capital of the public debts; and those which subsisted at the peace of Utrecht, stood, at his death, at 50 354 953l. The same taxes subsisted; and every one almost was by this time made perpetual, except indeed the land tax and malt duty, which to this day continue to be annual grants.

But alas! this apparent revenue, arising from a multitude of taxes, was of no use towards defraying the smallest extraordinary expence of government. Every article of it was engaged for debts; and the operations for reducing the interest were calculated only to produce a fund for discharging the capital. The civil list, indeed, that is to say, the expence of civil government, exclusive of army, navy, ordnance, and incidental articles, was paid from the permanent taxes, and considered as a charge upon them. But were not armies and navies then become as regular an expence upon every state in Europe as judges and ambassadors? Undoubtedly they were. Yet after the peace of Utrecht, in laying down the plan which has constantly been followed ever since, for defraying the regular expence of British government, these two great and unavoidable expences were considered as contingent only, and provided for by annual grants: and because armies, in time of peace, in former reigns, had proved dangerous to liberty from the abuse of power, they were still considered in the same light, at a time when liberty and trade were continually threatened from their armed enemies and rivals abroad.

When the continuance of peace, in the reign of George the First, had produced the effect of reducing interest, on many occasions, to 3 per cent. the sinking fund began to gather strength. The land tax, from the year 1722, had not exceeded two shillings in the pound; and the extraordinary expence of government, according to the annual grants of the 13 years of his reign, did not exceed 34 800 000l. or 2 670 000l. a year.

Public tranquillity was very little disturbed during the first twelve years of the succeeding reign; and all the extraordinary expence did not much exceed three millions per annum: yet that expence, small as it was, compared with what it has been since, was almost every year made out, by taking one million at least from the sinking fund; and in the years of the least expence, such as 1731 and 1732, the land tax was reduced to one shilling in the pound, at the expence of taking two millions and a half from the sinking fund.

These steps of administration I neither censure, or approve of. I must suppose every statesman to have good reasons for doing what he does, unless I can discover that his motives are bad. May not the landed interest, who composed the parliament, have insisted upon such a diminution of their load? May not the proprietors of the public debts have insisted on their side, that no money out of the sinking fund should be thrown into their hands, while the bank was making loans upon the land and malt duties at 3 per cent.? Might not the people have been averse to an augmentation of taxes? When three such considerable interests concur in a scheme, which in its ultimate, though distant consequences, must end in the notable prejudice of perpetuating the debts, although opportunities offer to diminish them, what can government do? They must submit; and which is worse, they cannot well avow their reasons.

Such combinations must occur, and frequently too, in every state loaded with debts, where the body of the people, the landlords, and the creditors, find an advantage in the non-payment of the national debt. It is for this reason that I imagine, the best way to obviate the bad consequences of so strong an influence in parliament, would be, to appropriate the amount of all sinking funds in such a manner, as to put it out of a nation’s power to misapply them, and by this force them either to retrench their extraordinary expences, or to impose taxes for defraying them.

The second period of George IId’s reign, was from the breaking out of the Spanish war in 1739, to the peace of Aix-la-Chapelle in 1748. During these ten years, (1748 being included) the extraordinary expence was, upon an average, very near seven millions; and at the end of the year 1738, the public debts amounted to 46 661 767l. bearing 1 962 053l. interest.

The first expedient for borrowing money during the war, was to continue the duty on salt for seven years; and to mortgage it at once for 1 200 000l. according to the old plan. To this was added, the expedient of lotteries, and loans upon indeterminate annuities, according to the current value of money.

An additional excise upon spirituous liquors, brought in wherewithal to compensate these additional sums of interest; and the East India company, for lending one million at 3 per cent. upon this occasion, had their charter continued from 1766 to 1780. This operation I also consider as an anticipation; and as it was to commence at the distance of 23 years from the time of the grant, could not fail of being very burdensome to the nation, however convenient it might be at that particular time.

Were the India company now, 1766, to purchase the renewal of their charter for 14 years, what a sum might be expected from it! Yet the value given for the grant they then obtained did not exceed 30 000l. because the other annuities of 3 per cent. were sold at that time for 97l. or, in the language of the funds, at 3l. premium for every 100l. subscribed; and this so early in the war as 1743.

The practice of borrowing upon premiums had taken place in Queen Anne’s reign, and has of late years been very common. The credit of Great Britain is so firmly established, that in whatever way government inclines to borrow, the money’d men are willing to lend, provided the loan be made at the then rate of interest.

To avoid therefore the establishment of funds at different rates, in proportion to the fluctuations of money, the bargain is made at one determinate interest. Suppose, for an example, 3 per cent. Then, according as it is found to rise above that rate in the market, a premium is paid out of the money subscribed; as in this case 3l. was paid out of the 100l. subscribed; that is, the subscriber retained it, and obtained his 3l. annuity, for the payment of 97l. so this remained a 3 per cent. loan, instead of being, as it really was, at 3⁹⁄₉₇ per cent. and was sold and transferred as every other 3 per cent. without occasioning any perplexity.

As the war continued, interest rose, from the demand for money, when the supplies became deficient.

The year following, viz. 1744, this manifested itself, by the conditions offered by government, which were: That, of two millions to be borrowed at 3 per cent. as before, upon the whole sum, 1 500 000l. should be formed into perpetual annuities, and the remaining 500 000l. into a lottery, consisting of 50,000 tickets, to be sold at 10l. each. The original subscribers to this loan subscribed therefore 10l. for the ticket, and 30l. for the annuity, in all 40l.; for which they were to receive 3 per cent. But the premium consisted in this; that every subscriber for 10 tickets, that is, 400l. of the total fund, had an annuity for life given to him of 4l. 10s.

This made five thousand annuities on lives, of 4l. 10s. each, or 22 500l. a year to be added to the interest of 3 per cent. on the two millions, that is, to 60 000l. a year of perpetual annuities. So that the whole loan of two millions this year cost government 82 500l. of interest, or 4⅛ per cent.; 22 500l. of which was to extinguish with the lives of the subscribers.

Now, if we suppose these life-annuities worth 20 years purchase^[26], this was the same thing as if government had given a deduction of 90l. out of the 400l. subscribed; consequently the remainder, which was 310l. produced 12l. This makes the rate of interest upon the loan to have been 3.87 per cent. And as government inclined that the loan should be made in that way, the lenders were willing that it should be so; and the difference between 3.87 per cent. (the then rate of money) and 4⅛ interest, which was paid by government, was a sinking fund, as it were, for the gradual extinction of the capital of the lottery for 500,000l. during the lives of the annuitants.

In 1746, perpetual or indeterminateindeterminate annuities were constituted at 4 per cent. and the premium upon the ten lottery tickets was raised to 9l. life-annuity.

It would be unnecessary to trace the various methods of contriving the premiums given in the succeeding years of this war. The principle upon which they were regulated was always to proportion them to the rate of interest at the time; and the motive was, I suppose, that by this method of borrowing, a part at least of the debt would become extinguished with the lives of the subscribers. There might perhaps be another, to wit, that by swelling the capital, for value not received, there was an appearance of borrowing at a lower rate of interest than what in reality was the case. Thus in 1747, when 6 300 000l. were borrowed, instead of giving not quite 4½ per cent. for this sum, they gave 4 per cent. upon 6 930 000l. which capital, although money should return to 3 per cent. was still to stand at its full value; whereas, had 6 300 000l. been borrowed at 4½ per cent. there would have been a saving of 600 000l. upon the capital; and at the peace, the interest of 4½ per cent. would equally have come down to 3 per cent. with the other funds.