NATIONAL DEBT 



405 



case of exceptional need. A nation already over- 

 burdened with debt might be obliged, in the case 

 of a great war, immediately to resort to a forced 

 currency, which would be liable to a serious or 

 fluctuating depreciation. An issue of inconvertible 

 notes is generally the worst method of incurring a 

 national obligation, being in reality a species of 

 forced loan. Some years ago a favourite argument 

 against the immediate repayment of public debts 

 was the assertion that there was in progress a 

 natural depreciation of gold, owing to great dis- 

 coveries and to the use of credit substitutes. This 

 argument must, however, now be reversed, for 

 there can be little doubt that since 1875 the 

 tendency has been towards an appreciation of gold. 

 Such an appreciation of the standard in which 

 most debts nave been contracted in other words, 

 a general fall in prices makes the real burden of 

 these debts so much heavier. With low prices, 

 including low money incomes, the same amount of 

 nominal taxation involves greater sacrifices on 

 the part of the taxpayers. Accordingly, if the 

 standard is likely to appreciate still further (see BI- 

 METALLISM) and no remedy is adopted, it will be 

 advisable to reduce money debts of all kinds as 

 rapidly as possible. It should also be noticed that 

 'an old tax is no tax,' and that in a period of 

 prosperity it is not advisable to lessen or &l>olish 

 taxes which must afterwards be re-imposed. It is 

 preferable to create a surplus for the extinction of 

 debt. The case of the United States with a 

 surplus larger than can be made use of, and raised 

 to a great extent by burdensome indirect taxation, 

 may be regarded rather as an exception which 

 proves the rule. 



In conclusion, attention may be called to the 

 principal methods adopted for the extinction of 

 public debts. These are mainly two, with varia- 

 tions in detail. First, there is the simple plan of 

 raining directly more in revenue than is required 

 for expenditure, and devoting the surplus directly 

 to the purchase of the bonds or stock representing 

 the ilelit. A continuous surplus of this kind is a 

 real sinking fund. In former times many fallacies 

 have Ijeen current regarding the powers of a sink- 

 ing fund. Financiers have oeen deluded through 

 spurious figures on the powers of indefinite accumu- 

 lation of a small sum at compound interest, and 

 have imagined that if a certain sum were set aside 

 and allowed to grow in this manner, it would in- 

 sensibly extinguish any debt. If, however, in the 

 meantime, the state, as in the case of England 

 during the Napoleonic wars, continues to Itorrow 

 at higher rates, a sinking fund of this kind is 

 directly worse than nseless, although indirectly it 

 may find defenders on the ground that a suspension 

 would injure the national credit. The second 

 method of repayment which has met with much 

 favour in the United Kingdom is the substitution of 

 terminable annuities, at a higher rate, for the per- 

 petual annuities which constitute the interest on 

 the debt. The great advantage of this plan is that 

 there is so far no apparent surplus which the 

 government or the people can devote to a reduction 

 of taxes or to new modes of expenditure, whilst a 

 sinking fund is always open to attack. If the 

 stock has originally been issued at a discount, and 

 a rise may be expected, the adoption of terminable 

 annuities gives the nation the Iwnefit of this rise, 

 whilst the gradual diminution of the debt of itself 

 increases the tendency to rise. 



A third method of getting rid of public debts has 

 sometimes been proposed, founded upon the fact 

 that a state can Ixirrow on lower terms, or that its 

 credit is better than is the case of private indi- 

 viduals or companies. Thus it is argued that the 

 state might purchase the railways, the ordinary 

 stock of which in the United Kingdom earns about 



four percent., with money borrowed at less than 

 three per cent. Adam Smith, however, long ago 

 pointed out that a nation can rarely make a profit 

 of any industrial undertaking, and to judge by 

 recent experience, governments are likely to pay 

 far more than the real market value of any stock 

 they may purchase. 



DEBT OF UNITED KINGDOM AT VARIOUS DATES. 



At the Revolution of 1888 664,263 



At the accession of Queen Anne 12,767,225 



At the accession of George 1 38,175,460 



At the end of the Spanish war. 1748 75,812,132 



At the Pence of Paris, 1763 132,716,049 



At the end of the American war, 1784 243,083,145 



At the Peace of I'aris, 1816 881.089,049 



At commencement of Crimean war, 1854 769,082,649 



In 1890 689,944,02 



The debt in 1890 was divided into unredeemed 

 funded debt, 585,959,852; estimated capital of 

 terminable annuities, 71,731,869; and unfunded 

 debt (Le. debt which the state is not bound to 

 repay), 32,252,305 (including outstanding bonds 

 for purchase-money of Suez Canal shares). In 

 1750-57 took place the first great consolidation of 

 various stocks (see CONSOLS); in 1888 the '3 per 

 cents.' were consolidated into 'new stock" to bear 

 2J per cent, till 1903, and thereafter 2J ( see also 

 EXCHEQUER BILLS). In 1897 the total debt 

 644,909,847 was 55,000,000 less than the gross 

 annual value of property and profits assessed for 

 income-tax. 



DEBT OF PRINCIPAL BRITISH COLONIES (1896-97). 



Tasmania 8,261,778 



Ni / Miami .. 44,306,618 

 Cape Colony . . . 27,3110,805 



Natal 8,064,343 



Iqdia 164,892,680 



Ceylon 3,738,871 



[Egypt 104,413,730] 



DEBT OF UNITED STATES. 



In 1791 $75,463.476 



In Ibl2 45,209,737 



In 1832 24,322235 



In 18:!8 87.613 



In 1838 10,434.221 



In 1860 63,462,773 



In 1867 28,699.831 



In 1861 $90,680,878. 



In 1862. 624,176.41* 



In 1803 1,119,772.138* 



In ]86 2,773,236,178 



In 1878 2,180,S95.0f;r 



InlS'Se 1,783.438,691- 



In 1890 1.722,240,163. 



At the taut-named date, however, the net debt deducting th 

 cash in the treasury - was 767.916,079 dollars ; and of the whole, 

 764,069,096 dollars beam no interest. The bonds issued to the 

 Pacific railways, which pay over 6 per cent., are included 

 to the amount 64,623,512 dollars. 



DEBT OF THE CHIEF EUROPEAN COUNTRIES. 



The debt of Brazil is said to be 120.000,000: of Japan, 

 BO,452,UOO; of Chili, 17,524,600; of Mexico, 16,700,000; of 

 China, 12,505,000. 



See the sections dealing with finance and debt in the 

 articles on the several countries ; H. C. Adams, Publia 

 Debti 11888); J. Noble, National Finance (-1875); P. 

 Leroy-Beaulieu, Traitt de la Science del Finance* (2d 

 ed. 1879); R. Dudley Baxter, National Debts (1871); 

 Adolph Wagner, Die Ordnung der Finanztrirthschaft (in 

 Schonberg's Handbuch der foLOekon., 3d ed. 1885); 

 Sir Stafford Nortlicote, Twenty Yearn of Financial Policy 

 ( 1862 ) ; Leone Levi, Hutorp of Sritis/i Commerce ( 2d ed. 

 1880); A. J. Wilson, Tltc National Budget ( 1882); Adam 

 Smith, Wealth of Natiom (M'Cnlloch's ed. 1872), bk. 

 v. chap, iii., and appendix on the Funding System ; E. 

 W. Hamilton, An Account of the Operation! under the 

 National Debt Conversion Act, 1888, and the National 

 DM Redemption Art. 1X89(1889); Fenn's Compendium 

 of the Fundt(ed. by Nash). 



