opinion, that the increased expenditure occasioned by a war, ought either to be entirely defrayed by a proportional increase of taxation, or partly by that means, and partly by loans.

The question, which of these modes should be adopted, has been long and vehemently discussed; and has given rise to the most opposite and contradictory statements. We do not, however, think that there really was, at any time, much room for these differences of opinion; though, if there was, the financial operations of the last thirty years have furnished abundant materials for settling them, and for enabling us to come to a satisfactory conclusion on the subject. This, therefore, has appeared to us as a peculiarly fit period for endeavouring to revive the discussion of this question; not only because we are now in a situation to try the deductions of theory by the results of the most enlarged experience, but because there are several circumstances which render it extremely desirable that the public mind should be well informed on this point. Without being previously acquainted with the principles of the funding system, it is impossible to obtain any accurate knowledge of the financial situation of the country, or to judge of the expediency of the important measures lately adopted with respect to the sinking fund, and the annuities or dead weight. Neither should it be forgotten, that we have no security for the continuance of peace; and that, considering the avowed pretensions of the Holy Leaguers, it is impossible to say how soon we may be reduced to the necessity of choosing between these opposite systems, and of deciding whether we shall raise the supplies for a war within the year by an equivalent increase of taxation, or continue the system of borrowing. But it would be impossible to institute a calm and dispassionate inquiry into the comparative merits of these plans during the bustle and excitement of warlike preparations. A period of peace is the proper period for making such investigations; and we ought not to neglect the opportunity now afforded for considering this important question, and for digesting and maturing whatever measures may be necessary to enable us, on any future emergency, to raise the supplies in the best possible manner. Promovere, says Count Verri, i lumi e la curiosità nelle materie di Finanza e di Commercio, sara sempre la preparazione migliore di tutti per comminciar le riforme.*

Before entering on the discussion of the merits of the Funding System, as a plan for providing for the extraordinary ex

* Meditazioni Sulla Economia Publica, p. 214, ed. 1772.

penses of a state, we may shortly observe, that in its infancy, its nature and effects were very generally misunderstood; and several unfounded opinions were then advanced respecting it, which are not yet entirely relinquished. Bishop Berkeley pretty plainly insinuates, that he considered the public funds as a mine of gold.' (Querist, No. 233.) Melon, the author of the Essai Politique sur le Commerce, published in 1735, does not go quite so far as Berkeley; but he contends, and his opinion has had many supporters, that the debts of a nation are debts of the right hand to the left; and that they have no tendency either to increase or diminish national wealth. (p. 296, ed. 1736.) At length, M. Pinto, a Jew merchant, resident in Holland, and the author of an otherwise ingenious work, De la Circulation et du Credit, published in 1771, undertook to demonstrate, that the public debt, far from being a burden, was just so much added to the national wealth, by the magical influence of credit! (p. 44.) This ridiculous paradox has since been advocated by Mr Hope of Amsterdam, Mr Gale, and Mr Spence; and, what is still more extraordinary, Mr Justice Bayley was so much captivated by it, that, in an unlucky moment, he left Blackstone for Pinto, and harangued the Grand Jury of Yorkshire on the enriching quality of a large national debt! Discourses such as these,' says Hume, in his Essay on Public Credit, might naturally have passed for trials of 'wit among rhetoricians, like the panegyrics on folly and a fever, on Busiris and Nero, had we not seen such absurd mea'sures patronized by great ministers, and even by a whole party amongst us.' The fallacy of these opinions is indeed so glaring and obvious, that it is astonishing they could ever have been entertained. We concede to M. Melon, for it is unnecessary again to notice M. Pinto, that the interest of the public debt is a debt of the right hand to the left, or so much wealth transferred from one class of society to another; but the question does not regard the interest, but the PRINCIPAL for which the interest is paid. Now, it is certain, that this principal was not made over by one set of individuals to another, but to the Government by whom it has been spent as revenue. The capital lent by the stockholders to Government has been annihilated; and, instead of deriving a revenue from it, the revenue of the stockholders is exclusively derived from the capital and industry of others. *

* It is due to M. Gentz, the ablest defender of the Funding System, to state, that he fully admits the truth of this principle. Le

In order to set the effect of loans on national wealth in a still clearer point of view, let us suppose that a country, with two millions of people and four hundred millions of capital, is engaged in war, and that the government borrows and spends fifty millions of the national capital. If the ordinary rate of profit were ten per cent., the annual income of this state previously to the war would be forty millions; but at its close, and after the fifty millions had been borrowed and spent, it would only be thirty-five millions. It is plain, however, that this reduced' income would, in future, have to furnish the means of subsistence to the whole two millions of inhabitants; and although it is true that the country is not deprived of the interest of the debt, for that is merely tranferred from one class to another, it is no less true that it is deprived of the income derived from fifty millions of capital; and that the productive power which had formerly fed and clothed an eighth part of the whole inhabitants being for ever lost to the state, they have now to depend for subsistence entirely on the exertions of those who, it is probable, could previously with difficulty maintain themselves.

The doctrine we have been endeavouring to elucidate, has been very clearly and ably stated by Mr Justice Blackstone.By means of our national debt,' says he, the quantity of property in the kingdom is greatly increased in idea, compared with former times; yet, if we coolly consider it, not at all in⚫creased in reality. We may boast of large fortunes, and quantities of money in the funds; but where does this money exist? It exists only in name, in paper, in public faith, in parliamentary security; and that is undoubtedly sufficient for the creditors of the public to rely on. But then, what is the pledge which the public faith has pawned for the security of these debts? The land, the trade, and the personal industry of the subject, ⚫ from which the money must arise that supplies the several taxes. In these, therefore, and in these only, does the property of the public creditors really and intrinsically exist; and of course, the land, the trade, and the personal industry of individuals, ♦ are diminished in their true value just so much as they are pledged • to answer. If A's income amounts to 100l. a year, and he is so ⚫ far indebted to B that he pays him 50l. a year of interest, one • half of the value of A's property is transferred to B, the credi

capital,' says he,' qui a passé des mains des créanciers de l'état dans 'celles du gouvernement, d'ou il sort pour payer les frais d'une guerre, est irrevocablement perdu.' (Essai sur l'Etat actuel des Finances de la Grande Bretagne. p. 119.)

tor. The creditor's property exists in the demand which he has upon his debtor, and nowhere else; and the debtor is only • a trustee to his creditor for one half of the value of his income. In short, the property of a creditor of the public consists in a certain portion of the national taxes; by how much, therefore, he is the richer, by so much the nation which pays those taxes is the poorer. '-(Commentaries, Vol. I. p. 327.)

These few observations will serve to show the general nature of the funding system; but they are not enough to determine its merits, as compared with the plan for raising the supplies within the year. Every war must necessarily occasion the waste of capital and of wealth; still, however, it is of the greatest importance to know how these unavoidable consequences may be rendered least injurious, and most speedily repaired; and such is the object of the inquiry on which we are now to enter.

If the facility with which money may be obtained, were the only circumstance to be attended to in comparing the borrowing system with the plan for raising the supplies within the year by a corresponding increase of taxation, there can be no question that the preference would have to be given to the former. The high rate of interest stipulated by Government, the regularity with which it is paid, the facility with which that interest may be disposed off, and the hope, which every one's confidence in his own good fortune makes him entertain, of profiting by the fluctuations in the price of the funds, all conspire to induce a large class of capitalists to accommodate Governments with loans in preference to individuals, and enable them to obtain the largest supplies on the shortest notice, and with very little difficulty. The public, on their part, are equally well pleased with this system. Instead of being called upon to advance a large sum in taxes, they are only taxed to pay the interest of that sum. A burden of this limited extent, as it lays no individual under the necessity of making any considerable reduction in his expenditure, is generally submitted to without a murmur. Such a mode of providing for the expenses of a war, seems to divest it of half its privations and hardships; and we cease to feel surprised that Governments should have so universally resorted to a sytem which, while it furnishes them with the largest supplies, is so very popular with their subjects.

But the merits of the funding system are not to be determined merely by the facility which it affords for raising supplies. This is a consideration which certainly ought not to be overlooked; but there are others of infinitely greater import

ance. The real effects of any financial operation can never be ascertained, by looking only to those of which it is immediately productive. We must extend our observations to those which are more remote, and endeavour, if possible, to trace its permanent and ultimate influence. Now, if we do this-if we attend, not to the transitory only, but also to the lasting effects of the funding system on the wealth and industry of every country in which it is adopted, we shall find, that the facility which it gives of raising the supplies, so far from being an advantage, is really one of its greatest defects. It is worse than idle to suppose that any scheme for defraying war expenditure can ever be proposed, capable of protecting individuals from the losses and privations which are inseparable from national struggles and contests. However just and necessary, a war is always in itself an evil of the first magnitude; and every nation which has the misfortune to be involved in it, must sooner or later experience the pernicious effects of the destruction of capital, and of the waste of the means of future production, which it never fails to occasion. Now, it is clear that no scheme of finance can be bottomed on sound principles, whose effect is to disguise these necessary consequences of war, and to deceive the public with respect to their real situation. This, however, is notoriously the case with the funding system. It is said, by its apologists, to require no individual to make any extraordinary sacrifice at any particular period; and in this respect it bears a close resemblance to those most dangerous diseases which steal slowly and imperceptibly on the human constitution, and do not discover their malignant symptoms until they have fastened on the vitals, and vitiated the whole animal economy. There are no means whatever by which the profusion and waste occasioned by a war can be balanced, except by the greater industry and economy of individuals: And to cause this industry and economy to be practised, they ought to be made fully sensible of the influence of war expenditure on their own private fortunes. The radical defect of the borrowing system, consists in its deceiving them on this point, and in its making no sudden encroachments on their comforts. Its approaches are gradual, and almost unperceived. It requires only small immediate sacrifices; but it never relinquishes what it has once gained; while the necessity for fresh sacrifices, arising as well from their own, as from the ambition, rapacity, injustice, and folly of their neighbours, must continue as great as ever. Such a system is essentially delusive and treacherous. It strips the public of one enjoyment after another; and before