its average expenditure. His system, as adapted to the case of a preponderating increase of debt, in 1792, included a concur rent increase of revenue, even more than necessary to pay the in terest of the money borrowed for the use of the sinking fund.

We are the more anxious to explain our opinions of this assertion quoted by Professor Hamilton from Dr. Price, because it appears to us that it involves the main grounds of their different views of the utility of permanently appropriated sinking funds. ...Both of them have viewed the question rather arithmetically than politically. We think it clear that Dr. Price is correct in his calculations of the arithmetical effects of borrowing to repay or redeem, when that system is accompanied by an increase of income in due proportion to the interest of the new debt. But we also think Professor Hamilton perfectly correct in denying that this is at all peculiar to the system in question.

We, therefore, neither defend the system on Dr. Price's arithmetical principle of compound interest preponderating over simple interest in the opposite scale, nor do we think it follows that the system is erroneous because it cannot be defended on that ground, or even because, by an arithmetical calculation of direct profit and loss, it may appear that its mechanism creates a greater expence than would be incurred by other means of employing the same annual revenue to produce the same or equivalent effect.

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Here then is the point at which we very materially differ from Professor Hamilton. He undertakes to demonstrate arithmetically that, instead of diminishing our debt, we have increased it considerably, by unremittingly persevering in borrowing, to redeem *, since 1792. And, indeed, in one respect this must be so far true, that the charges incurred by contracting new debts to pay off old ones can hardly be computed on an average at less than five per centum; and the more extensively this is done the greater will be the loss, unless compensated by adequate advantages. To us however it appears that the system, as constructed in 1792, and usually followed since that time, has really caused a saving of expence very far exceeding this cost of it.

Its effect in supporting the market price of the funds, and thereby enabling us to borrow the heavy addition to the public

* As the expression "borrowing to redeen" may not be readily understood by some of our readers, it may be proper to explain, that the whole annual payments for the nation are now of two kinds, one for actual expences, and one to redeem former debt. If the whole of the present public revenue were employed for the former purpose only, and no more money annually borrowed than so much as the revenue falls short of that purpose, the sum would be very much less than it now is; but since at the same time we continue to redeem former debt, we, in that extent, add to the deficiency of the revenue, as applied to both objects, and, Consequently, are obliged to borrow so much more from new creditors as we employ in redeeming prior debt.

debt at a lower rate of interest, cannot have been inconsiderable. Taking the whole sum which has been borrowed from 1793, to February, 1812, as stated in page 142 of this work,

At

And the sum employed by the commissioners)

of the sinking fund,

The difference is money borrowed for excess

of expences,

358,516,7727.

121,205,3867.

237,311,387/

In page 146, the loss to the public by the sinking fund is computed at 11,832,2831. of 3 per cent. stock, which, if reduced to money in due proportion to the whole funded debt, computed, as if all at an interest of three per cent.*, will amount to 7,927,6291. Deduct this from the money borrowed on account of increase of debt, and there will remain 279,383,7577. which must have been borrowed if the sinking fund had not existed The supposed loss, therefore, is an addition of about 27. 16s. Od. per cent. to the latter sum. Professor Hamilton himself admits that, "the purchases made by the commissioners no doubt sup port the funds at a higher rate than they would. stand if there were no such purchasers in the field;" and he thinks this balanced by the addition to the loan, which this system requires, but we may add another great pecuniary advantage arising from the effect which the system has undoubtedly had in giving confidence in the safety of the debt, and displaying the magnitude of our resources. This then, according to the Professor's calculations, has cost about 21. 16s. Od. for one hundred pounds in money, or about 17. 158. Od.. per cent. for the stock created, if borrowed at 3 per cent.; and we believe there are not many who will doubt that the effect in supporting the funds has far exceeded this cost of the system of contracting debt to redeem debt, as it has been conducted.

We believe the public in general are little aware of the efficacy. of the system, in extinguishing that portion of the debt which is created on account of it. If the whole debt were only such that it might be redeemed in one year this would be obvious.

-Suppose a debt of ten millions, borrowed from new creditors to pay off old creditors, at the saine rate of 5 per cent. interest, on a 5 per cent. capital. Of the previous national revenue, 500,000l. per annum was before appropriated on account of this debt, and by the transaction an obligation is incurred to add 600,0001, a year more, namely, 100,000l. to the fund, and 500,000l. for interest to the new creditors. Wherefore, the real sinking fund created by borrowing ten millions to redeem ten millions on this plan, is not merely 100,000. but 600,0001, or the whole addition on account of it.

*This has been done by Professor Hamilton in one of the tables annexed to his work.

The substituted debt, therefore, will be redeemed by this fund in little more than twelve years and a half, if employed at 5 per cent.; or than thirteen years, if employed at 4 per cent.; or thirteen years and a half, if at 3 per cent. But the charges of the transaction may average about 5 per cent. Consider these as to be first deducted from the annual produce of it, and even then the terms of complete extinction of the substituted debt will only be protracted about ten months, becoming thirteen years and a half, fourteen years, or fourteen years and a half, according to the rate of compound interest.cbs batera gliom

This is the true effect of the system, although its real efficacy is concealed from cursory observation by the indiscriminate manner in which the sinking fund has, in practice, been applied to the purchase of the debt.

We have no more respect than Professor Hamilton for the Stock Exchange arguments on this subject; but if we consult the history of human nature, we think it will furnish unanswerable reasons in favour of what we consider as the true principle of the system. We do not mean to defend every modification of it, nor its adop tion in an unlimited extent; for we can conceive nothing more mischievous than it would be, if carried beyond convenient limits; which, indeed, was the chief objection to the plan of Lord Henry Petty,

HOUS DAROJ 15"WS 12. :: 931

On this subject the Professor himself admits that, alto qorq

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, have unless to follow out the line which that

system required?

A loan is made, and the revenue is 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." ear sed mely eff nolq

We would here make a remark, which perhaps more directly applies to a former part of his observations on Mr. Pitt's plan, as adapted to a war system in 1792, namely, that when a loan is contracted for the two-fold purpose of defraying an actual excess of expenditure beyond the revenue, and of redeeming a part of the debt already existing, according to the manner in which Mr. Pitt's systherto been carried into execution, has the real appropriation for the extinction of that debt is not merely one per cent. on the new capital, but also a continuation of the whole interest of the money in this manner employed. With regard to the real increase of debt, that is, the excess of loan beyond the Contempo

rary produce of the whole sinking fund, the appropriation being only one per cent, operates in the manner and at the rate described in this work. If we could, borrow at par in a 5 per cent. fund, the appropriation being 6 per cent, would, for the debt really contracted, be 54. per cent. to the lenders, and per cent. to redeem the capital : but calculating the cost of the transaction at 5 per cent. this will be nearly, though not exactly, equal to the first five years of the per cent annuity. If that cost, being blended with the other national expences, is nowhere distinctly stated, and paid in some other manner, this may alter the sums on both sides of the national account, but will not alter the balance.eba sl fi‛ {kz®ན་ས

1

But with regard to the part of the loan borrowed to redeem former debt, and so applied, the augmentation of the fund is an annuity of about 6 per cent. commencing its real operation after ten months only, instead of five years.

If, in providing for our annual loans, we only levied an increase of revenue equal to the interest and appropriation for the actual increase of debt, we apprehend this would be precisely the view which the Professor has taken of the question, page 147. But if a large proportion of those loans is employed to pay off debt already existing, and the effect of the system has been to induce the public to agree to an augmentation of the revenue in due proportion to this part also of the new debt, the progress towards equalization of income and expenditure is very greatly accelerated, and also the period is greatly shortened during which in peace the debt may be extinguished..

To us the system adopted by Mr. Pitt, in 1792, has always appeared to have been a very ingenious and efficient way of rapidly approximating the income and expenditure. We have too high an opinion of his perspicacity not to believe that he had this in view at that time, or to doubt the plan he would have proposed whenever they should really be equalized.and i His plan has the twofold advantage, that it creates an artificial necessity of increasing the revenue whenever such an increase may be politically expedient; and that it fixes apparent and definite limits to the systematic extent of that increase; it counteracts the reluctance to submit to new taxes by the former circumstance, and any fea fears for excessive augmentation and improper application of the public revenue by the latter.

73

We think
we there is a possible and even probable e

months

Here effect of the system, which could hardly have been obtained in any other manner, and which, value of BEACH though it may sometimes cost ten n e of the revenue appropriated, must amply recompence this expence by its general advantages.

To give some idea of the effects of the system of 1792; if exactly followed, let us suppose, that at some period the real excess of expence beyond the revenue being only three millions, but nine millions of the revenue being appropriated, a loan of twelve millions would be wanted. This was nearly, though not exactly, the case when a new plan of finance, so severely censured by Professor Hamilton, was proposed by Lord Henry Petty. In a five per cent. stock at par, the requisite augmentation of the public revenue for such a loan would be 720,000l. or it would be 800,000l. if the capital created were a three per cent. stock, at 60. ........

In either case the real increase of debt being only three millions, the real appropriation for its interest would be only 150,0007.; but if so, then the remaining appropriation, whether $570,000 or 650,000l. is 19 per cent. in the first case, or 13 per cent. in the second case, of the real contemporary increase of debt. The augmentation of income in the second case, which is practically more familiar, if employed at a profit of five per cent., would redeem its corresponding debt, and pay the charges incurred by the loan in little more than five years, nor would the period be much extended at four or even three per cent. We there fore really make provision in this case for redeeming the contem→ porary debt in about five years; and any duration of this addition to the fund beyond five years is employed in extinguishing an tecedent debt.

If after an equalization of revenue and expenditure, the system might conveniently be allowed to operate according to Mr. Pitt's plan of 1792; in that case most obviously the whole appropriation would be to increase the means of redeeming old debts. But as no new debt would be contracted beyond the amount of debt redeemed, the effect might be a very incon→ venient increase of the revenue beyond the actual expenditure even in war. Experience and common sense in any such case would suggest how to regulate the operation of the fund, or, it may be, shew the expedience of altogether suspending it. We shall hereafter advert more fully to this topic, but at present we need only observe, that the principle on which we justify the system established by Mr. Pitt is by no means shaken, because that system may require limitation when it has already accom plished the most essential part of its duty; and because it may be found expedient to regulate its progress according to political circumstances, and in due proportion to the work which may remain to be performed.

We must refer our readers to the third section of this part of Professor Hamilton's work, and to the tables connected with