• encumbrances as were incurred before the 25th December 1716, and to and for no other use, intent, or purpose whatsoever. But, in despite of this clear and explicit enactment, the Sinking Fund was very soon perverted from its original destination. Several disguised encroachments had been made in the interval between 1727 and 1732; but the first open and avowed encroachment was made in 1733. In 1732, the land-tax had been reduced to 1s. in the pound; and in order to supply the deficiency of revenue that had been thus occasioned, half a million had been borrowed, and the interest charged to the salt-tax, which was now revived, after being abolished only two years before. In the following year, it became necessary to raise an additional 500,000l., and Sir Robert Walpole moved that it should be taken from the Sinking Fund; adding, that if this proposal were objected to, he should be obliged to increase the land-tax from 1s. to 2s. in the pound. The motion was, of course, carried by a very great majority; and in 1735 and 1736, the entire produce of the Fund was anticipated and mortgaged! The Authors of the History and Proceedings of the House of Lords, in giving an account of this alienation, judiciously observe, When any additional tax is imposed, the public feel the weight of the annual public expense. This puts them upon inquiring into the necessity of that expense; and when they can see no necessity for it, they murmur, and those murmurs become dangerous to the minister. Whereas, no man feels what is taken from the Sinking Fund; therefore, no man " inquires into the necessity of that expense which occasions its being plundered; and for this reason, it will be always looked upon by ministers as a fund which they may squander with safety.' (Vol. IV. p. 511.)

Dr Price laments this perversion in the most piteous terms. Thus,' says he, after an existence of a few years, expired the Sinking Fund, that sacred blessing-once the nation's only hope-prematurely and cruelly destroyed by its own pa"rent. Could it have escaped the hands of violence, it would • have made us the envy and terror of the world, by leaving us at this time, not only tax free, but in possession of a treasure, greater, perhaps, than ever was enjoyed by any kingdom.' But although Dr Price is perfectly right in censuring Sir Robert Walpole for not imposing additional taxes to meet the deficiency in the disposable revenue, he is totally wrong in his estimate of the effects of a Sinking Fund. The truth is, that no Sinking Fund, even though it consisted of a clear surplus revenue, ever really operates at compound interest. Suppose, to illustrate this position, that there is a million of surplus cash in the Treasury, which is to be formed into a Sinking Fund:

In the first place, the commissioners for managing this fund would purchase a million's worth of stock, and would receive, at the end of the year, the dividend or interest on this stock, which had previously been paid to the public creditor: If this dividend were 50,000l., the commissioners would purchase additional stock with it; in consequence, they would, at the end of the second year, have 52,500l. to invest in a new purchase; at the end of the third year, this sum would be increased to 55,1257, and so on. Now, this is what Sir Nathaniel Gould, Dr Price, and Mr Pitt, call paying off the public debt by a Sinking Fund operating at compound interest. It is obvious, however, that there is really no such thing as a fund producing money, by its own agency, to pay off debt; and that whatever diminution is effected in the amount of the public debt, is effected by applying a portion of the produce of taxation to its extinction. The dividends which come into the hands of the commissioners, and which alone enable them to purchase additional quantities of stock, are all obtained from the tax-gatherer, and must, therefore, have been produced by the industry of the people. It is true, that by constantly applying the same amount of revenue to the extinction of a given amount of debt, its reduction is effected in the same way as if the original surplus, placed in the hands of the commissioners, had been actually increasing, by an inherent energy of its own, at compound interest; but it is essential to know, that though the modes of operation be the same, the means are totally different. The debt is reduced, because a portion of the taxes have been applied to pay it off; but it is not, and it is utterly impossible that it can ever be, reduced by the mere operation of a fund increasing at compound interest. To make capital increase at compound interest, it must be employed in some sort of productive industry; and the profits, instead of being consumed as income, must be regularly added to the principal, to form a new capital. It is unnecessary to say, that no such Sinking Fund has ever existed. Those that have been set on foot in this and other countries, have all been supported either by loans or by the produce of taxes, and have never paid off a single shilling of debt by their own agency. We are not, however, to consider this notion of the wonder-working effects of Sinking Funds, as being only a mere harmless delusion; for, so far from this, there can be no question that it has, by making the people believe that the greatest amount of debt might be defrayed without loss to any one by certain mystical operations, been one of the principal causes of the ruinous extension of the Funding System.

Delusive and absurd, however, as his notions with respect to the effect of sinking funds operating at compound interest cer

VOL. XXXIX. No. 77.

C

tainly were, the writings of Dr Price gave them the greatest currency; and, coupled with some visionary calculations he had made respecting the number of globes of gold to which a penny laid out at compound interest at the birth of Jesus Christ would have amounted in 1772, completed the delusion. The most intelligent men in the country were made to believe, that the public debt might be diminished, notwithstanding the contraction of new loans, by the operation of a sinking fund; that war, while such a scheme was going on, would increase its efficacy; and that any suspension of it then, would be the madness of giving it a mortal stab, at the very time it was making the quickest progress towards the accomplishment of its end. Mr Pitt's famous Sinking Fund of 1786 was entirely founded on the principles and calculations of Dr Price. To constitute this fund, one million per annum was appropriated by Parliament, which was to be allowed to accumulate at compound interest, by the addition of the dividends on the stock which it purchased. In 1792 some farther additions were made to this fund; and it was also enacted, that besides providing for the interest of any loan that might henceforth be contracted, additional taxes should be imposed to form a sinking fund of one per cent. on the capital stock created by such loan. As there was a considerable excess of revenue in the period from 1786 to 1793, the debt was reduced by about 10 millions, and this reduction was ascribed to the effect of the Sinking Fund operating at compound interest, though it is plain it entirely resulted from the application of surplus revenue to the purchase of stock. Subsequently to the commencement of the late Bourbon restoration war, the income of the country uniformly fell greatly short of the expenditure, and the debt rapidly increased. But although there was no annual million in the Treasury to transfer to the Commissioners, the juggle of the sinking fund was, notwithstanding, kept up. The loans for the service of the year were uniformly increased, by the whole amount of the sums placed at the disposal of the Sinking Fund Commissioners; so that, for every shilling's worth of stock transferred to them by this futile proceeding, an equal amount of NEW DEBT had to be contracted, exclusive of the loss incurred on account of the expense of management !

And yet this clumsy compound of delusion and quackery was lauded by all parties. The opposition vied with the ministry in celebrating its praises. The Sinking Fund was universally considered as the great bulwark of the country; and so lasting and powerful was the infatuation, that after fourteen

Price's Appeal to the Public on the subject of the National Debt, p. 17.

years' experience of its absolute nullity, when Lord Henry Petty, now Marquis of Lansdowne, introduced his plan of finance in 1807, it contained a system of checks to prevent the evils likely to result from allowing the Sinking Fund to accumulate without any limit, and deluging the country with a flood of wealth, by a too prompt discharge of the public debt!? We doubt whether the history of the world can furnish another instance of so extraordinary a delusion. Had the Sinking Fund involved any mysterious or unintelligible dogmas,—had it addressed itself to popular feelings and passions,-or had the notion of its efficacy originated with the mob, the prevalence of the delusion would have been less unaccountable. But the Sinking Fund was from the first a matter of pure calculation; it was projected by some of the best informed persons in the country, who continued for upwards of twenty years to believe, that they were rapidly diminishing the public debt by the agency of a Sinking Fund, which was all the while kept on foot by borrowed money! Dr Hamilton has the merit of having dissipated this delusionthe grossest, certainly, by which any people have ever suffered themselves to be blinded and deceived. He showed that the Sinking Fund, instead of reducing the debt, had really been the means of increasing it: And he proved to demonstration, that the excess of revenue above expenditure is the only real Sinking Fund by which the public debt can be discharged. The in6 crease of revenue, he observes, 6 or the diminution of ex

pense, are the only means by which this Sinking Fund can be enlarged, and its operations rendered more effectual; and all schemes for discharging the National Debt, by Sinking Funds operating at compound interest, or in any other manner, unless in so far as they are founded upon this principle, " are completely illusory.'

*

We have already seen, that the portion of the loans transferred to the Sinking Fund Commissioners in the interval be tween 1793 and 1817, amounted to 188,522,350., and the expense of the office of the Commissioners for the same period was 62,9687., making together 188,585,318.; which sum, as it was all borrowed, occasioned an annual charge to the public of 9,771,0631. But the stock which the Commissioners purchased with this sum of 188,522,3501. transferred to them out of the loans, only yielded an annual dividend of 9,168,2331. On the one hand, therefore, an annual charge of 9,771,063. was incurred to enable the Sinking Fund Commissioners to go to market; and, on the other, they bought stock which yields 9,168,2331. a year; so that, on the whole, their operations during the war have occasioned a dead loss to the country of 602,8301. *See Mr. Hume's Resolutions, No. 6.

Since

a year, equivalent to a 3 per cent. capital of 20,894,3331. the peace, the operations of the Commissioners have been equally injurious; and Mr Hume has shown, in his 25th Resolution, that the charge on account of the funded debt was 356,1537. a year, greater in 1822, than it would have been had the Sinking Fund been abolished in 1817.

Ther was only one part of Mr Pitt's plan that was really calculated to afford the means of reducing the debt; and that was, the clause moved by Mr Fox, which enacted, that taxes should be imposed, not only to provide for the interest of such loans as might be contracted in future, but also to provide a sinking fund of one per cent. on the stock so created. Had this clause been scrupulously observed, a fund would undoubtedly have been formed, which, had it been exclusively applied to that object, would ultimately have extinguished the debt contracted during the war; but it is essential to bear in mind, that it would have done this, not by the operation of compound interest, but by raising a larger amount of taxes than was required to pay the dividends on the loans. A new capital of 879,290,0421. of funded debt had been created in the interval between 1793 and 1817,* one per cent. on which, exclusive of accumulations, would have been 8,792,9007. But, instead of having a surplus income of this amount at the end of the war, when the nominal sinking fund amounted to about 15 millions, the clear real surplus did not amount to two millions; the taxes imposed to form a sinking fund on the capital of the loans having been all anticipated and mortgaged, by charging them with the interest of loans made in 1807, 1809, and 1813. It is indeed much worse than absurd to suppose, that a surplus revenue, existing in the shape of a sinking fund, will ever be unceasingly applied to the extinction of debt. It may be so applied for a few years; but, whenever any considerable difficulty is experienced in raising taxes to defray extraordinary expense, it will infallibly be diverted, as all such funds have ever been, from its proper and peculiar object. If Mr Pitt really believed that his one per cent. sinking fund would be allowed to accumulate in all time to come, we can only say, that we consider it as a more extraordinary delusion than his belief in the operations of Dr Price's globe-generating penny. But ministers have now become either more knowing, or more candid. Mr Vansittart stated, in 1813, that the sum produced by the sinking fund would be an instrument of great force in the hands of Parliament, which might lead to the most important results;'-though it is obvious, that Parliament can have no control whatever over the sinking fund,

* Parliamentary Paper, No. 145. Sess. 1822.