52

THE THEORY OF FINANCE.

XXVIII.

ALTHOUGH he had an eminent forerunner in Mr. Huskisson, Lord Althorp, Chancellor of the Exchequer, was the first financier who boldly staked his character on the modern financial theory. Even his failures were creditable. He did not wait till he had a great majority at his back. Acting under a chief who did not profess to understand taxation, he had not authority enough for pressing a measure against the opinion of colleagues; and he found, as others if not all have found, as much disagreement in the Cabinet as in Parliament. He had more courage than Mr. Huskisson, less pride than Sir Robert Peel. He made proposals which his friends had not the heart to support, and which his short-sighted adversaries, not knowing how inconsistent they were to be in ten or twelve years, scoffingly overthrew. These checks, these falls, he endured with the elastic hardihood of a sportsman. What the improving Tories with their unbroken hosts in both Chambers might have essayed but shrank from, he induced the Whigs to undertake in a House of Commons elected under the old system, in which a vote could be won only by management, and in which all that was fresh and eager was absorbed in questions more popular than theories of taxation. He grappled with abuses which his colleague Lord Goderich had, when ruling the Exchequer, left alone; though in the year of 'prosperity,' 1825, there was nothing wanting but strength of will to carry out the doctrines of Mr. Huskisson.

IMPROVIDENCE OF WAR LOAN.

53

In a later year, Sir Robert Peel, when he enjoyed as good an opportunity as 'prosperity Robinson,' proclaimed himself the disciple of Mr. Huskisson, and led the readers of newspapers to think that no liberator of commerce had appeared between his master and himself. This way of tracing the lineage of trade reformers has been generally pursued; but it is seen to be erroneous by those who look behind the dazzling victories of the Whig Reformers and observe their skirmishes, their retreats, and the lodgment which they effected on the fortresses of Excise and Import Duties.

war.

Fifteen years had passed since the ending of the The productive powers, and the stock or capital of the nation had increased considerably; but the distribution of wealth was such that penury, not due to laziness, affected a large proportion of the dwellers in parts of Britain which had long been well peopled; their industry was burdened by the annuities paid out of their savings to the representatives of those who had lent money to the State in war time. Of five hundred millions of pounds owed by the State on account of twenty years' war, not more than three hundred millions had been actually received by Mr. Pitt and his successors. They had borrowed in a more improvident way than the financiers of Queen Anne; and they could not, when the nation's credit rose in peace, take advantage of it for the nation's good, by reducing the rate of interest, as had been

1 It has been a current belief that most of the money was advanced to foreigners by way of subsidy; but the truth is that forty-six millions only were given or lent to allies. Portugal took more than nine millions.

54

SCHEMES OF FUNDHOLDERS.

done by the early Hanoverians. This improvidence had brought gain to money-lenders; for he who lent in 1815 and transferred his claim in a later year received the difference between the two prices of his annuity; and the mutinies of 1797 enriched those who continued for thirty years to hold annuities at 31. then bought at 481.1 There were parts of London, there were towns in the southern counties, in which dwelt myriads of people who satisfied the satirical definition of a gentleman, 'a person without any visible means of gaining his livelihood;' and these gentlefolks, though no doubt they varied in the sources of their incomes, were to so great an extent fundholders, that Bath, in particular, was called 'the City of the Three per Cents.' Although their houses were taxed on assessments not falling far short of the rents, and were therefore charged, ratably, with the maintenance of destitute and idle parishioners, they escaped, by living in rich parishes, the more exorbitant rates which fell on squires and yeomen. This immunity was easily observed, whilst other advantages given by unequal laws were detected only by reasoners.

1 The last great loan of thirty-six millions was so arranged that it cost the State 5l. 128. 4d. per cent. in perpetuity. If the State had borrowed avowedly at this rate, or even at 6 per cent., which has not been thought a high rate by other belligerents, it might have paid back the exact sum received soon after the end of the war by a new loan taken on better terms, say 4 per cent. In 1822 the lenders of a very great loan were content to leave their money with the State at a reduced rate of interest, because the State was at peace and more sure to fulfil its promises; thus the taxes were lightened. This was possible because the loan had been originally taken at 5 per cent. But the greater part of the State's borrowing had been done at 3 per cent., and it has never been found possible to lead the creditors into a new contract below 3 per cent.

LANDHOLDERS v. FUNDHOLDERS.

55

Of the landholders who controlled Parliament many were too well informed to be misled by jealousy; but many others were yeomen of small estate and small mind, whose discontent, based upon the climate, had been heightened by fifteen years of disappointment, since the law had not secured them the old war prices for corn and wool.

It seems that landholders were jealous of fundholders generally; and it may be conjectured that this jealousy was specially kindled by the sight of fashionable towns and suburbs. The word 'unproductive' was used invidiously; and Sir James Graham, a squire of Cumberland, when climbing rapidly to promotion, wrote a pamphlet on economy, in which he marked out this apparently useless class in a pointed antithesis. There was then a chance of applause if a tax was proposed for fundholders to pay. There was a stronger chance of vehement protest against such a tax; for it would be easy and pleasant to certain partizans to call it confiscation, and to brandish once more the rusty epithets, 'revolutionary' and 'jacobinical.' When the Minister proposed such a tax, the knights of the shires encouraged him; and the Cumberland baronet was so sanguine that he did not think it necessary to stay through the debate and back his colleague. Mr. Goulburn, Lord Althorp's efficient predecessor, was not disconcerted by the seeming popularity of his rival's project.

But it is not to be supposed that Lord Althorp, Mr. Charles Grant, and Mr. Poulett Thomson were

56 DISCUSSION OF NEW TAX FOR FUNDHOLDERS.

so ignorant as to think that the polite inhabitants of comfortable houses, who evidently had no hard work to do, and no heavy rates to pay, owned all, or even half, of the State annuities. Below these flocks which seemed easy to shear, there were busy and cautious traders, who put their savings from time to time into the Funds, when others, perhaps more venturesome, were selling stock' to get cash for new enterprises. Such traders, providing for their families, would naturally betake themselves to the English Funds at a time when there were not, as there have been since, Foreign Funds offering higher interest, and joint stock companies promising much gain with little risk; they would be not far above the humble folks for whom the Savings Banks had been lately instituted, and they would resort to the Three per Cents. for provisional, if not permanent, investment, when their savings were too big to be put into the Savings Banks. No good economist would wish to inflict a discouraging tax on those who wished to be creditors of the State, without gambling or 'speculation.' If the whole National Debt were due to such thrifty citizens the State would be the safer. A State which borrowed of very many citizens, and spent the money on durable works of general utility, would do well to go on borrowing in times of quiet industry, when the

1 In 1852 there were 89,315 fundholders receiving not more than 51. a quarter by way of dividend, when the whole number of fundholders was 268,191. In 1879 the fundholders were said to be about 230,000. Amongst the holders of Funds, or creditors of the nation, have been reckoned, not perhaps constantly, but occasionally, the Duchess of Lancaster and the Duke of Cornwall; that is, the sovereign and the heirapparent.