After all the proper subjects of taxation | nearly as many people as it can maintain. A have been exhausted, if the exigencies of the large revenue may at all times be said to constate still continue to require new taxes, they sist in the command of a large quantity of must be imposed upon improper ones. The the necessaries of life. In that rude state of taxes upon the necessaries of life, therefore, things, it is commonly paid in a large quanmay be no impeachment of the wisdom of that tity of those necessaries, in the materials of republic, which, in order to acquire and to plain food and coarse clothing, in corn and maintain its independency, has, in spite of cattle, in wool and raw hides. When neither its great frugality, been involved in such ex-commerce nor manufactures furnish any thing pensive wars as have obliged it to contract for which the owner can exchange the greater great debts. The singular countries of Holland and Zealand, besides, require a considerable expense even to preserve their existence, or to prevent their being swallowed up by the sea, which must have contributed to increase considerably the load of taxes in those two provinces. The republican form of government seems to be the principal support of the present grandeur of Holland. The owners of great capitals, the great mercantile families, have generally either some direct share, or some indirect influence, in the administration of that government. For the sake of the respect and authority which they derive from this situation, they are willing to live in a country where their capital, if they employ it themselves, will bring them less profit, and if they lend it to another, less interest; and where the very moderate revenue which they can draw from it will purchase less of the necessaries and conveniencies of life than in any other part of Europe. The residence of such wealthy people necessarily keeps alive, in spite of all disadvantages, a certain degree of industry in the country. Any public calamity which should destroy the republican form of government, which should throw the whole administration into the hands of nobles and of soldiers, which should annihilate altogether the importance of those wealthy merchants, would soon render it disagreeable to them to live in a country where they were no longer likely to be much respected. They would remove both their residence and their capital to some other country, and the industry and commerce of Holland would soon follow the capitals which supported them.

CHAP. III.

OF PUBLIC DEBTS,

part of those materials which are over and above his own consumption, he can do nothing with the surplus, but feed and clothe nearly as many people as it will feed and clothe. A hospitality in which there is no luxury, and a liberality in which there is no ostentation, occasion, in this situation of things, the principal expenses of the rich and the great. But these I have likewise endeavoured to show, in the same book, are expenses by which people are not very apt to ruin themselves. There is not, perhaps, any selfish pleasure so frivolous, of which the pursuit has not sometimes ruined even sensible men. A passion for cock-fighting has ruined many. But the instances, I believe, are not very numerous, of people who have been ruined by a hospitality or liberality of this kind; though the hospitality of luxury, and the liberality of ostenta. tion have ruined many. Among our feudal ancestors, the long time during which estates used to continue in the same family, suffciently demonstrates the general dispositior. of people to live within their income. Though the rustic hospitality, constantly exercised by the great landholders, may not, to us in the present times, seem consistent with that or der which we are apt to consider as insepar ably connected with good economy; yet we must certainly allow them to have been at least so far frugal, as not commonly to have spent their whole income. A part of their wool and raw hides, they had generally an opportunity of selling for money. Some part of this money, perhaps, they spent in purchasing the few objects of vanity and luxury, with which the circumstances of the times could furnish them; but some part of it they seem commonly to have hoarded. They I could not well, indeed, do any thing else but hoard whatever money they saved. To trade, was disgraceful to a gentleman; and to lend money at interest, which at that time was considered as usury, and prohibited by law, would have been still more so. In those Itimes of violence and disorder, besides, it

IN that rude state of society which precedes was convenient to have a hoard of money at the extension of commerce and the improve-hand, that in case they should be driven from ment of manufactures; when those expensive their own home, they might have something luxuries, which commerce and manufactures of known value to carry with them to some can alone introduce, are altogether unknown; place of safety. The same violence which the person who possesses a large revenue, I made it convenient to hoard, made it equally have endeavoured to show in the third book convenient to conceal the hoard. The freof this Inquiry, can spend or enjoy that reve-quency of treasure-trove, or of treasure found, nue in no other way than by maintaining of which no owner was known, sufficiently

Bb

demonstrates the frequency, in those times, subjects for an extraordinary aid. The preboth of hoarding and of concealing the hoard. sent and the late king of Prussia are the only Treasure-trove was then considered as an im- great princes of Europe, who, since the death portant branch of the revenue of the sove of Henry IV. of France, in 1610, are supreign. All the treasure-trove of the king-posed to have amassed any considerable treadom would scarce, perhaps, in the present sure. The parsimony which leads to accutimes, make an important branch of the re- mulation has become almost as rare in repubvenue of a private gentleman of a good estate.

lican as in monarchical governments. The Italian republics, the United Provinces of the The same disposition, to save and to hoard, Netherlands, are all in debt. The canton of prevailed in the sovereign, as well as in the Berne is the single republic in Europe which subjects. Among nations, to whom com- has amassed any considerable treasure. The merce and manufactures are little known, the other Swiss republics have not. The taste for sovereign, it has already been observed in the some sort of pageantry, for splendid buildings, fourth book, is in a situation which naturally at least, and other public ornaments, frequentdisposes him to the parsimony requisite for ly prevails as much in the apparently sober accumulation. In that situation, the expense, senate-house of a little republic, as in the even of a sovereign, cannot be directed by dissipated court of the greatest king. that vanity which delights in the gaudy finery The want of parsimony, in time of peace, of a court. The ignorance of the times af-imposes the necessity of contracting debt in fords but few of the trinkets in which that time of war. When war comes, there is no

finery consists. Standing armies are not money in the treasury, but what is necessary then necessary; so that the expense, even of for carrying on the ordinary expense of the a sovereign, like that of any other great lord, peace establishment. In war, an establishcan be employed in scarce any thing but ment of three or four times that expense bebounty to his tenants, and hospitality to his comes necessary for the defence of the state; retainers. But bounty and hospitality very and consequently, a revenue three or four seldom lead to extravagance; though vanity times greater than the peace revenue. Supalmost always does. All the ancient sove- posing that the sovereign should have, what reigns of Europe, accordingly, it has already he scarce ever has, the immediate means of been observed, had treasures. Every Tartar augmenting his revenue in proportion to the chief, in the present times, is said to have augmentation of his expense; yet still the

one.

produce of the taxes, fron. which this increase of revenue must be drawn, will not begin to come into the treasury, till perhaps ten or twelve months after they are imposed. But the moment in which war begins, or rather the moment in which appears likely to begin, the army must be augmented, the fleet must be fitted out, the garrisoned towns must be put into a posture of defence; that army, that fleet, those garrisoned towns, must be furnished with arms, ammunition, and provisions. An immediate and great expense must be incurred in that moment of immediate danger, which will not wait for the gra. dual and slow returns of the new taxes. In this exigency, government can have no other resource but in borrowing.

In a commercial country, abounding with every sort of expensive luxury, the sovereign, in the same manner as almost all the great proprietors in his dominions, naturally spends a great part of his revenue in purchasing those luxuries. His own and the neighbouring countries supply him abundantly with all the costly trinkets which compose the splendid, but insignificant, pageantry of a court. For the sake of an inferior pageantry of the same kind, his nobles dismiss their retainers, make their tenants independent, and become gradually themselves as insignificant as the greater part of the wealthy burghers in his dominions. The same frivolous passions, which influence their conduct, influence his. How can it be supposed that he should be the only rich man in his dominions who is insensible to pleasures of this kind? If he does not, what he is very likely to do, spend upon those pleasures so great a part of his revenue as to debilitate very much the defensive power of the state, it cannot well be expected that he should not spend upon them all that part of it which is over and above what is neces- A country abounding with merchants and sary for supporting that defensive power. manufacturers, necessarily abounds with a set His ordinary expense becomes equal to his of people through whose hands, not only their ordinary revenue, and it is well if it does not own capitals, but the capitals of all those who frequently exceed it. The amassing of trea- either lend them money, or trust them with sure can no longer be expected; and when goods, pass as frequently, or more frequently, extraordinary exigencies require extraordinary than the revenue of a private man, who, expenses, he must necessarily call upon his without trade or business, lives upon his in

The same commercial state of society which, by the operation of moral causes, brings government in this manner into the necessity of borrowing, produces in the subjects both an ability and an inclination to lend. If it commonly brings along with it the necessity of borrowing, it likewise brings with it the facility of doing so.

come, passes through his hands.

The reve- a hoard, and where that hoard was to be found, they would quickly be plundered. In such a state of things, few people would be able, and nobody would be willing to lend their money to government on extraordinary exigencies. The sovereign feels that he must provide for such exigencies by saving, because he foresees the absolute impossibility of borrowing. This foresight increases still further his natural disposition to save.

nue of such a man can regularly pass through his hands only once in a year. But the whole amount of the capital and credit of a merchant, who deals in a trade of which the returns are very quick, may sometimes pass through his hands two, three, or four times in a year. A country abounding with merchants and manufacturers, therefore, necessarily abounds with a set of people, who have it at all times in their power to advance, if they chuse to do so, a very large sum of money to government. Hence the ability in the subjects of a commercial state to lend.

The progress of the enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform. Nations, like private men, have generally begun to borrow upon what my be called personal credit, without assigning or mortgaging any particular fund for the payment of the debt; and when this resource has failed them, they have gone on to borrow upon assignments or mort gages of particular funds.

What is called the unfunded debt of Great Britain, is contracted in the former of those two ways.

Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice; in which the people do not feel themselves secure in the possession of their property; in which the faith of contracts is not supported by law; and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay. Commerce and manufacIt consists partly in a debt which tures, in short, can seldom flourish in any bears, or is supposed to bear, no interest, and state, in which there is not a certain degree of which resembles the debts that a private man confidence in the justice of government. The contracts upon account; and partly in a debt same confidence which disposes great mer- which bears interest, and which resembles chants and manufacturers upon ordinary oc- what a private man contracts upon his bill or casions, to trust their property to the protec- promissory-note. The debts which are due, tion of a particular government, disposes them, either for extraordinary services, or for serupon extraordinary occasions, to trust that go- vices either not provided for, or not paid at vernment with the use of their property. By the time when they are performed; part of lending money to government, they do not the extraordinaries of the army, navy, and oreven for a moment diminish their ability to dnance, the arrears of subsidies to foreign carry on their trade and manufactures; on princes, those of seamen's wages, &c. usually the contrary, they commonly augment it. The constitute a debt of the first kind. Navy and necessities of the state render government, exchequer bills, which are issued sometimes upon most occasions willing to borrow upon in payment of a part of such debts, and someterms extremely advantageous to the lender. times for other purposes, constitute a debt of The security which it grants to the original the second kind; exchequer bills bearing increditor, is made transferable to any other cre-terest from the day on which they are issued, ditor; and from the universal confidence in and navy bills six months after they are issuthe justice of the state, generally sells in the ed. The bank of England, either by volunmarket for more than was originally paid for tarily discounting those bills at their current it. The merchant or monied man makes value, or by agreeing with government for money by lending money to government, and certain considerations to circulate exchequer instead of diminishing, increases his trading bills, that is, to receive them at par, paying capital. He generally considers it as a favour, the interest which happens to be due upon therefore, when the administration admits him them, keeps up their value, and facilitates to a share in the first subscription for a new their circulation, and thereby frequently enloan. Hence the inclination or willingness ables government to contract a very large debt in the subjects of a commercial state to lend. of this kind. In France, where there is no The government of such a state is very apt to repose itself upon this ability and willing ness of its subjects to lend it their money on extraordinary occasions. It foresees the facility of borrowing, and therefore dispenses itself from the duty of saving.

bank, the state bills (billets d'etat*) have sometimes sold at sixty and seventy per cent. discount. During the great recoinage in king William's time, when the bank of England thought proper to put a stop to its usual transactions, exchequer bills and tallies are In a rude state of society, there are no great said to have sold from twenty-five to sixty per mercantile or manufacturing capitals. The cent. discount; owing partly, no doubt, to individuals, who hoard whatever money they the supposed instability of the new governcan save, and who conceal their hoard, do so from a distrust of the justice of government; fruin a fear, that if it was known that they had nances.

* See Examen des Reflections Politiques sur les Fi

ment established by the Revolution, but part-accumulated into one general fund. The dely, too, to the want of the support of the bank ficiencies charged upon this prolonged term aof England. mounted to L. 5,160,459: 14: 9.

When this resource is exhausted, and it becomes necessary, in order to raise money, to assign or mortgage some particular branch of the public revenue for the payment of the debt, government has, upon different occasions, done this in two different ways. Sometimes it has made this assignment or mortgage for a short period of time only, a year, or a few years, for example; and sometimes for perpetuity. In the one case, the fund was supposed sufficient to pay, within the limited time, both principal and interest of the money borrowed. In the other, it was supposed sufficient to pay the interest only, or a perpetual annuity equivalent to the interest, government being at liberty to redeem, at any time, this annuity, upon paying back the principal sum borrowed. When money was raised in the one way, it was said to be raised by anticipation; when in the other, by perpetual funding, or, more shortly, by funding.

In 1701, those duties, with some others, were still further prolonged, for the like purposes, till the first of August 1710, and were called the second general mortgage or fund. The deficiencies charged upon it amounted to L.2,055,999: 7: 113.

In 1707, those duties were still further prolonged, as a fund for new loans, to the first of August 1712, and were called the third general mortgage or fund. The sum borrowed upon it was L.983,254:11: 94.

In 1708, those duties were all (except the old subsidy of tonnage and poundage, of which one moiety only was made a part of this fund, and a duty upon the importation of Scotch linen, which had been taken off by the articles of union) still further continued, as a fund for new loans, to the first of August 1714, and were called the fourth general mortgage or fund. The sum borrowed upon it was L.925,176: 9:21.

In 1710, those duties were again prolonged to the first of August 1720, and were called the sixth general mortgage or fund. The sum borrowed upon it was L.1,296,552: 9:11.

In Great Britain, the annual land and malt In 1709, those duties were all (except the old taxes are regularly anticipated every year, by subsidy of tonnage and poundage, which was virtue of a borrowing clause constantly insert- now left out of this fund altogether) still further ed into the acts which impose them. The continued, for the same purpose, to the first of bank of England generally advances at an August 1716, and were called the fifth geneinterest, which, since the Revolution, has vari-ral mortgage or fund. The sum borrowed ed from eight to three per cent., the sums of upon it was L. 922,029: 6s. which those taxes are granted, and receives payment as their produce gradually comes in. If there is a deficiency, which there always is, it is provided for in the supplies of the ensuing year. The only considerable branch of In 1711, the same duties (which at this the public revenue which yet remains unmort- time were thus subject to four different antigaged, is thus regularly spent before it comes cipations), together with several others, were in. Like an improvident spendthrift, whose continued for ever, and made a fund for paypressing occasions will not allow him to wait ing the interest of the capital of the South-sea for the regular payment of his revenue, the company, which had that year advanced to state is in the constant practice of borrowing government, for paying debts, and making of its own factors and agents, and of paying good deficiencies, the sum of L.9,177,967. interest for the use of its own money. 15. 4, the greatest loan which at that time In the reign of king William, and during had ever been made. a great part of that of queen Anne, before we had become so familiar as we are now with the practice of perpetual funding, the greater part of the new taxes were imposed but for a short period of time (for four, five, six, or seven years only), and a great part of the grants of every year consisted in loans upon anticipations of the produce of those taxes. The produce being frequently insufficient for paying, within the limited term, the principal and interest of the money borrowed, deficiencies arose; to make good which, it became necessary to prolong the term.

Before this period, the principal, so far as I have been able to observe, the only taxes, which, in order to pay the interest of a debt, had been imposed for perpetuity, were those for paying the interest of the money which had been advanced to government by the bank and East-India company, and of what it was expected would be advanced, but which was never advanced, by a projected land bank. The bank fund at this time amounted to L.3,375,027: 17. 10, for which was paid an annuity or interest of L. 206,501 : 13: 5. The East-India fund amounted to L.3,200,000, In 1697, by the 8th of William III., c. 20, for which was paid an annuity or interest of the deficiencies of several taxes were charged L. 160,000; the bank fund being at six per upon what was then called the first general cent., the East-India fund at five per cent. mortgage or fund, consisting of a prolongation interest. to the first of August 1706, of several different In 1715, by the first of George I., c. 12, taxes, which would have expired within a the different taxes which had been mortgaged slarter term, and of which the produce was for paying the bank annuity, together with

several others, which, by this act, were like- | reign, five per cent. was declared to be the wise rendered perpetual, were accumulated highest rate which could lawfully be taken for into one common fund, called the aggregate money borrowed upon private security. Soon fund, which was charged not only with the after the greater part of the temporary taxes payment of the bank annuity, but with seve- of Great Britain had been rendered perpetual, ral other annuities and burdens of different and distributed into the aggregate, South-sea, kinds. This fund was afterwards augmented and general funds, the creditors of the public, by the third of George I., c. 8., and by the like those of private persons, were induced to fifth of George I., c. 3, and the different du- accept of five per cent. for the interest of their ties which were then added to it were like-money, which occasioned a saving of one per wise rendered perpetual.

In 1717, by the third of George I., c. 7, several other taxes were rendered perpetual, and accumulated into another common fund, called the general fund, for the payment of certain annuities, amounting in the whole to L.724,849 6: 10.

In consequence of those different acts, the greater part of the taxes, which before had been anticipated only for a short term of years were rendered perpetual, as a fund for paying, not the capital, but the interest only, of the money which had been borrowed upon them by different successive anticipations.

Had money never been raised but by anticipation, the course of a few years would have liberated the publie revenue, without any other attention of government besides that of not overloading the fund, by charging it with more debt than it could pay within the limited term, and not of anticipating a second time before the expiration of the first anticipation. But the greater part of European governments have been incapable of those attentions. They have frequently overloaded the fund, even upon the first anticipation; and when this happened not to be the case, they have generally taken care to overload it, by anticipating a second and a third time, before the expiration of the first anticipation. The fund becoming in this manner altogether insufficient for paying both principal and interest of the money borrowed upon it, it became necessary to charge it with the interest only, or a perpetual annuity equal to the interest; and such improvident anticipations necessarily gave birth to the more ruinous practice of perpetual funding. But though this practice necessarily puts off the liberation of the public revenue from a fixed period, to one so indefinite that it is not very likely ever to arrive; yet, as a greater sum can, in all cases, be raised by this new practice than by the old one of anticipation, the former, when men have once become familiar with it, has, in the great exigencies of the state, been universally preferred to the latter. To relieve the present exigency, is always the object which principally interests those immediately concerned in the administration of public affairs. The future liberation of the public revenue they leave to the care of posterity.

cent. upon the capital of the greater part of the debts which had been thus funded for perpetuity, or of one-sixth of the greater part of the annuities which were paid out of the three great funds above mentioned. This saving left a considerable surplus in the produce of the different taxes which had been accumulated into those funds, over and above what was necessary for paying the annuities which were now charged upon them, and laid the foundation of what has since been called the sinking fund. In 1717, it amounted to L.323,434 : 7 : 7§. In 1727, the interest of the greater part of the public debts was still further reduced to four per cent.; and, in 1753 and 1757, to three and a-half, and three per cent., which reductions still further augmented the sinking fund.

A sinking fund, though instituted for the payment of old, facilitates very much the contracting of new debts. It is a subsidiary fund, always at hand, to be mortgaged in aid of any other doubtful fund, upon which money is proposed to be raised in any exigency of the state. Whether the sinking fund of Great Britain has been more frequently applied to the one or to other of those two purposes, will sufficiently appear by and by.

Besides those two methods of borrowing, by anticipations and by a perpetual funding, there are two other methods, which hold a sort of middle place between them; these are, that of borrowing upon annuities for terms of years, and that of borrowing upon annuities for lives.

During the reigns of king William and queen Anne, large sums were frequently borrowed upon annuities for terms of years, which were sometimes longer and sometimes shorter. In 1693, an act was passed for borrowing one million upon an annuity of fourteen per cent., or L. 140,000 a-year, for sixteen years. In 1691, an act was passed for borrowing a million upon annuities for lives, upon terms which, in the present times, would appear very advantageous; but the subscription was not filled up. In the following year, the deficiency was made good, by borrowiug upon annuities for lives, at fourteen per cent or a little more than seven years purchase. In 1695, the persons who had purchased those annuities were allowed to exDuring the reign of queen Anne, the mar-change them for others of ninety-six years, ket rate of interest had fallen from six to five upon paying into the exchequer sixty-three per cent. and, in the twelfth year of her pounds in the hundred - that is, the difference