877 



NATIONAL DEBT. 



NATIONAL DEBT. 



878 



of 3 per cent, upon the original amount, to be redeemed when- 

 ever the government should pay a moiety thereof. That moiety of 

 660,2632. is a part of the present funded debt. But even for some 

 few years after the accession of William and Mary the borrowings of 

 the government were for short periods only. In January, 1693, an, 

 act was passed which empowered the raising a loan of a million by way' 

 of life annuities, at 10 per cent, till 1700, and afterwards, and during 

 the life of the last survivors of the public creditors, at 7 per cent. The 

 first loan of a permanent character arose out of the chartering of the 

 Bank of England in 1694, when its capital of 1,200,0002. was' lent to 

 the public at 8 per cent, interest. A power of repayment was reserved 

 on this occasion by the crown, but no corresponding right of demand- 

 ing payment existed on the part of the bank. Still the system of 

 terminable annuities was that adopted by the statesmen of that day as 

 long as practicable. 



This cautious proceeding could not be long continued. The 

 expensiveuess of the wars in which the nation was engaged at the end 

 of the 17th century made it necessary to incur debts beyond the means 

 of their prompt redemption, and at the peace of Ryswick, in 1697, the 

 debt amounted to 21 4 millions. During the next ten years, although 

 the country was again involved in a continental war, its amount was 

 reduced to little more than 16 millions, and the greatest efforts were 

 made to raise money without imposing any lasting burden on the 

 people. These efforts indeed soon found their limit, and at the acces- 

 sion of George I. in 1714, the debt had accumulated to the amount of 

 54 millions, an amount which excited great uneasiness and caused the 

 House of Commons to declare itself under the necessity of making 

 efforts for its reduction. In 1717 the debt amounted to 484 millions, 

 and the annual charge in respect of the same to 3,117,2962. A great 

 part of this debt consisted of annuities granted for 99 years, the money 

 obtained for which had varied from 15 to 16 years' purchase. 



In the year 1720 the South-Sea Act was passed, authorising the 

 company to take in, by subscription or purchase, the redeemable debts 

 of the nation, the object being to reduce all the debts under one head 

 of account at one uniform rate of interest. In the accomplishment of 

 this scheme the projectors only partially succeeded, while the disgrace- 

 ful frauds by which the proceedings of the company at that time were 

 marked, led to a parliamentary investigation which caused the disgrace 

 of some of the ministers, the chancellor of the exchequer being 

 expelled the House, and committed to the Tower for his share in the 

 plot. It is not the least remarkable circumstance attending this 

 scheme that it wai attempted at th same time with the equally 

 famous Mississippi scheme, which, with a similar object, was projected 

 in France by John Law, under the sanction of the Regent Duke of 

 Orleans. [LAW, JOHN, in BIOG. Div.] 



In 1736 the public debt in England amounted to about 50 millions, 

 but the annual charge had been reduced below two millions. At the 

 peace of Aix-la-Chapelle, in 1748, the national debt exceeded 78 

 millions, but in the following year the public obtained some relief 

 from the burden through the lowering of the rate of interest. Little 

 else '.vaa done in the way of alleviation at this time, and at the break- 

 ing out of the Seven Years' War, in 1756, the debt still amounted to 

 75 millions. A public writer of some repute, Mr. S. Hannay, says, at 

 that date, " It has been a generally received notion among political 

 arithmeticians, that we may increase our debt to 100,000,0002., but 

 they acknowledge that it must then cease by the debtor becoming 

 bankrupt." Those who in more recent times have witnessed the 

 addition year after year to the debt of sums equal to more than the 

 difference between its then amount and its declared limit, may smile 

 at this prediction, and learn to put little faith in opinions which are 

 not based upon previous experience. 



When the Seven Years' War was ended by the peace of Paris, the 

 debt reached 139 millions, and the annual charge was 4,600,000?. 

 During the twelve following years, a period of profound peace, only 

 10,400,0002. of the debt was discharged. The war of the American 

 Independence raised the debt from 129 to 268 millions, and the annual 

 charge in respect of the same to 9,512,2322. So little was done in the 

 way of liquidation during the following ten years, that at the begin- 

 ning of the war of the French Revolution the debt still amounted to 

 280,000,0002., and its annual charge to 9,437,8622. The outlay occa- 

 sioned by the prosecution of that war was great beyond all precedent. 

 Between 1793 and the peace of Amiens the addition made to the 

 capital of the debt amounted to 360 millions, and the annual burden 

 was increased from 9,437,8622. to 19,945,6242. Between the recom- 

 mencement of the war in 1803 and its termination after the battle of 

 Waterloo in 1815, there were added 420 millions to the capital of the 

 debt, which then amounted, including the unfunded debt, to 885 

 millions, and the annual charge upon the public exceeded 32 millions 

 of money. This enormous, this frightful rate of progression, appears 

 to have excited far less alarm than was expressed at the comparatively 

 trifling additions made at the beginning of the funding system, a con- 

 sequence which probably must be in great part attributed to the 

 establishment of the sinking fund, and to the hope which it held 

 out of cancelling at no very distant period each amount of debt suc- 

 ly increased. 



A plan for the gradual extinction of the National Debt by the 

 establishment of a sinking fund was proposed and partially applied in 

 1716 by Sir R. Walpole. The scheme for that purpose proposed under 



the same name by Mr. Pitt in 1786 had a greater show of reality about 

 it. By this scheme the sum of one million was annually set apart 

 from the income of the country towards the extinction of its debt. 

 Other sums were rendered accessory to the plan, and it was supposed 

 that at the expiration of 28 years the annual income of the sinking 

 fund would amount to four millions, a part of which might then be 

 applied towards relieving the burden of the public. So far the 

 project bore the stamp of reasonableness and prudence : had the fund 

 of one million annually assigned to commissioners been an actual 

 surplus of income over expenditure, its operation must speedily have 

 been highly advantageous to the country. The fallacy consisted in 

 this, that the sums devoted to it were borrowed for the purpose. The 

 only real advantage secured by this means arose from the unfounded 

 confidence which it imparted to the public, under which they willingly 

 bore a higher rate of taxation than might have been tolerable but for 

 the expectation of future relief through its means. Now that the 

 absurdity is acknowledged of borrowing in order to pay off debt, which 

 absurdity would in the case of an individual always have been appa- 

 rent, it is difficult to account for the blindness with which the whole 

 nation clung to this so-called fund as the certain means of extin- 

 guishing the debt which in effect it contributed to augment through 

 the less advantageous terms upon which the money was borrowed 

 than those upon which an equivalent amount of debt was afterwards 

 redeemed. The difference between the average rates at which money 

 was boiTOwcd and at which purchases were made by the Commissioners 

 who managed the sinking fund between 1793 and 1814 was such, that 

 through the operations of the fund, upon which such confident hope 

 of relief was placed, the country owed upwards of 11 millions more at 

 the end of the war than it would have owed but for those operations. 

 At the period just mentioned the annual income of the sinking fund 

 amounted to 13,400,0002., arising from dividends on stock purchased 

 by the commissioners with funds borrowed at a higher rate of interest 

 for the purpose. It was impossible however during a time of peace to 

 raise by means of taxes so large an amount, in addition to the actual 

 current expenditure of the country and the interest upon the 

 unredeemed portion of the debt. During the war, when the deficiency 

 of income was covered by yearly loans, the fallacy was not quite so 

 apparent as it now soon became, for a few years after the peace the 

 deficiency in the public income was borrowed from the sinking fund 

 commissioners by parliament, a course which served to render the 

 absurdity only the more apparent, and in 1824 the plan of keeping up 

 a large nominal sinking fund in the absence of actual surplus income 

 was abandoned. 



The amount of the National Debt unredeemed on the 5th of 

 January, 1816, was stated to be as follows in the fourth Report of the 

 select committee of the House of Commons on public income and 

 expenditure : 



3 per cent, stock 



. 580,910,019 

 10,740,013 

 75,725,504 



. 148,930,403 



Perpetual annuities 



Terminable annuities, 1,894,6122., equal to an 



estimated capital of .... 



Unfunded debt .*... 



810,311,939 



30,080,347 

 88,794,038 



Total of unredeemed debt . .885,186,324 

 The annual charge upon which was 



Interest upon perpetual annuities . . . 28,278,919 



Terminable annuities 1,894,512 



Interest on unfunded debt .... 1,998,937 



Charge for management paid Bank of England 284,673 



Total annual charge 



32,457,141 



The experience of the last fifty years has proved that the only 

 important relief from the pressure of debt to be obtained, even 

 during a profound and long-continued peace, will probably be derived 

 from the lowering of the rate of interest. The price of 5 per cent, 

 stock at the beginning of 1822 was advanced to 6 or 8 per cent, above 

 par, and advantage was taken of this circumstance to induce the holders 

 to exchange each 1002. of 5 per cent, annuities for 1052. of 4 per cent, 

 annuities. On this occasion 140,250,8282. of 5 per cent, stock was 

 cancelled, and 147,263,3282. of 4 per cent, stock was created, the 

 annual charge being by this means reduced by the sum of 1,122,0002. 

 In 1824 a further saving of 381,0342. per annum was effected by 

 reducing to 34 per cent, the interest payable on 76,206,8222. of 4 per 

 cent, stock ; and in 1830 a further abatement of one-half per cent, was 

 effected on the 4 per cent stock created in 1822, whereby the sum of 

 700,0002. per annum was saved to the public. 



Some progress was made after 1816 in the reduction of debt by the 

 employment for that purpose of actual surplus revenue. An addition 

 on the other hand was made to the public burdens by means of the 

 grant of 20,000,0002. voted by parliament for compensation to the 

 owners of slaves in the British colonies who were emancipated by the 

 act of 1833. Down to the commencement of the war in the Crimea in 

 1854, a reduction greater or less had taken place every year, but that 



