Of Public Debts

In that rude state of society which precedes the extension of commerce

and the improvement of manufactures; when those expensive luxuries,

which commerce and manufactures can alone introduce, are altogether

unknown; the person who possesses a large revenue, I have endeavoured to

show in the third book of this Inquiry, can spend or enjoy that revenue

in no other way than by maintaining nearly as many people as it can

ntain. A large revenue may at all times be said to consist in the

command of a large quantity of the necessaries of life. In that rude

state of things, it is commonly paid in a large quantity of those

necessaries, in the materials of plain food and coarse clothing, in

corn and cattle, in wool and raw hides. When neither commerce nor

manufactures furnish any thing for which the owner can exchange the

greater 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 ostentation have ruined many. Among our feudal ancestors,

the long time during which estates used to continue in the same family,

sufficiently demonstrates the general disposition 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 order which we are apt to consider as inseparably

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 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 bylaw, would have been still more

so. In those times of violence and disorder, besides, it was convenient

to have a hoard of money at hand, that in case they should be driven

from their own home, they might have something of known value to carry

with them to some place of safety. The same violence which made it

convenient to hoard, made it equally convenient to conceal the hoard.

The frequency of treasure-trove, or of treasure found, of which no owner

was known, sufficiently demonstrates the frequency, in those times,

both of hoarding and of concealing the hoard. Treasure-trove was then

considered as an important branch of the revenue of the sovereign. All

the treasure-trove of the kingdom would scarce, perhaps, in the present

times, make an important branch of the revenue of a private gentleman of

a good estate.

The same disposition, to save and to hoard, prevailed in the sovereign,

as well as in the subjects. Among nations, to whom commerce and

manufacture are little known, the sovereign, it has already been

observed in the Fourth book, is in a situation which naturally disposes

him to the parsimony requisite for accumulation. In that situation, the

expense, even of a sovereign, cannot be directed by that vanity which

delights in the gaudy finery of a court. The ignorance of the times

affords but few of the trinkets in which that finery consists. Standing

armies are not then necessary; so that the expense, even of a sovereign,

like that of any other great lord can be employed in scarce any thing

but bounty to his tenants, and hospitality to his retainers. But bounty

and hospitality very seldom lead to extravagance; though vanity almost

always does. All the ancient sovereigns of Europe, accordingly, it has

already been observed, had treasures. Every Tartar chief, in the present

times, is said to have one.

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 necessary

for supporting that defensive power. His ordinary expense becomes equal

to his ordinary revenue, and it is well if it does not frequently

exceed it. The amassing of treasure can no longer be expected; and

when extraordinary exigencies require extraordinary expenses, he must

necessarily call upon his subjects for an extraordinary aid. The present

and the late king of Prussia are the only great princes of Europe, who,

since the death of Henry IV. of France, in 1610, are supposed to

have amassed any considerable treasure. The parsimony which leads to

accumulation has become almost as rare in republican as in monarchical

governments. The Italian republics, the United Provinces of the

Netherlands, are all in debt. The canton of Berne is the single republic

in Europe which has amassed any considerable treasure. The other Swiss

republics have not. The taste for some sort of pageantry, for splendid

buildings, at least, and other public ornaments, frequently prevails as

much in the apparently sober senate-house of a little republic, as in

the dissipated court of the greatest king.

The want of parsimony, in time of peace, imposes the necessity of

contracting debt in time of war. When war comes, there is no money in

the treasury, but what is necessary for carrying on the ordinary expense

of the peace establishment. In war, an establishment of three or four

times that expense becomes necessary for the defence of the state;

and consequently, a revenue three or four times greater than the peace

revenue. Supposing that the sovereign should have, what he scarce ever

has, the immediate means of augmenting his revenue in proportion to the

augmentation of his expense; yet still the produce of the taxes, from

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 it 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 gradual and slow returns of the new taxes. In this

exigency, government can have no other resource but in borrowing.

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.

A country abounding with merchants and manufacturers, necessarily

abounds with a set of people through whose hands, not only their own

capitals, but the capitals of all those who either lend them money, or

trust them with goods, pass as frequently, or more frequently, than the

revenue of a private man, who, without trade or business, lives upon

his income, passes through his hands. The revenue 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.

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 manufactures, in short, can seldom flourish in any state,

in which there is not a certain degree of confidence in the justice

of government. The same confidence which disposes great merchants and

manufacturers upon ordinary occasions, to trust their property to the

protection of a particular government, disposes them, upon extraordinary

occasions, to trust that government with the use of their property.

By lending money to government, they do not even for a moment diminish

their ability to carry on their trade and manufactures; on the

contrary, they commonly augment it. The necessities of the state render

government, upon most occasions willing to borrow upon terms extremely

advantageous to the lender. The security which it grants to the original

creditor, is made transferable to any other creditor; and from the

universal confidence in the justice of the state, generally sells in the

market for more than was originally paid for it. The merchant or

monied man makes money by lending money to government, and instead of

diminishing, increases his trading capital. He generally considers it

as a favour, therefore, when the administration admits him to a share

in the first subscription for a new loan. Hence the inclination or

willingness in the subjects of a commercial state to lend.

The government of such a state is very apt to repose itself upon this

ability and willingness 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.

In a rude state of society, there are no great mercantile or

manufacturing capitals. The individuals, who hoard whatever money they

can save, and who conceal their hoard, do so from a distrust of the

justice of government; from a fear, that if it was known that they had

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.

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 may 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 mortgages of particular funds.

What is called the unfunded debt of Great Britain, is contracted in the

former of those two ways. It consists partly in a debt which bears, or

is supposed to bear, no interest, and which resembles the debts that

a private man contracts upon account; and partly in a debt which bears

interest, and which resembles what a private man contracts upon his bill

or promissory-note. The debts which are due, either for extraordinary

services, or for services either not provided for, or not paid at the

time when they are performed; part of the extraordinaries of the army,

navy, and ordnance, the arrears of subsidies to foreign princes, those

of seamen's wages, etc. usually constitute a debt of the first kind.

Navy and exchequer bills, which are issued sometimes in payment of a

part of such debts, and sometimes for other purposes, constitute a debt

of the second kind; exchequer bills bearing interest from the day on

which they are issued, and navy bills six months after they are issued.

The bank of England, either by voluntarily discounting those bills

at their current value, or by agreeing with government for certain

considerations to circulate exchequer bills, that is, to receive them

at par, paying the interest which happens to be due upon them, keeps up

their value, and facilitates their circulation, and thereby frequently

enables government to contract a very large debt of this kind. In

France, where there is no bank, the state bills (billets d'etat {See

Examen des Reflections Politiques sur les Finances.}) 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 said to

have sold from twenty-five to sixty per cent. discount; owing partly, no

doubt, to the supposed instability of the new government established by

the Revolution, but partly, too, to the want of the support of the bank

of England.

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 Great Britain, the annual land and malt taxes are regularly

anticipated every year, by virtue of a borrowing clause constantly

inserted into the acts which impose them. The bank of England generally

advances at an interest, which, since the Revolution, has varied from

eight to three per cent., the sums of 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 the public revenue

which yet remains unmortgaged, is thus regularly spent before it comes

in. Like an improvident spendthrift, whose pressing occasions will not

allow him to wait for the regular payment of his revenue, the state is

in the constant practice of borrowing of its own factors and agents, and

of paying interest for the use of its own money.

In the reign of king William, and during 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.

In 1697, by the 8th of William III., c. 20, the deficiencies of several

taxes were charged upon what was then called the first general mortgage

or fund, consisting of a prolongation to the first of August 1706, of

several different taxes, which would have expired within a shorter term,

and of which the produce was accumulated into one general fund. The

deficiencies charged upon this prolonged term amounted to £5,160,459:

14: 9½.

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 £2,055,999: 7: 11½.

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 £983,254:11:9¼.

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 £925,176:9:2¼.

In 1709, those duties were all ( except the old subsidy of tonnage and

poundage, which was now left out of this fund altogether ) still further

continued, for the same purpose, to the first of August 1716, and were

called the fifth general mortgage or fund. The sum borrowed upon it was


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 £1,296,552:9:11¾.

In 1711, the same duties (which at this time were thus subject to four

different anticipations), together with several others, were continued

for ever, and made a fund for paying the interest of the capital of

the South-sea company, which had that year advanced to government, for

paying debts, and making good deficiencies, the sum of £9,177,967:15:4d,

the greatest loan which at that time had ever been made.

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 £3,375,027:17:10½, for which was paid an

annuity or interest of £206,501:15:5d. The East-India fund amounted to

£3,200,000, for which was paid an annuity or interest of £160,000; the

bank fund being at six per cent., the East-India fund at five per cent.


In 1715, by the first of George I., c. 12, the different taxes which

had been mortgaged for paying the bank annuity, together with several

others, which, by this act, were likewise rendered perpetual, were

accumulated into one common fund, called the aggregate fund, which was

charged not only with the payment of the bank annuity, but with several

other annuities and burdens of different kinds. This fund was afterwards

augmented by the third of George I., c.8., and by the fifth of George

I., c. 3, and the different duties which were then added to it were

likewise 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 £724,849:6:10½.

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 public 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.

During the reign of queen Anne, the market rate of interest had fallen

from six to five per cent.; and, in the twelfth year of her reign, five

per cent. was declared to be the highest rate which could lawfully be

taken for money borrowed upon private security. Soon after the

greater part of the temporary taxes of Great Britain had been rendered

perpetual, and distributed into the aggregate, South-sea, and general

funds, the creditors of the public, like those of private persons, were

induced to accept of five per cent. for the interest of their money,

which occasioned a saving of one per cent. upon the capital of the

greater part or 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

£523,454:7:7½. 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


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 1695, an act was passed for

borrowing one million upon an annuity of fourteen per cent., or £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

borrowing 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 exchange them for others of ninety-six

years, upon paying into the exchequer sixty-three pounds in the hundred;

that is, the difference between fourteen per cent. for life, and

fourteen per cent. for ninety-six years, was sold for sixty-three

pounds, or for four and a-half years purchase. Such was the supposed

instability of government, that even these terms procured few

purchasers. In the reign of queen Anne, money was, upon different

occasions, borrowed both upon annuities for lives, and upon annuities

for terms of thirty-two, of eighty-nine, of ninety-eight, and of

ninety-nine years. In 1719, the proprietors of the annuities for

thirty-two years were induced to accept, in lieu of them, South-sea

stock to the amount of eleven and a-half years purchase of the

annuities, together with an additional quantity of stock, equal to the

arrears which happened then to be due upon them. In 1720, the greater

part of the other annuities for terms of years, both long and short,

were subscribed into the same fund. The long annuities, at that time,

amounted to £666,821: 8:3½ a-year. On the 5th of January 1775, the

remainder of them, or what was not subscribed at that time, amounted

only to £136,453:12:8d.

During the two wars which began in 1739 and in 1755, little money was

borrowed, either upon annuities for terms of years, or upon those for

lives. An annuity for ninety-eight or ninety-nine years, however, is

worth nearly as much as a perpetuity, and should therefore, one might

think, be a fund for borrowing nearly as much. But those who, in order

to make family settlements, and to provide for remote futurity, buy

into the public stocks, would not care to purchase into one of which

the value was continually diminishing; and such people make a very

considerable proportion, both of the proprietors and purchasers of

stock. An annuity for a long term of years, therefore, though its

intrinsic value may be very nearly the same with that of a perpetual

annuity, will not find nearly the same number of purchasers. The

subscribers to a new loan, who mean generally to sell their subscription

as soon as possible, prefer greatly a perpetual annuity, redeemable by

parliament, to an irredeemable annuity, for a long term of years, of

only equal amount. The value of the former may be supposed always

the same, or very nearly the same; and it makes, therefore, a more

convenient transferable stock than the latter.

During the two last-mentioned wars, annuities, either for terms of years

or for lives, were seldom granted, but as premiums to the subscribers of

a new loan, over and above the redeemable annuity or interest, upon the

credit of which the loan was supposed to be made. They were granted,

not as the proper fund upon which the money was borrowed, but as an

additional encouragement to the lender.

Annuities for lives have occasionally been granted in two different

ways; either upon separate lives, or upon lots of lives, which, in

French, are called tontines, from the name of their inventor. When

annuities are granted upon separate lives, the death of every individual

annuitant disburdens the public revenue, so far as it was affected by

his annuity. When annuities are granted upon tontines, the liberation

of the public revenue does not commence till the death of all the

annuitants comprehended in one lot, which may sometimes consist of

twenty or thirty persons, of whom the survivors succeed to the annuities

of all those who die before them; the last survivor succeeding to the

annuities of the whole lot. Upon the same revenue, more money can always

be raised by tontines than by annuities for separate lives. An annuity,

with a right of survivorship, is really worth more than an equal annuity

for a separate life; and, from the confidence which every man naturally

has in his own good fortune, the principle upon which is founded the

success of all lotteries, such an annuity generally sells for something

more than it is worth. In countries where it is usual for government

to raise money by granting annuities, tontines are, upon this account,

generally preferred to annuities for separate lives. The expedient

which will raise most money, is almost always preferred to that which

is likely to bring about, in the speediest manner, the liberation of the

public revenue.

In France, a much greater proportion of the public debts consists in

annuities for lives than in England. According to a memoir presented by

the parliament of Bourdeaux to the king, in 1764, the whole public debt

of France is estimated at twenty-four hundred millions of livres; of

which the capital, for which annuities for lives had been granted, is

supposed to amount to three hundred millions, the eighth part of the

whole public debt. The annuities themselves are computed to amount

to thirty millions a-year, the fourth part of one hundred and twenty

millions, the supposed interest of that whole debt. These estimations,

I know very well, are not exact; but having been presented by so

very respectable a body as approximations to the truth, they may, I

apprehend, be considered as such. It is not the different degrees of

anxiety in the two governments of France and England for the liberation

of the public revenue, which occasions this difference in their

respective modes of borrowing; it arises altogether from the different

views and interests of the lenders.

In England, the seat of government being in the greatest mercantile city

in the world, the merchants are generally the people who advance money

to government. By advancing it, they do not mean to diminish, but, on

the contrary, to increase their mercantile capitals; and unless they

expected to sell, with some profit, their share in the subscription

for a new loan, they never would subscribe. But if, by advancing their

money, they were to purchase, instead of perpetual annuities, annuities

for lives only, whether their own or those of other people, they would

not always be so likely to sell them with a profit. Annuities upon their

own lives they would always sell with loss; because no man will give for

an annuity upon the life of another, whose age and state of health are

nearly the same with his own, the same price which he would give for one

upon his own. An annuity upon the life of a third person, indeed, is,

no doubt, of equal value to the buyer and the seller; but its real value

begins to diminish from the moment it is granted, and continues to do

so, more and more, as long as it subsists. It can never, therefore, make

so convenient a transferable stock as a perpetual annuity, of which the

real value may be supposed always the same, or very nearly the same.

In France, the seat of government not being in a great mercantile city,

merchants do not make so great a proportion of the people who advance

money to government. The people concerned in the finances, the

farmers-general, the receivers of the taxes which are not in farm, the

court-bankers, etc. make the greater part of those who advance their

money in all public exigencies. Such people are commonly men of mean

birth, but of great wealth, and frequently of great pride. They are too

proud to marry their equals, and women of quality disdain to marry

them. They frequently resolve, therefore, to live bachelors; and having

neither any families of their own, nor much regard for those of their

relations, whom they are not always very fond of acknowledging, they

desire only to live in splendour during their own time, and are not

unwilling that their fortune should end with themselves. The number of

rich people, besides, who are either averse to marry, or whose condition

of life renders it either improper or inconvenient for them to do so, is

much greater in France than in England. To such people, who have

little or no care for posterity, nothing can be more convenient than to

exchange their capital for a revenue, which is to last just as long, and

no longer, than they wish it to do.

The ordinary expense of the greater part of modern governments, in time

of peace, being equal, or nearly equal, to their ordinary revenue, when

war comes, they are both unwilling and unable to increase their revenue

in proportion to the increase of their expense. They are unwilling, for

fear of offending the people, who, by so great and so sudden an increase

of taxes, would soon be disgusted with the war; and they are unable,

from not well knowing what taxes would be sufficient to produce the

revenue wanted. The facility of borrowing delivers them from the

embarrassment which this fear and inability would otherwise occasion. By

means of borrowing, they are enabled, with a very moderate increase of

taxes, to raise, from year to year, money sufficient for carrying on the

war; and by the practice of perpetual funding, they are enabled, with

the smallest possible increase of taxes, to raise annually the largest

possible sum of money. In great empires, the people who live in the

capital, and in the provinces remote from the scene of action, feel,

many of them, scarce any inconveniency from the war, but enjoy, at their

ease, the amusement of reading in the newspapers the exploits of their

own fleets and armies. To them this amusement compensates the small

difference between the taxes which they pay on account of the war, and

those which they had been accustomed to pay in time of peace. They are

commonly dissatisfied with the return of peace, which puts an end to

their amusement, and to a thousand visionary hopes of conquest and

national glory, from a longer continuance of the war.

The return of peace, indeed, seldom relieves them from the greater

part of the taxes imposed during the war. These are mortgaged for the

interest of the debt contracted, in order to carry it on. If, over

and above paying the interest of this debt, and defraying the ordinary

expense of government, the old revenue, together with the new taxes,

produce some surplus revenue, it may, perhaps, be converted into a

sinking fund for paying off the debt. But, in the first place, this

sinking fund, even supposing it should be applied to no other purpose,

is generally altogether inadequate for paying, in the course of any

period during which it can reasonably be expected that peace should

continue, the whole debt contracted during the war; and, in the second

place, this fund is almost always applied to other purposes.

The new taxes were imposed for the sole purpose of paying the interest

of the money borrowed upon them. If they produce more, it is generally

something which was neither intended nor expected, and is, therefore,

seldom very considerable. Sinking funds have generally arisen, not so

much from any surplus of the taxes which was over and above what was

necessary for paying the interest or annuity originally charged upon

them, as from a subsequent reduction of that interest; that of Holland

in 1655, and that of the ecclesiastical state in 1685, were both formed

in this manner. Hence the usual insufficiency of such funds.

During the most profound peace, various events occur, which require an

extraordinary expense; and government finds it always more convenient to

defray this expense by misapplying the sinking fund, than by imposing a

new tax. Every new tax is immediately felt more or less by the people.

It occasions always some murmur, and meets with some opposition. The

more taxes may have been multiplied, the higher they may have been

raised upon every different subject of taxation; the more loudly the

people complain of every new tax, the more difficult it becomes, too,

either to find out new subjects of taxation, or to raise much higher

the taxes already imposed upon the old. A momentary suspension of the

payment of debt is not immediately felt by the people, and occasions

neither murmur nor complaint. To borrow of the sinking fund is always

an obvious and easy expedient for getting out of the present difficulty.

The more the public debts may have been accumulated, the more necessary

it may have become to study to reduce them; the more dangerous, the more

ruinous it may be to misapply any part of the sinking fund; the less

likely is the public debt to be reduced to any considerable degree, the

more likely, the more certainly, is the sinking fund to be misapplied

towards defraying all the extraordinary expenses which occur in time of

peace. When a nation is already overburdened with taxes, nothing but the

necessities of a new war, nothing but either the animosity of national

vengeance, or the anxiety for national security, can induce the people

to submit, with tolerable patience, to a new tax. Hence the usual

misapplication of the sinking fund.

In Great Britain, from the time that we had first recourse to the

ruinous expedient of perpetual funding, the reduction of the public

debt, in time of peace, has never borne any proportion to its

accumulation in time of war. It was in the war which began in 1668, and

was concluded by the treaty of Ryswick, in 1697, that the foundation of

the present enormous debt of Great Britain was first laid.

On the 31st of December 1697, the public debts of Great Britain, funded

and unfunded, amounted to £21,515,742:13:8½. A great part of those

debts had been contracted upon short anticipations, and some part upon

annuities for lives; so that, before the 31st of December 1701, in less

than four years, there had partly been paid off; and partly reverted

to the public, the sum of £5,121,041:12:0¾d; a greater reduction of the

public debt than has ever since been brought about in so short a

period of time. The remaining debt, therefore, amounted only to


In the war which began in 1702, and which was concluded by the treaty

of Utrecht, the public debts were still more accumulated. On the 31st of

December 1714, they amounted to £53,681,076:5:6½. The subscription

into the South-sea fund, of the short and long annuities, increased the

capital of the public debt; so that, on the 31st of December 1722, it

amounted to £55,282,978:1:3 5/6. The reduction of the debt began in

1723, and went on so slowly, that, on the 31st of December 1739, during

seventeen years-of profound peace, the whole sum paid off was no more

than £8,328,554:17:11 3/12, the capital of the public debt, at that

time, amounting to £46,954,623:3:4 7/12.

The Spanish war, which began in 1739, and the French war which soon

followed it, occasioned a further increase of the debt, which, on the

31st of December 1748, after the war had been concluded by the treaty of

Aix-la-Chapelle, amounted to £78,293,313:1:10¾. The most profound peace,

of 17 years continuance, had taken no more than £8,328,354, 17:11¼ from

it. A war, of less than nine years continuance, added £31,338,689:18: 6

1/6 to it. {See James Postlethwaite's History of the Public Revenue.}

During the administration of Mr. Pelham, the interest of the public debt

was reduced, or at least measures were taken for reducing it, from four

to three per cent.; the sinking fund was increased, and some part of the

public debt was paid off. In 1755, before the breaking out of the late

war, the funded debt of Great Britain amounted to £72,289,675. On the

5th of January 1763, at the conclusion of the peace, the funded debt

amounted debt to £122,603,336:8:2¼. The unfunded debt has been stated at

£13,927,589:2:2. But the expense occasioned by the war did not end with

the conclusion of the peace; so that, though on the 5th of January

1764, the funded debt was increased (partly by a new loan, and partly by

funding a part of the unfunded debt) to £129,586,789:10:1¾, there still

remained (according to the very well informed author of Considerations

on the Trade and Finances of Great Britain) an unfunded debt, which was

brought to account in that and the following year, of £9,975,017: 12:2

15/44d. In 1764, therefore, the public debt of Great Britain, funded

and unfunded together, amounted, according to this author, to

£139,561,807:2:4. The annuities for lives, too, which had been granted

as premiums to the subscribers to the new loans in 1757, estimated at

fourteen years purchase, were valued at £472,500; and the annuities for

long terms of years, granted as premiums likewise, in 1761 and 1762,

estimated at twenty-seven and a-half years purchase, were valued at

£6,826,875. During a peace of about seven years continuance, the prudent

and truly patriotic administration of Mr. Pelham was not able to pay

off an old debt of six millions. During a war of nearly the same

continuance, a new debt of more than seventy-five millions was


On the 5th of January 1775, the funded debt of Great Britain amounted to

£124,996,086, 1:6¼d. The unfunded, exclusive of a large civil-list debt,

to £4,150,236:3:11 7/8. Both together, to £129,146,322:5:6. According to

this account, the whole debt paid off, during eleven years of profound

peace, amounted only to £10,415,476:16:9 7/8. Even this small reduction

of debt, however, has not been all made from the savings out of the

ordinary revenue of the state. Several extraneous sums, altogether

independent of that ordinary revenue, have contributed towards it.

Amongst these we may reckon an additional shilling in the pound land

tax, for three years; the two millions received from the East-India

company, as indemnification for their territorial acquisitions; and

the one hundred and ten thousand pounds received from the bank for the

renewal of their charter. To these must be added several other sums,

which, as they arose out of the late war, ought perhaps to be considered

as deductions from the expenses of it. The principal are,

The produce of French prizes.............. £690,449: 18: 9

Composition for French prisoners......... 670,000: 0: 0

What has been received from the sale

of the ceded islands......................... 95,500: 0: 0

Total, .....................................£1,455,949: 18: 9

If we add to this sum the balance of the earl of Chatham's and Mr.

Calcraft's accounts, and other army savings of the same kind, together

with what has been received from the bank, the East-India company, and

the additional shilling in the pound land tax, the whole must be a good

deal more than five millions. The debt, therefore, which, since the

peace, has been paid out of the savings from the ordinary revenue of

the state, has not, one year with another, amounted to half a million

a-year. The sinking fund has, no doubt, been considerably augmented

since the peace, by the debt which had been paid off, by the reduction

of the redeemable four per cents to three per cents, and by the

annuities for lives which have fallen in; and, if peace were to

continue, a million, perhaps, might now be annually spared out of it

towards the discharge of the debt. Another million, accordingly,

was paid in the course of last year; but at the same time, a large

civil-list debt was left unpaid, and we are now involved in a new war,

which, in its progress, may prove as expensive as any of our former

wars. {It has proved more expensive than any one of our former wars, and

has involved us in an additional debt of more than one hundred millions.

During a profound peace of eleven years, little more than ten millions

of debt was paid; during a war of seven years, more than one hundred

millions was contracted.} The new debt which will probably be contracted

before the end of the next campaign, may, perhaps, be nearly equal to

all the old debt which has been paid off from the savings out of the

ordinary revenue of the state. It would be altogether chimerical,

therefore, to expect that the public debt should ever be completely

discharged, by any savings which are likely to be made from that

ordinary revenue as it stands at present.

The public funds of the different indebted nations of Europe,

particularly those of England, have, by one author, been represented as

the accumulation of a great capital, superadded to the other capital of

the country, by means of which its trade is extended, its manufactures

are multiplied, and its lands cultivated and improved, much beyond what

they could have been by means of that other capital only. He does

not consider that the capital which the first creditors of the public

advanced to government, was, from the moment in which he advanced it, a

certain portion of the annual produce, turned away from serving in the

function of a capital, to serve in that of a revenue; from maintaining

productive labourers, to maintain unproductive ones, and to be spent and

wasted, generally in the course of the year, without even the hope of

any future reproduction. In return for the capital which they advanced,

they obtained, indeed, an annuity of the public funds, in most cases,

of more than equal value. This annuity, no doubt, replaced to them their

capital, and enabled them to carry on their trade and business to the

same, or, perhaps, to a greater extent than before; that is, they were

enabled, either to borrow of other people a new capital, upon the

credit of this annuity or, by selling it, to get from other people a

new capital of their own, equal, or superior, to that which they had

advanced to government. This new capital, however, which they in this

manner either bought or borrowed of other people, must have existed in

the country before, and must have been employed, as all capitals are, in

maintaining productive labour. When it came into the hands of those who

had advanced their money to government, though it was, in some respects,

a new capital to them, it was not so to the country, but was only

a capital withdrawn from certain employments, in order to be turned

towards others. Though it replaced to them what they had advanced to

government, it did not replace it to the country. Had they not advanced

this capital to government, there would have been in the country two

capitals, two portions of the annual produce, instead of one, employed

in maintaining productive labour.

When, for defraying the expense of government, a revenue is raised

within the year, from the produce of free or unmortgaged taxes, a

certain portion of the revenue of private people is only turned away

from maintaining one species of unproductive labour, towards maintaining

another. Some part of what they pay in those taxes, might, no doubt,

have been accumulated into capital, and consequently employed in

maintaining productive labour; but the greater part would probably

have been spent, and consequently employed in maintaining unproductive

labour. The public expense, however, when defrayed in this manner, no

doubt hinders, more or less, the further accumulation of new

capital; but it does not necessarily occasion the destruction of any

actually-existing capital.

When the public expense is defrayed by funding, it is defrayed by the

annual destruction of some capital which had before existed in the

country; by the perversion of some portion of the annual produce which

had before been destined for the maintenance of productive labour,

towards that of unproductive labour. As in this case, however, the taxes

are lighter than they would have been, had a revenue sufficient for

defraying the same expense been raised within the year; the private

revenue of individuals is necessarily less burdened, and consequently

their ability to save and accumulate some part of that revenue into

capital, is a good deal less impaired. If the method of funding destroys

more old capital, it, at the same time, hinders less the accumulation or

acquisition of new capital, than that of defraying the public expense

by a revenue raised within the year. Under the system of funding, the

frugality and industry of private people can more easily repair the

breaches which the waste and extravagance of government may occasionally

make in the general capital of the society.

It is only during the continuance of war, however, that the system of

funding has this advantage over the other system. Were the expense of

war to be defrayed always by a revenue raised within the year, the taxes

from which that extraordinary revenue was drawn would last no longer

than the war. The ability of private people to accumulate, though less

during the war, would have been greater during the peace, than under

the system of funding. War would not necessarily have occasioned the

destruction of any old capitals, and peace would have occasioned the

accumulation of many more new. Wars would, in general, be more speedily

concluded, and less wantonly undertaken. The people feeling, during

continuance of war, the complete burden of it, would soon grow weary

of it; and government, in order to humour them, would not be under the

necessity of carrying it on longer than it was necessary to do so. The

foresight of the heavy and unavoidable burdens of war would hinder the

people from wantonly calling for it when there was no real or solid

interest to fight for. The seasons during which the ability of private

people to accumulate was somewhat impaired, would occur more rarely,

and be of shorter continuance. Those, on the contrary, during which that

ability was in the highest vigour would be of much longer duration than

they can well be under the system of funding.

When funding, besides, has made a certain progress, the multiplication

of taxes which it brings along with it, sometimes impairs as much the

ability of private people to accumulate, even in time of peace, as the

other system would in time of war. The peace revenue of Great Britain

amounts at present to more than ten millions a-year. If free and

unmortgaged, it might be sufficient, with proper management, and without

contracting a shilling of new debt, to carry on the most vigorous war.

The private revenue of the inhabitants of Great Britain is at present as

much incumbered in time of peace, their ability to accumulate is as much

impaired, as it would have been in the time of the most expensive war,

had the pernicious system of funding never been adopted.

In the payment of the interest of the public debt, it has been said, it

is the right hand which pays the left. The money does not go out of the

country. It is only a part of the revenue of one set of the inhabitants

which is transferred to another; and the nation is not a farthing the

poorer. This apology is founded altogether in the sophistry of the

mercantile system; and, after the long examination which I have already

bestowed upon that system, it may, perhaps, be unnecessary to say

anything further about it. It supposes, besides, that the whole public

debt is owing to the inhabitants of the country, which happens not to be

true; the Dutch, as well as several other foreign nations, having a very

considerable share in our public funds. But though the whole debt

were owing to the inhabitants of the country, it would not, upon that

account, be less pernicious.

Land and capital stock are the two original sources of all revenue, both

private and public. Capital stock pays the wages of productive labour,

whether employed in agriculture, manufactures, or commerce. The

management of those two original sources of revenue belongs to two

different sets of people; the proprietors of land, and the owners or

employers of capital stock.

The proprietor of land is interested, for the sake of his own revenue,

to keep his estate in as good condition as he can, by building and

repairing his tenants houses, by making and maintaining the necessary

drains and inclosures, and all those other expensive improvements

which it properly belongs to the landlord to make and maintain. But,

by different land taxes, the revenue of the landlord may be so

much diminished, and, by different duties upon the necessaries and

conveniencies of life, that diminished revenue may be rendered of so

little real value, that he may find himself altogether unable to make

or maintain those expensive improvements. When the landlord, however,

ceases to do his part, it is altogether impossible that the tenant

should continue to do his. As the distress of the landlord increases,

the agriculture of the country must necessarily decline.

When, by different taxes upon the necessaries and conveniencies of life,

the owners and employers of capital stock find, that whatever revenue

they derive from it, will not, in a particular country, purchase the

same quantity of those necessaries and conveniencies which an equal

revenue would in almost any other, they will be disposed to remove to

some other. And when, in order to raise those taxes, all or the greater

part of merchants and manufacturers, that is, all or the greater part of

the employers of great capitals, come to be continually exposed to the

mortifying and vexatious visits of the tax-gatherers, this disposition

to remove will soon be changed into an actual removing. The industry of

the country will necessarily fall with the removal of the capital which

supported it, and the ruin of trade and manufactures will follow the

declension of agriculture.

To transfer from the owners of those two great sources of revenue, land,

and capital stock, from the persons immediately interested in the

good condition of every particular portion of land, and in the good

management of every particular portion of capital stock, to another set

of persons (the creditors of the public, who have no such particular

interest ), the greater part of the revenue arising from either, must,

in the long-run, occasion both the neglect of land, and the waste or

removal of capital stock. A creditor of the public has, no doubt, a

general interest in the prosperity of the agriculture, manufactures, and

commerce of the country; and consequently in the good condition of its

land, and in the good management of its capital stock. Should there be

any general failure or declension in any of these things, the produce of

the different taxes might no longer be sufficient to pay him the

annuity or interest which is due to him. But a creditor of the public,

considered merely as such, has no interest in the good condition of any

particular portion of land, or in the good management of any particular

portion of capital stock. As a creditor of the public, he has no

knowledge of any such particular portion. He has no inspection of it. He

can have no care about it. Its ruin may in some cases be unknown to him,

and cannot directly affect him.

The practice of funding has gradually enfeebled every state which has

adopted it. The Italian republics seem to have begun it. Genoa and

Venice, the only two remaining which can pretend to an independent

existence, have both been enfeebled by it. Spain seems to have learned

the practice from the Italian republics, and (its taxes being probably

less judicious than theirs) it has, in proportion to its natural

strength, been-still more enfeebled. The debts of Spain are of very old

standing. It was deeply in debt before the end of the sixteenth

century, about a hundred years before England owed a shilling.

France, notwithstanding all its natural resources, languishes under an

oppressive load of the same kind. The republic of the United Provinces

is as much enfeebled by its debts as either Genoa or Venice. Is it

likely that, in Great Britain alone, a practice, which has brought

either weakness or dissolution into every other country, should prove

altogether innocent?

The system of taxation established in those different countries, it

may be said, is inferior to that of England. I believe it is so. But it

ought to be remembered, that when the wisest government has exhausted

all the proper subjects of taxation, it must, in cases of urgent

necessity, have recourse to improper ones. The wise republic of Holland

has, upon some occasions, been obliged to have recourse to taxes as

inconvenient as the greater part of those of Spain. Another war, begun

before any considerable liberation of the public revenue had been

brought about, and growing in its progress as expensive as the last war,

may, from irresistible necessity, render the British system of taxation

as oppressive as that of Holland, or even as that of Spain. To the

honour of our present system of taxation, indeed, it has hitherto given

so little embarrassment to industry, that, during the course even of the

most expensive wars, the frugality and good conduct of individuals

seem to have been able, by saving and accumulation, to repair all the

breaches which the waste and extravagance of government had made in the

general capital of the society. At the conclusion of the late war, the

most expensive that Great Britain ever waged, her agriculture was as

flourishing, her manufacturers as numerous and as fully employed, and

her commerce as extensive, as they had ever been before. The capital,

therefore, which supported all those different branches of industry,

must have been equal to what it had ever been before. Since the peace,

agriculture has been still further improved; the rents of houses

have risen in every town and village of the country, a proof of the

increasing wealth and revenue of the people; and the annual amount of

the greater part of the old taxes, of the principal branches of the

excise and customs, in particular, has been continually increasing, an

equally clear proof of an increasing consumption, and consequently of

an increasing produce, which could alone support that consumption. Great

Britain seems to support with ease, a burden which, half a century ago,

nobody believed her capable of supporting, Let us not, however, upon

this account, rashly conclude that she is capable of supporting any

burden; nor even be too confident that she could support, without great

distress, a burden a little greater than what has already been laid upon


When national debts have once been accumulated to a certain degree,

there is scarce, I believe, a single instance of their having been

fairly and completely paid. The liberation of the public revenue, if it

has ever been brought about at all, has always been brought about by a

bankruptcy; sometimes by an avowed one, though frequently by a pretended


The raising of the denomination of the coin has been the most usual

expedient by which a real public bankruptcy has been disguised under the

appearance of a pretended payment. If a sixpence, for example, should,

either by act of parliament or royal proclamation, be raised to the

denomination of a shilling, and twenty sixpences to that of a pound

sterling; the person who, under the old denomination, had borrowed

twenty shillings, or near four ounces of silver, would, under the new,

pay with twenty sixpences, or with something less than two ounces. A

national debt of about a hundred and twenty-eight millions, near the

capital of the funded and unfunded debt of Great Britain, might, in this

manner, be paid with about sixty-four millions of our present money.

It would, indeed, be a pretended payment only, and the creditors of the

public would really be defrauded of ten shillings in the pound of what

was due to them. The calamity, too, would extend much further than to

the creditors of the public, and those of every private person would

suffer a proportionable loss; and this without any advantage, but in

most cases with a great additional loss, to the creditors of the public.

If the creditors of the public, indeed, were generally much in debt to

other people, they might in some measure compensate their loss by paying

their creditors in the same coin in which the public had paid them. But

in most countries, the creditors of the public are, the greater part of

them, wealthy people, who stand more in the relation of creditors

than in that of debtors, towards the rest of their fellow citizens.

A pretended payment of this kind, therefore, instead of alleviating,

aggravates, in most cases, the loss of the creditors of the public; and,

without any advantage to the public, extends the calamity to a great

number of other innocent people. It occasions a general and most

pernicious subversion of the fortunes of private people; enriching,

in most cases, the idle and profuse debtor, at the expense of the

industrious and frugal creditor; and transporting a great part of

the national capital from the hands which were likely to increase and

improve it, to those who are likely to dissipate and destroy it. When

it becomes necessary for a state to declare itself bankrupt, in the same

manner as when it becomes necessary for an individual to do so, a fair,

open, and avowed bankruptcy, is always the measure which is both least

dishonourable to the debtor, and least hurtful to the creditor. The

honour of a state is surely very poorly provided for, when, in order to

cover the disgrace of a real bankruptcy, it has recourse to a juggling

trick of this kind, so easily seen through, and at the same time so

extremely pernicious.

Almost all states, however, ancient as well as modern, when reduced to

this necessity, have, upon some occasions, played this very juggling

trick. The Romans, at the end of the first Punic war, reduced the As,

the coin or denomination by which they computed the value of all their

other coins, from containing twelve ounces of copper, to contain only

two ounces; that is, they raised two ounces of copper to a denomination

which had always before expressed the value of twelve ounces. The

republic was, in this manner, enabled to pay the great debts which it

had contracted with the sixth part of what it really owed. So sudden and

so great a bankruptcy, we should in the present times be apt to imagine,

must have occasioned a very violent popular clamour. It does not appear

to have occasioned any. The law which enacted it was, like all other

laws relating to the coin, introduced and carried through the assembly

of the people by a tribune, and was probably a very popular law. In

Rome, as in all other ancient republics, the poor people were constantly

in debt to the rich and the great, who, in order to secure their votes

at the annual elections, used to lend them money at exorbitant interest,

which, being never paid, soon accumulated into a sum too great either

for the debtor to pay, or for any body else to pay for him. The debtor,

for fear of a very severe execution, was obliged, without any further

gratuity, to vote for the candidate whom the creditor recommended. In

spite of all the laws against bribery and corruption, the bounty of the

candidates, together with the occasional distributions of coin which

were ordered by the senate, were the principal funds from which, during

the latter times of the Roman republic, the poorer citizens derived

their subsistence. To deliver themselves from this subjection to their

creditors, the poorer citizens were continually calling out, either for

an entire abolition of debts, or for what they called new tables; that

is, for a law which should entitle them to a complete acquittance, upon