debt, an annual sum equal to one-half of the interest of the excess of the said loan or other addition, beyond the sum so estimated to be applicable, shall be set apart out of the monies composing the consolidated fund of Great Britain, and shall be issued at the receipt of the exchequer to the governor and company of the bank of England, to be by them placed to the account of the commissioners for the reduction of the national debt; and, upon the remainder of such loan or other addition, the annual sum of one per cent. on the capital thereof, according to the provisions of the said act of the 32d year of his present majesty.

A provision was also made, for the first time (as we have seen), for one per cent. sinking fund on the unfunded debt then existing, or which might thereafter be contracted.

In 1802, it has also been already observed, it was deemed expedient that no provision should be made for a sinking fund of one per cent. on a capital of £86,796,300; and as it was considered by the proposer of the new regulation, in 1813, that he was reverting to the principle of Mr. Pitt's act of 1792, he provided that £867,963 should be added to the sinking fund for the one per cent. on the capital stock created, and which was omitted to be provided for in 1802.

We cannot here follow into detail the farreaching calculations, either of the advocates or opponents of our funding system. By the former it has been perhaps extravagantly eulogised; while it has been rashly, because totally, condemned by the latter. Its advantages have been to render possible the struggle of some parts and periods of the late contests for our political existence; and to prevent those sudden drafts on private incomes, for the public use, which must in numerous cases have been overwhelming, if the expenditure of the year had been provided within the year. By this system, instead of calling on the people to pay at once the whole additional expense of the war, the government obtained the money wanted by selling annuities, either temporary or perpetual, to those who would give most for them; and contracted for the whole community a moral and political obligation to provide the means of regularly and punctually paying the annuities which it sold. The transaction, say its advocates, more nearly resembles that of raising money by sale of annuities and rent charges in private life, than the contracting of demandable debts; differing in nothing from the former as to temporary annuities, and, with respect to the perpetual annuities, only differing from an absolute sale of rent charges, by retaining a right to re-purchase them at a stipulated price, which price differs from that obtained by their sale, according to the conditions made at the time of the contract.

It is often objected to this system, that by raising money in this manner, instead of providing it by adequate contemporary taxes, so far as we exonerate ourselves, we burden posterity.

In a national view, and as concerns the future resources of the government, many inconveniences may obviously arise from too great an extension of this system, but we apprehend that the popular objection to it which we have just

now stated, is at least overcharged, if not altogether erroneous.

If any one, instead of being called upon to pay £100 as his share of the extraordinary expenditure, is only called upon to pay about the usual interest of that sum, the difference as res pecting his posterity amounts to this—that if his property is of such a sort that £100 cannot give £5 a year of revenue, he and his posterity lose the annual difference; but this may almost always be avoided by a change of such property for other of a more profitable kind. If bis property is so employed as to give him more than per cent. profit, he, and through him, his posterity, gain the whole of the difference. In any case, if he retains £100 capital, he has so much more to leave behind him. But if, according to the present system, he is also annually charged by increase of taxes with a sum to redeem his assumed proportion of the annuity created, the only difference is, that the term during which he pays interest, instead of its principal money, becomes limited in proportion to the efficacy of the addition.

5

The principle of the mechanism of the British funding system, continues the above class of writers, gives to it that certainty and equability of effect, which may safely be made the basis of political calculations, by which the plans of warfare may be regulated in due proportion to the known pecuniary resources.

On the undiminishing permanence of those resources, the means almost entirely depend of protracting hostilities till they may be advantageously terminated. Doubtless where the ruling power is sufficiently dreaded, various ways may be adopted for extorting an adequate supply of money, and a country previously rich and prosperous may be long and greatly declining before its government, if despotic, may be much enfeebled by poverty. But the grand question is, by what pecuniary system this may be done without impoverishing the people-without taking more for the public use than a portion of an increasing addition to the national capital? The answer is found in the principle of the funding system of Britain.

Some amount of national funded debt is certainly convenient in many respects; the punctu ality with which, in this country, the interest is paid; the facility with which money may be made productive, for any short period, by investing it in public securities, and with which it may be received back again at the moment when wanted, by the transfer of those securities: these and various other circumstances concur to make a national debt, such as ours is, a material advantage to many persons of moderate incomes, who cannot afford to wait for an uncertain receipt, and to many, whose commercial or other active employments of their capital are materially irregular. But all these advantages in their fullest extent might probably be obtained by a national debt of very far less magnitude than that to which ours has been swelled; and which cannot be contemplated without awful apprehensions of the consequences which may ultimately follow, unless some effectual means can be provided to retard its increase during war, and accelerate itsTM

diminution during peace; the means undoubtedly exists of doing both, and the necessity of employing them is generally felt; but the manner and extent in which they may be most conveniently adopted so as to avoid sudden changes in the state of political and private economy, is a problem of much more difficult solution than may generally be imagined, and is, indeed, a practical question, materially depending on circumstances as they arise. An important effect of our funding system has been to create apparently a new capital of great magnitude.

'Nominally, without doubt, a new capital is created, but really it is a portion of the value of the intrinsic capital of the nation, transferred from those who hold that capital with entire power to manage it, to a new class of proprietors, who receive a portion of its profits through the agency of government,and to whom their respective portions of these profits are guaranteed by the national faith. The effect of this system must always be to transfer a portion of the intrinsic private revenue of the nation to a new, and as to this revenue, unemployed and unproductive class; and if any considerable proportion of those who receive it were, in all other respects, unemployed and unproductive, and were tempted to fold their hands in idleness by an income thus obtained without any exertion, the moral and political mischief would be of considerable magnitude. Practically the evil is not seen, and perhaps does not exist beyond an extent which is outweighed by the advantages which this system affords to very many, who from sex, or the infirmities of either extreme of life, are incapable of making a due profit of their property by personal exertions.

'But another effect of this system is to increase the nominal capital of the nation, as valued in money, though probably by no means to the extent which some have imagined. Direct taxes on the private revenue, derived from property, if applied to pay the interest of a funded national debt, can have no effect in increasing the nominal amount of the national capital. In estimating the value of any estate, such a rent-charge to the nation would be deducted like any rent-charge paid to an individual, and the remaining capital would be less in due proportion to the capital virtually transferred rather than created. But so far as the revenue paid to the national creditors is obtained by direct taxes, personally charged, there probably results from the funding system a double representation in money value of intrinsic capital; for the money value of that capital suffers no alteration, but only a portion is substracted from its profits, while the right of receiving that portion of the profits becomes the foundation of a new species of capital, estimated in due proportion to the contemporary value of any other secure and permanent source of clear income. If, therefore, the question is properly examined, it will be found that, as the greater part of the public revenue of this country is raised by personal or by indirect taxes, for that reason the greater part of the national debt, both funded and unfunded, is an additional representation in money value of the intrinsic capital, by the profits of which its interest is paid; and to

this extent, therefore, the profit of money employed in purchasing productive capital is likely to be diminished. The money value of the whole national capital is made up of the united prices of the intrinsic capital, and of the national "debts with which it is charged. If, therefore, the prices of the intrinsic capital, as of lands, merchandise, &c. &c., remain undiminished, more money must be employed to purchase its whole clear revenue; including in that revenue the part which is paid to the national creditors.

'Personal taxes also, as well as other direct taxes, by producing a diminution of the private income, which might otherwise be expended, have obviously a tendency to increase rather than to diminish the value of money, by diminishing the means of purchasing at former prices, and therefore either reducing the consumption or the money value: which have ultimately equivalent effects, though liable to be controuled and counteracted by the mode in which the taxes are expended. Indirect taxes on consumption are generally supposed to have an important effect in increasing the prices of things so taxed much beyond a due proportion to their actual amount; in this manner diminishing the value of money, and, by a general effect on all profits of capital actively employed, increasing the nominal amount of the private incomes out of which the public revenue is paid. Without doubt all taxes on merchandise of any kind will cause an effort on the part of those who sell it to indemnify themselves, and in many cases may give them an opportunity of making an additional profit; but we apprehend that this must altogether depend on the general state of the country where they are levied. The burden of all indirect taxes will fall either on the merchant and tradesman, or on the consumer, precisely according to the increasing or diminishing means of the latter to make his usual purchases. If his means diminish, he must buy less or give a lower price; and in either case the effect of taxes on his commodities will be to diminish the profits of the trader: and the value of money, as a medium of commerce, will be increased in equal proportion. We have no doubt that, in an ultimate analysis, it will be found that a national debt, and the taxes which must be levied to pay its interest, are rather instrumental than primary causes of changes in the value of money, and in the proportion of private incomes to the demands on them for national purposes.'

Such are some of the fairest observations we have seen on the part of the friends to this system. We refer the reader to p. 300 and 301 of our article ENGLAND for other considerations of a similar tendency.

On the other hand Dr. Hamilton and Mr. Ricardo contend that 'The excess of revenue above expenditure is the only real sinking fund by which public debt can be discharged. The increase of the revenue and the diminution of expense are the only means by which this sinking fund can be enlarged, and its operation rendered more effectual: and every scheme for discharging the public debt by sinking funds operating by compound interest, or in any other manner, unless so far as they are founded upon this princi ple, are illusory.* P. 10.

If, instead of thus diminishing the loan each year, the same amount of taxes precisely had been raised, and the sinking fund had been applied in the usual manner, the amount of debt would have been exactly the same at any one of these periods. These considerations led Dr. Hamilton to the conclusion, that this first mode of raising the supplies during war, viz. by diminishing the amount of the annual loans, and stopping the purchases of the commissioners in the market, would be more economical, and that it ought therefore to be adopted. In the first piace, all the expenses of agency would be saved. In the second, the premium usually obtained by the contractor for the loan, would be saved, on that part of it which is repurchased by the commissioners in the open market. It is true that the stocks may fall as well as rise between the time of contracting for the loan, and the time of the purchases made by the commissioners; and, therefore, in some cases, the public may gain by the present arrangement; but as these chances are equal, and a certain advantage is given to the loan contractor to induce him to advance his money, independently of all contingency of future price, the public now give this advantage on the larger sum instead of on the smaller. On an average of years this cannot fail to amount to a very considerable sum.

'But both these objections would be obviated,' says Mr. Ricardo, if the clause in the original sinking fund bill, authorising the commissioners to subscribe to any loan for the public service, to the amount of the annual fund which they have to invest, were uniformly complied with. This is the mode which has, for several years, been strongly urged on ministers by Mr. Grenfell, and is far preferable to that which Dr. Hamilton recommends.'

This great, and on the whole, perhaps, most impartial of modern political economists, finally observes, 'Suppose a country to be free from debt, and a war to take place, which should involve it in an annual additional expenditure of £20,000,000, there are three modes by which this expenditure may be provided; first, taxes may be raised to the amount of £20,000,000 per annum, from which the country would be totally freed on the return of peace; or, secondly, the money might be annually borrowed and funded; in which case, if the interest agreed upon was 5 per cent., a perpetual charge of £1,000,000 per annum taxes would be incurred for the first year's expense, from which there would be no relief during peace, or in any future war; of an additional million for the second year's expense, and so on for every year that the war might last. At the end of twenty years, if the war lasted so long, the country would be perpetually encumbered with taxes of £20,000,000 per annum, aud would have to repeat the same course on the recurrence of any new war. The third mode of providing for the expenses of the war would be to borrow annually the £20,000,000 required as before, but to provide, by taxes, a fund, in addition to the interest, which, accumulating at compound interest, should finally be equal to the debt. In the case supposed, if money was raised at 5 per cent., and a sum of

£200,000 per annum, in addition to the million for interest, were provided, it would accumulate to £20,000,000 in forty-five years; and, by consenting to raise £1,200,000 per annum by taxes, for every loan of £20,000,000, each loan would be paid off in forty-five years from the time of its creation; and in forty-five years from the termination of the war, if no new debt were created, the whole would be redeemed, and the whole of the taxes would be repealed. Of these three modes, we are decidedly of opinion that the preference should be given to the first. The burthens of the war are undoubtedly great during its continuance, but at its termination they cease altogether. When the pressure of the war is felt at once, without mitigation, we shall be less disposed wantonly to engage in an expensive contest, and if engaged in it, we shall be sooner disposed to get out of it, unless it be a contest for some great national interest. In point of economy, there is no real difference in either of the modes.'

The objections to this mode of Mr. Ricardo's are, however, as we have indeed already intimated, serious: suppose the extraordinary supplies to be raised by extraordinary taxes within the year, pressed upon merchants, manufacturers, and landholders, in short on all classes whose capital is invested in property not immediately accessible or convertible into money, so that they could not meet these large demands. It has been answered that all these descriptions of people may obtain the same accommodation which they enjoy under the present system, by going into the money market and borrowing for themselves. But here a difficulty occurs, in the necessity of finding security for private loans which does not occur in the funding system. This the trader has not to offer, unless either the whole of his capital is not invested in his business, in which case he is, as to the part not invested, a capitalist, not concerned in trade; or, unless his trading capital is fixed, that is to say, invested in buildings and machinery which may be mortgaged, in which case he is pro tanto in the same situation as a landowner. But if his capital be wholly circulating, that is, constantly passing from him in the shape of wages, price of raw material, or purchase of goods, and returning to him by the produce of his sales, he can give no security, and must withdraw from his trade the portion of capital required of him, contract his dealings, and probably ruin his prospects. The fact is, that, when the government goes into the market, it is able to borrow on the credit of all the capitals of the country as one great capital, managed indeed by different individuals, some of whom will fail, but others will succeed, and by their success will keep the national capital entire; and therefore, as it makes no difference to the creditor of the public whether A is ruined and B enriched, or B ruined and A enriched, both A and B are left to possess and manage their respective capitals in their own way. But to the private creditor of A it is every thing that A, and A alone and individually should retain his property entire, and therefore the private creditor will require to have such a hold upon that property as to make it impos