considering that so large a part of this debt had been contracted in paper, if it were to be hereafter treated at its paper, and not at its nominal amount. Had this

scheme been adopted, the public debt of the United Kingdom would have stood at £600,000,000 instead of £800,000,000 or thereabouts. It would still have been reckoned at the latter sum, but it would have required the weight of only the former sum in sovereigns in order to redeem the latter sum; or, in other words, taking the whole debt as consols, the weight of gold contained in £18,000,000 sovereigns, would have sufficed to pay £24,000,000 of annual interest.

The country was hardly saved the disgrace of repudiation, with those consequences which are sure to ensue from such dishonesty. It was answered, that what might be said of that part of the public debt, which had been created in a depreciated paper, was an argument, whatever might be its worth, which could have no relevancy to that portion which had been lent in gold, or in paper at par, and that this was the largest portion of the debt. If it were said that the purchasers of old stocks had been habituated to a tax of twenty-five per cent on their dividends, and that the value of the stock had accommodated itself to this impost, it was answered, that stocks were created and transferred, on the distinct understanding, that cash payments should be resumed within six months after a definitive treaty of peace had been signed, and that a delay in doing justice is no plea for permanent robbery, During the period in which the rate was depreciated, the holders of public securities were losers. Was it just, then, that they who had been mulcted, because it was inconvenient or impossible for the State to discuss or adjust

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their claims, should, in the face of repeated protestations and assurances, be defrauded of their due when it became possible to consider the position?

I have dwelt at length on these financial operations, partly because they form an illustration of the consequences which ensue when a government paper is issued on securities, and becomes, in the inevitable course of events, depreciated; partly because the perils which beset the British fund-holder between 1815-20, are reappearing in the United States, at the present time. There is indeed no danger that any rational English economist will now endorse the arguments which, fifty years ago, nearly made shipwreck of British integrity. It is probable that at the present time, the cautious inferences of experience and forethought are developing that joint system of a metallic and subsidiary currency which secures the maximum of convenience with the minimum of risk. But the theories of 1815-20 are not extinct, and there always will be a class of enthusiasts or adventurers, who, taking advantage of the fact, that an enlarged subsidiary currency, whatever be its basis, supplies at first a great stimulus to mercantile and manufacturing enterprize, will invite the adoption of a plan which assuredly ends in commercial bankruptcy, and may involve a national repudiation.

Here it will be desirable to point out the process by which the greater part of the public debt of Great Britain was created. It must not be supposed that the sum (£800,000,000) at which it is now computed was received for the public service, It has been calculated by Mr. Macculloch that the amount actually received was £200,000,000 less than the sum to which the fundholder

is credited. If the operation of the old sinking fund be also taken into account, the sum, according to the same authority, will be found to represent £300,000,000 more than the money really borrowed. (Macculloch on Taxation and the Funding System, p. 445)

There are two ways in which a perpetual debt may be created. The borrower may raise the sum needed, either by varying the amount of interest, or by varying the amount of the principal. Thus if a government wishes to get a sum of money, it may fix the sum and invite tenders for the lowest amount of interest at which borrowers will be willing to make the loan. Or it may fix the rate of interest, and invite borrowers to subscribe for stock at the highest amount which they may be willing to pay for the stock. Both these methods of borrowing have been adopted at various periods of English financial history. The latter however, which was begun as early as the reign of Anne, became general after the war which ended with the peace of Aix-la-Chapelle, and has been all but universal ever since.

There is a manifest disadvantage in the customary system. When it is adopted on a large scale, it is all but impossible to reduce the amount of interest, by any subsequent financial operation; and when permanent annuities are dealt with, a reduction of the rate of interest is equivalent to a reduction of the public debt. Some of the old stocks were created at ten per cent., and others at sums varying from this high rate to the ordinary rate of consols. In course of time, the government has been able to take advantage of accumulations of capital seeking investment, and to lower these high rates to the lowest sums which will be taken, the option of receiving the principal being

of course offered to the public creditor. When however the rate of interest is set so low as to be, except under very rare circumstances, the minimum at which persons will lend, the possibility of reducing the rate is exceedingly improbable. The improbability amounts to an impossibility when the gross amount of the fund is very large.

Of the whole sum known familiarly as consols, only a very small portion is ordinarily in the market. What this portion is, can only be guessed, for we have no statistics, as far as I am aware, of the actual transfers of public stock. But it is clear that while the saleable value of consols at any given time is relevant to the amount ordinarily in the market, and the average value in any year, to the average amount of sellers and buyers; a far larger amount of the fund would be affected by any great financial operation; and the resistance to or dissent from a diminution in the rate of interest, would involve a far larger number of persons than are buying or selling from day to day, or from year to year.

But on the other hand, the system is said to have its advantages. It is averred that the government, at the time of making the loan, when of course, by the very fact that a loan is negotiated, it is admitted that the resources of the ordinary revenue are insufficient for the emergency, borrows on better terms than it would if it attempted to borrow a fixed sum at a varying rate of interest. Some persons have gone so far as to assert that large loans upon the latter plan would not be negotiated at all, or at least would have been negotiated on such unsatisfactory terms, that the aggregate loss in interest would be fully equal to the permanent excess of the lower rate, when

taken over a space of years; and that in short the best course was adopted, not only for the immediate exigency, but for posterity. It is possible, exaggerated as this view appears, that had the creation of a series of small funds, all bearing different rates of interest, been adopted, the risk of a reduction in the rate, when such sums reached or exceeded par, would have hindered the possibility of reducing the rate of interest to a greater extent than persons who argue in favour of the creation of such stocks believe. The market value of small stocks is always less, the security being otherwise equal, than that of larger masses of public debt. It is also alleged that the larger fund is better and more strongly held by such persons or corporations as invest largely in public securities, than any less fund would be.

I have observed that the only way in which debt could be extinguished was by a surplus of revenue over expenditure. But for many years financiers imagined, that it was possible to extinguish the debt, by borrowing money annually, by putting it into the hands of commissioners appointed for the purpose, and by adding annually the interest received on this portion, so as, it was hoped, to make, under the beneficent operation of compound interest, the sinking fund finally absorb the debt. The author of this scheme, an arithmetician named Price, induced the younger Pitt to adopt and continue such a plan. To enforce his reasonings, Mr. Price gave the results of certain calculations, the effect of which was to prove, that a penny put out at compound interest, at the commencement of our era, would amount after eighteen centuries to several globes' bigness of gold. The simple answer to this absurd theory, that no interest