can be made efficiently instrumental in creating an increase of revenue, which might not otherwise have been obtained, that increase, in whatever manner applied to extinguish debt, whether contingently or by a strictly regulated appropriation, is substantially a sinking fund; but in neither case is one step advanced towards extinction of debt, by borrowing with one hand to redeem with the other, unless at a lower rate of interest; and then the difference saved, if so applied, is as truly a sinking fund as an equal increase of surplus income would be by an augmentation of the amount of it.

If, however, the adoption of a permanent sinking fund may give to a nation means of augmenting its income, which cannot be adopted at all in private life, or can only be adopted in a very limited extent, in that case a difference arises which so far only may justify Dr. Price's distinction. Where not instrumental in increasing the revenue so far as is necessary to pay the interest of the sums borrowed, the measure in public or private affairs will be absurd; but if it may be made thus instrumental in the one case and not in the other, the distinction is so far defensible.

As to the latter part of Dr. Price's assertion, "that it is bor-rowing money at simple interest in order to improve it at com-pound interest," his meaning no doubt was, that if "additional funds are provided to pay the interest of the sums borrowed," the new debt will not increase by compound interest, while the old debt will be diminished in that proportion; and with this proviso the truth of his assertion is indisputable, although announced in a manner more adapted to surprise the reader than to instruct him.

True it is, that either the existing revenue must be made more productive, or new taxes must be levied to add to it; and it may be that these subtract as much from private incomes as they add to the public income; but whatever may be the pressure thus created, it would equally be felt by an equal increase of income applied to diminish debt, or retard its progress in any other manner. So far as respects the public purse, the effect is the same as that of simple opposed to compound interest. We admit there is in this nothing peculiar to an appropriated and permanent sinking fund; but we think there are other solid grounds on which it may be defended.

In justice to the memory of Mr. Pitt, we must say that we cannot discover any sufficient reason for imputing to him that, dazzled by the imaginary omnipotence of compound interest, he rather looked to that for the efficacy of his fund than to its utility as a powerful instrument, in obtaining the consent of the nation to make its public revenue gradually more equal to

its average expenditure. His system, as adapted to the case of a preponderating increase of debt, in 1792, included a concurrent increase of revenue, even more than necessary to pay the interest 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.

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 redeem” 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,

2

358,516,7721.

121,205,3861.

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 279,383,7571. which must have been borrowed if the sinking fund had not existed. The supposed loss, therefore, is an addition of about 2l. 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. 15s. 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 same 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, 600,000l. a year more, namely, 100,000l. to the fund, and 500,000/. 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 100,000l. but 600,000l. 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.

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 adoption 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.

On this subject the Professor himself admits that,

"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 been made 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."

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 system has hitherto been carried into execution, 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 57. per cent. to the lenders, and 1 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 1 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.

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.

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 fears for excessive augmentation and improper application of the public revenue by the latter,

Here we think there is a possible and even probable effect of the system, which could hardly have been obtained in any other manner, and which, though it may sometimes cost ten months value of the revenue appropriated, must amply recompence this expence by its general advantages.