debt, an annual sum equal to one-half of the interest of the excess of the said loan or other addition, beyond the sum so estimated to be applicable, shall be set apart out of the monies composing the consolidated fund of Great Britain, and shall be issued at the receipt of the exchequer to the governor and company of the bank of England, to be by them placed to the account of the commissioners for the reduction of the national debt; and, upon the remainder of such loan or other addition, the annual sum of one per cent. on the capital thereof, according to the provisions of the said act of the 32d year of his present majesty.

A provision was also made, for the first time (as we have seen), for one per cent. sinking fund on the unfunded debt then existing, or which might thereafter be contracted.

In 1802, it has also been already observed, it was deemed expedient that no provision should be made for a sinking fund of one per cent. on a capital of £86,796,300; and as it was considered by the proposer of the new regulation, in 1813, that he was reverting to the principle of Mr. Pitt's act of 1792, he provided that £867,963 should be added to the sinking fund for the one per cent. on the capital stock created, and which was omitted to be provided for in 1802.

We cannot here follow into detail the farreaching calculations, either of the advocates or opponents of our funding system. By the former it has been perhaps extravagantly eulogised; while it has been rashly, because totally, condemned by the latter. Its advantages have been to render possible the struggle of some parts and periods of the late contests for our political existence; and to prevent those sudden drafts on private incomes, for the public use, which must in numerous cases have been overwhelming, if the expenditure of the year had been provided within the year. By this system, instead of calling on the people to pay at once the whole additional expense of the war, the government obtained the money wanted by selling annuities, either temporary or perpetual, to those who would give most for them; and contracted for the whole community a moral and political obligation to provide the means of regularly and punctually paying the annuities which it sold. The transaction, say its advocates, more nearly resembles that of raising money by sale of annuities and rent charges in private life, than the contracting of demandable debts; differing in nothing from the former as to temporary annuities, and, with respect to the perpetual annuities, only differing from an absolute sale of rent charges, by retaining a right to re-purchase them at a stipulated price, which price differs from that obtained by their sale, according to the conditions made at the time of the contract.

It is often objected to this system, that by raising money in this manner, instead of providing it by adequate contemporary taxes, so far as we exonerate ourselves, we burden posterity.

In a national view, and as concerns the future resources of the government, many inconveniences may obviously arise from too great an extension of this system, but we apprehend that the popular objection to it which we have just

now stated, is at least overcharged, if not altogether erroneous.

If any one, instead of being called upon to pay £100 as his share of the extraordinary expenditure, is only called upon to pay about the usual interest of that sum, the difference as respecting his posterity amounts to this-that if his property is of such a sort that £100 cannot give £5 a year of revenue, he and his posterity lose the annual difference; but this may almost always be avoided by a change of such property for other of a more profitable kind. If his property is so employed as to give him more than 5 per cent. profit, he, and through him, his posterity, gain the whole of the difference. In any case, if he retains £100 capital, he has so much more to leave behind him. But if, according to the present system, he is also annually charged by increase of taxes with a sum to redeem his assumed proportion of the annuity created, the only difference is, that the term during which he pays interest, instead of its principal money, becomes limited in proportion to the efficacy of the addition,

The principle of the mechanism of the British funding system, continues the above class of writers, gives to it that certainty and equability of effect, which may safely be made the basis of political calculations, by which the plans of warfare may be regulated in due proportion to the known pecuniary resources.

On the undiminishing permanence of those resources, the means almost entirely depend of protracting hostilities till they may be advantageously terminated. Doubtless where the ruling power is sufficiently dreaded, various ways may be adopted for extorting an adequate supply of money, and a country previously rich and prosperous may be long and greatly declining before its government, if despotic, may be much enfeebled by poverty. But the grand question is, by what pecuniary system this may be done without impoverishing the people-without taking more for the public use than a portion of an increasing addition to the national capital? The answer is found in the principle of the funding system of Britain.

Some amount of national funded debt is certainly convenient in many respects; the punctu ality with which, in this country, the interest is paid; the facility with which money may be made productive, for any short period, by investing it in public securities, and with which it may be received back again at the moment when wanted, by the transfer of those securities: these and various other circumstances concur to make a national debt, such as ours is, a material advantage to many persons of moderate incomes, who cannot afford to wait for an uncertain receipt, and to many, whose commercial or other active employments of their capital are materially irregular. But all these advantages in their fullest extent might probably be obtained by a national debt

of very far less magnitude than that to which ours has been swelled; and which cannot be contemplated without awful apprehensions of the consequences which may ultimately follow, unless some effectual means can be provided to retard its increase during war, and accelerate its

'Suppose,' says the latter able writer, a country at peace, and its expenditure, including the interest of its debt, to be £40,000,000, its revenue to be £41,000,000, it would possess £1,000,000 of sinking fund. This million would accumulate at compound interest; for stock would be purchased with it in the market, and placed in the names of the commissioners for paying off the debt. These commissioners would be entitled to the dividends before received by private stockholders, which would be added to the capital of the sinking fund. The fund thus increased would make additional purchases the following year; and would be entitled to a larger amount of dividends; and thus would go on accumulating, till in time the whole debt would be discharged. Suppose such a country to increase its expenditure £1,000,000, without adding to its taxes, and to keep up the machinery of the sinking fund; it is evident, that it would make no progress in the reduction of its debt, for, though it would accumulate a fund in the same manner as before in the hands of the commissioners, it would, by means of adding to its funded or unfunded debt, and by constantly borrowing, in the same way, the sum necessary to pay the interest on such loans, accumulate its million of debt annually, at compound interest, in the same manner as it accumulated its million annually of sinking fund.

'But suppose that it continued its operations of investing the sinking fund in the purchase of stock, and made a loan for the million which it was deficient in its expenditure, and that, in order to defray the interest and sinking fund of such loan, it imposed new taxes on the people to the amount of £60,000, the real and efficient sinking fund would, in that case, be £60,000 per annum, and no more, for there would be £1,000,000, and no more to invest in the purchase of stock, while £1,000,000 was raised by the sale of stock, or, in other words, the revenue would exceed the expenditure by £60,000.

Suppose a war to take place, and the expenditure to be increased to £60,000,000, while its revenue continued as before £41,000,000, still keeping on the operation of the commissioners, with respect to the investment of £1,000,000. If it were to raise war-taxes for the payment of the £20,000,000 additional expense, the million of sinking fund would operate to the reduction of the national debt at compound interest as it did before. If it raised £20,000,000 by loan in the stocks or in exchequer bills, and did not provide for the interest by new taxes, but obtained it by an addition to the loan of the following year, it would be accumulating a debt of £20,000,000 at compound interest, and while the war lasted, and the same expenditure con

Loan each year.

tinued, it would not only be accumulating a debt of £20,000,000 at compound interest, but a debt of £20,000,000 per annum, and, consequently, the real increase of its debt, after allowing for the operation of the million of sinking fund, would be at the rate of £19,000,000 per annum at compound interest. But if it provided by new taxes 5 per cent. interest for this annual loan of £20,000,000, it would, on one hand, simply increase the debt £20,000,000 per annum; on the other, it would diminish it by £1,000,000 per annum, with its compound interest. If we suppose that, in addition to the 5 per cent. interest, it raised also by annual taxes £200,000 per annum, as a sinking fund, for each loan of £20,000,000, it would, the first year of the war, add £200,000 to the sinking fund; the second year £400,000; the third year £600,000, and so on, £200,000 for every loan of £20,000,000. Every year it would add, by means of the additional taxes, to its annual revenue, without increasing its expenditure. Every year too that part of this revenue which was devoted to the purpose of purchasing debt would increase by the amount of the dividends on the stock purchased, and thus would its revenue still farther increase, till at last the revenue would overtake the expenditure, and then once again it would have an efficient sinking fund for the reduction of debt.

'It is evident, that the result of these operations would be the same, the rate of interest being supposed to be always at 5 per cent. or any other rate, if during the excess of expenditure above revenue, the operation of the commissioners in the purchase of stock were to cease. The real increase of the national debt must depend upon the excess of expenditure above revenue, and that would be no ways altered by a different arrangement. Suppose that, instead of raising £20,000,000 the first year, and paying off £1,000,000, only £19,000,000 had been raised by loan, and the same taxes had been raised, namely, £1,200,000. As 5 per cent. would be paid on £19,000,000 only, instead of on £20,000,000, or £950,000 for interest instead of £1,000,000, there would remain, in addition to the original million, £250,000 towards the loan of the following year, consequently, the loan of the second year would be only for £18,750,000,

but as £1,200,000 would be again raised by additional taxes, or £2,400,000 in the whole the second year, besides the original million, there would be a surplus, after paying the interest of both loans, of £1,512,500, and therefore the loan of the third year would be for £18,487,500. The progress during five years is shown in the following table:

If, instead of thus diminishing the loan each year, the same amount of taxes precisely had been raised, and the sinking fund had been applied in the usual manner, the amount of debt would have been exactly the same at any one of these periods. These considerations led Dr. Hamilton to the conclusion, that this first mode of raising the supplies during war, viz. by diminishing the amount of the annual loans, and stopping the purchases of the commissioners in the market, would be more economical, and that it ought therefore to be adopted. In the first piace, all the expenses of agency would be saved. In the second, the premium usually obtained by the contractor for the loan, would be saved, on that part of it which is repurchased by the commissioners in the open market. It is true that the stocks may fall as well as rise between the time of contracting for the loan, and the time of the purchases made by the commissioners; and, therefore, in some cases, the public may gain by the present arrangement; but as these chances are equal, and a certain advantage is given to the loan contractor to induce him to advance his money, independently of all contingency of future price, the public now give this advantage on the larger sum instead of on the smaller. On an average of years this cannot fail to amount to a very considerable sum.

"But both these objections would be obviated,' says Mr. Ricardo, ‘if the clause in the original sinking fund bill, authorising the commissioners to subscribe to any loan for the public service, to the amount of the annual fund which they have to invest, were uniformly complied with. This is the mode which has, for several years, been strongly urged on ministers by Mr. Grenfell, and is far preferable to that which Dr. Hamilton recommends.'

This great, and on the whole, perhaps, most impartial of modern political economists, finally observes, 'Suppose a country to be free from debt, and a war to take place, which should involve it in an annual additional expenditure of £20,000,000, there are three modes by which this expenditure may be provided; first, taxes may be raised to the amount of £20,000,000 per annum, from which the country would be totally freed on the return of peace; or, secondly, the money might be annually borrowed and funded; in which case, if the interest agreed upon was 5 per cent., a perpetual charge of £1,000,000 per annum taxes would be incurred for the first year's expense, from which there would be no relief during peace, or in any future war; of an additional million for the second year's expense, and so on for every year that the war might last. At the end of twenty years, if the war lasted so long, the country would be perpetually encumbered with taxes of £20,000,000 per annum, aud would have to repeat the same course on the recurrence of any new war. The third mode of providing for the expenses of the war would be to borrow annually the £20,000,000 required as before, but to provide, by taxes, a fund, in addition to the interest, which, accumulating at compound interest, should finally be equal to the debt. In the case supposed, if money was raised at 5 per cent., and a sum of

£200,000 per annum, in addition to the million for interest, were provided, it would accumulate to £20,000,000 in forty-five years; and, by consenting to raise £1,200,000 per annum by taxes, for every loan of £20,000,000, each loan would be paid off in forty-five years from the time of its creation; and in forty-five years from the termination of the war, if no new debt were created, the whole would be redeemed, and the whole of the taxes would be repealed. Of these three modes, we are decidedly of opinion that the preference should be given to the first. The burthens of the war are undoubtedly great during its continuance, but at its termination they cease altogether. When the pressure of the war is felt at once, without mitigation, we shall be less disposed wantonly to engage in an expensive contest, and if engaged in it, we shall be sooner disposed to get out of it, unless it be a contest for some great national interest. In point of economy, there is no real difference in either of the modes.'

The objections to this mode of Mr. Ricardo's are, however, as we have indeed already intimated, serious: suppose the extraordinary supplies to be raised by extraordinary taxes within the year, pressed upon merchants, manufacturers, and landholders, in short on all classes whose capital is invested in property not immediately accessible or convertible into money, so that they could not meet these large demands. It has been answered that all these descriptions of people may obtain the same accommodation which they enjoy under the present system, by going into the money market and borrowing for themselves. But here a difficulty occurs, in the necessity of finding security for private loans which does not occur in the funding system. This the trader has not to offer, unless either the whole of his capital is not invested in his business, in which case he is, as to the part not invested, a capitalist, not concerned in trade; or, unless his trading capital is fixed, that is to say, invested in buildings and machinery which may be mortgaged, in which case he is pro tanto in the same situation as a landowner. But if his capital be wholly circulating, that is, constantly passing from him in the shape of wages, price of raw material, or purchase of goods, and returning to him by the produce of his sales, he can give no security, and must withdraw from his trade the portion of capital required of him, contract his dealings, and probably ruin his prospects. The fact is, that, when the government goes into the market, it is able to borrow on the credit of all the capitals of the country as one great capital, managed indeed by different individuals, some of whom will fail, but others will succeed, and by their success will keep the national capital entire; and therefore, as it makes no difference to the creditor of the public whether A is ruined and B enriched, or B ruined and A enriched, both A and B are left to possess and manage their respective capitals in their own way. But to the private creditor of A it is every thing that A, and A alone and individually should retain his property entire, and therefore the private creditor will require to have such a hold upon that property as to make it impos

sible for A to dissipate it, and if it is so secured, A cannot embark it in trading specu

lations so as to hazard its loss.

It is not only the trader who would often find it difficult to offer such security for the sum demanded of him by the state as would be accepted in the money market. How many landholders are there of large and clear incomes, the titles of whose estates will hardly bear the minute inspection to which they must submit them if they attempt to borrow money upon mortgage! At what a disadvantage must the owners of lifeestates borrow the sums assessed upon them! and yet even these would be better off than some other classes of borrowers. For instance, the interest, which a fellow of a college has in his fellowship, may by possibility endure through his life, and is therefore recognised by the law as a freehold; yet it is determinable by marriage, which the law will permit no man to bind himself not to contract, and by the commission or omission of various other acts, against which no covenant could secure the lender, and upon which the judgment of a domestic forum, namely that of a visitor, is conclusive, however summary or informal. Naval and military officers are similarly situated; and it would probably not be easy for either fellow or captain, having no other property but his fellowship or commission, to anticipate his revenue by raising a loan upon it, even if the law had not prevented officers from borrowing on the security of their commissions. And the same remarks apply to all those numerous classes of persons, some high and some low, whose incomes arise from the enjoyment of offices of which they are liable to be deprived at the will of their employers, for their own misconduct, or in consequence of supervening inability to perform the duties, arising from sickness, accident, &c. But the government can borrow upon the credit of all these incomes, as if they were permanent; for, though A B and Close their situations, others must succeed to them, in whose hands the emoluments will be equally accessible to the government. And, in like manner, wherever a fund is divided between a tenant for life and a remainder-man, either of these parties must borrow to a disadvantage; the first on account of the insecurity, the second on account of the remoteness of his interest; but the government can borrow on the credit of the whole fund, which it can reach in either of their hands. But further, where the borrower is an individual, he must submit to the inconvenience of being liable to have the loan called in at the pleasure of the lender; or, if he stipulates that it shall not be called in for a certain time, or without a certain notice, or the like, all such stipulations are valuable considerations in addition to the loan, and must of course be paid for by an equivalent in some shape or other. But the facility with which government securities are negociated renders all arrangements of this sort unnecessary; the holder can at all times get their value at the market price, and as that price, if the character of the government for stability and punctuality in its payments be good, is liable only to the same fluctuations inversely to which the value of money in the market is liable, and

as those fluctuations are uncertain in their nature, and as likely to be to the benefit of the holder as to his detriment, it amounts to nearly the same thing, so far as he is concerned, as if the value of these securities were fixed to the most perfect uniformity. This, indeed, is impossible, not from any peculiarity in the nature of government securities, but because no commodity is free from fluctuation in value; and money lent to be repaid in numero as little as any other; for the borrower may force the lender to receive it again at a very disadvantageous time; and, if he be restricted from so doing, that agreement must be paid for by an equivalent, as was before observed in the corresponding case.

"Supposing, however,' says a writer on this subject in the Quarterly Review, all the difficulties attending the negociation of private loans to be surmounted, still the use of this expedient neutralises the first of the two advantages proposed by the advocates of the new plan of finance. For if, at the end of the war, individuals are to remain oppressed by the weight of debts contracted for the purpose of paying off in each year their shares of its charge, they will be no less distressed than they now are by remaining liable to their shares of the public debt.

'We will now consider whether, by the use of the same expedient, the other anticipated advantage, namely, the saving the expense of collecting the interest-taxes, negociating public loans, and managing the accounts of the debt, would be more effectually realised. It is material and obvious to remark, though it seems to have escaped the notice of our projectors, that the expense of collection must be added to the weight of taxes levied for the purpose of raising the supply within the year, as well as to that of interest-taxes. If both were to be collected at the same rate per cent., nothing would be saved upon this head by the remission of the extraordinary taxes at the end of the war. The two principal branches of the revenue of the united kingdom, the customs and the excise, are collected, the former at an expense of about 12, the latter of about 4 per cent. The net receipt of the customs, after deducting repayments, allowances, discounts, drawbacks, &c., amounted, in the year ending on the 5th of January, 1823, to £12,923,420 and a fraction; the cost of collection to £1,547,486 and a fraction; the net receipt of the excise amounted to £28,976,344 and a fraction; the cost of collection to £1,360,869 and a fraction. The total net receipt then of these two taxes, about £42,000,000, costs nearly 7 per cent., in collecting. We will assume that any additional taxes to be imposed for the service of a war would be collected at the same rate, and that the sum required to be raised is £1,000,000. If this is raised by loan at 5 per cent., the expense of collecting the interest-taxes, £50,000, at 7 per cent., will be £3,500 a year, and an annuity to that amount must be raised by the people, in addition to the interest-taxes; but if the whole million is to be raised within the year by war taxes, the expense of collecting these taxes will, at 7 per cent., amount to £70,000; and this £70,000 must also be raised by the contributors by private loan, and the