is usually much higher than during peace. If, therefore, loans were funded in stocks bearing a rate of interest equivalent to the market rate when they happen to be contracted for, the charge on their account might be reduced soon after the return of peace, according to the fall in the rate of interest; whereas, when loans are funded in stocks bearing a low rate of interest, with a corresponding increase of capital, it becomes impossible to take advantage of the fall of interest at the return of peace, and the country is burthened with the war interest in all time to come! It is not easy to exaggerate the injury we have sustained by overlooking this plain principle. In 1815, to specify only one of many similar instances, government bargained for a loan of 36,000,000l., it being stipulated that every subscriber of 100l. should be entitled to 1744 3 per cent. stock, and 10l. 4 per cent. stock, making the interest on the loan 51. 12s. 4d. per cent. The great improvidence of this transaction is obvious. Had from 51. 15s. to 61. per cent. of interest been paid for the loan, it might have been obtained without funding any additional capital; and had that been done, we should have been able, within 4 or 5 years, in consequence of the fall of interest after the peace, to reduce the charge on account of the loan to 3 or 3 per cent. ; but, owing to the way in which the contract was made, we have not had, and will not have, any means of reducing the exorbitant charge on account of this loan, so long as the market rate of interest is above 3 per cent., except by paying 1741. for every 1001. originally received, exclusive of the 107. of 4 per cent, stock! But this, as already stated, is only one instance out of many of the same sort. We believe, indeed, that we are within the mark when we affirm that, owing to this erroneous method of funding, the country is at present paying from 6,000,000l. to 7,000,000l. a year on account of the public debt more than it would have had to pay, had the same sums been borrowed and funded without any increase of capital.*

That this improvident system should have been so extensively acted on by our finance ministers during the American and French wars is the more surprising, seeing that experience had already demonstrated the advantages of funding limited capitals at a comparatively high rate of interest. Owing partly to the scarcity of capital, but much more to the supposed instability of the revolutionary establishment, the loans during the reigns of William III. and Anne were mostly contracted at a very high rate of interest. Luckily, however, this was not attempted to be disguised by assigning to the parties large amounts of stock bearing a low rate of interest. The stock created was the exact amount of the loans, the interest on it being increased according to the supposed insecurity of the government, the scarcity of floating capital, &c. Now, mark the consequences of this. So early as 1716, Sir Robert Walpole, availing himself of the greater facility with which money was procured after the treaty of Utrecht, and of the greater stability of the government, was able, by offering to pay off the creditors, to reduce the charge on account of the debt from 1,598,6021. to 1,274,1467., being a saving of 324,456l., or about part of the entire charge. In 1727, a farther saving of about 340,000l. a-year was effected by reducing the interest on the greater portion of the debt from 5 to 4 per cent. And in 1749, during the administration of Mr. Pelham, the interest was again reduced from 4 to 3 per cent., a measure which produced a fresh saving of 565,000l. a-year!

Happily the practice of funding in a 5 per cent. stock, was not entirely abandoned during the late war. In 1822 the total British and Irish 5 per cent. stock amounted to about 150,000,000%.; and, by offering to pay it off, a reduction of interest was then effected to the extent of about 1,200,000l. a-year! And, since that period, further savings have been effected by the reduction of the interest on the 4 and 41 per cent. stock. But, unfortunately, by far the greatest proportion of the debt created during the late war, and that with the American colonies, was funded in the 3 per cents.; and, as already stated, the charge on that portion has, in consequence, been hitherto, and will, most probably, continue to be, for an indefinite period, unsusceptible of diminution.

*For a further and full discussion of this subject, see the 2nd edition of the Treatise on Taxation and the Funding System, by the author of this work, pp. 441–458.

The following accounts exhibit the progress of the National Debt of Great Britain from the Revolution to the present time :

Account showing the Total Amount of the Unredeemed Funded Public Debt of the U. Kingdom, and the Annual Charge thereon, on the 5th day of January of the following Years.

Years, viz. ¡

772,169,092

28,316,582

18.58
1859

786,801,154

27,721,804

Amount of the Unfunded Debt in Exchequer Bills, and of the Annual Charge thereon in the following

Years

Annuni.

Amount of the Unfunded Debt in Exchequer Bills and Exchequer Bonds, and of the Interest paid

thereon in the following Years, viz. :

Account of the Principal and Annual Charge of the Public Debt at different Periods since the

Revolution.*

This account has been made up partly from the table in Dr. Hamilton's work on the National Debt (3rd ed. p. 100.), partly from Price on the State of the Finances in 1784 (p. 8.), and partly from the Finance Accounts, and other official statements.

The above statement shows that a reduction of 35,772,0377. was effected in the principal of the national debt, and of 3,403,7347. in the annual charge on account thereof, between February, 1817, and the 31st of March, 1859. The diminution has been brought about, despite the loans effected during the interval, partly by the application of surplus revenue to buy up stock, but more by the reduction of the interest on the 4 and 5 per cent. stocks existing in 1817, and by that paid on the unfunded debt. The total annual saving by the reduction of interest on the funded debt between 1822, when the first, and 1844, when the last reduction was made (that of the 33 per cent. annuities, mentioned in former impressions of this work), has been 3,051,8007.; and, considerable as this is, it would have been three times as great, but for the pernicious practice, previously pointed out, of funding large nominal capitals. We subjoin

A Return showing the Results of the Operations undertaken in 1822, 1824, 1825, 1830, 1834, and 1844, for reducing the Charge on account of the National Debt, and the Terms upon which such Reduction was made; also, showing the Annual Interest on the Funded Debt saved thereby.

We subjoin a brief notice of the different unredeemed funds or stocks constituting the public debt, as they stood on the 31st of March, 1859.

I. FUNDS BEARING INTEREST AT TWO AND A HALF PER CENT. New Annuities at 2 per cent.—This is a stock created in 1853, under the 16 & 17 Vict. c. 23. Previously to the passing of this act, the existing stock of the once famous, or rather, perhaps, infamous South Sea Company, amounted to 3,662,7841. For many years previously the Company had been entirely divested of its commercial character, and the duty of the directors was restricted to the transfer of the Company's stock from one purchaser to another, and the payment of the dividends upon it, both of which operations were performed at the South Sea House, and not at the Bank. But in 1853, when the price of stocks was unusually high, it was proposed to create a new 24 per cent. stock; and in this view the proprietors of the S. Sea Stock were offered for every 1001. of it subscribed into the new 24 per cent, stock, 110. of the latter, with a guarantee against the interest being reduced for 40 years, or till 1894. It is evident,

however, from this statement, that the interest on the sum transferred from the old S. Sea Stock was not really 2 but 23, or 21. 15s. per cent. The non-commuted portion was paid off on the 5th April, 1854.

There can be little or no doubt that but for the unforeseen change in the money market which began to take place about the period when the 16 & 17 Vict. c. 23. was passed, the whole, or by far the greater portion, of the old S. Sea Stock would have been converted into the 2 per cent. stock. But the rise in the rate of interest, occasioned by the threatened disturbances on the continent, and the anticipations of a deficient harvest, hindered the conversion that would otherwise have taken place. Still, however, it is of great importance to have laid the foundation of a 24 per cent, stock. II. FUNDS BEARING INTEREST AT THREE PER CENT.

1. Debt due to the Bank of England. — This consists of the sum of 11,015,100%. lent by the Bank to the public at 3 per cent.; dividends payable on the 5th of April and 10th of October. This must not be confounded with the Bank capital of 14,553,000l. on which the stockholders divide. The dividend on the latter is at present, aud has been for some time past, 9 per cent.

2. Three per Cent. Consols, or Consolidated Annuities.-This stock forms by much the largest portion of the public debt. It had its origin in 1751, when an act was passed, consolidating (hence the name) several separate stocks bearing an interest of 3 per cent. into one general stock. At the period when the consolidation took place, the principal of the funds blended together amounted to 9,137,8217.; but by the funding of additional loans and parts of loans, in this stock, it amounted, on the 31st of March, 1859, to the immense sum of 400,829,81 27. !

The consolidated annuities are distinguished from the 3 per cent. reduced annuities, by the circumstance of the interest upon them never having been varied, and by the dividends becoming due at different periods. This stock is, from its magnitude, and the proportionally great number of its holders, the soonest affected by all those circumstances which tend to elevate or depress the price of funded property; and, on this account, it is the stock which speculators and jobbers most commonly select for their operations. Dividends payable 5th of January and 5th of July.

3. Three per Cent. Reduced Annuities.-This fund was established in 1757. It consisted, as the name implies, of several funds which had previously been borrowed at a higher rate of interest; but, by an act passed in 1749, it was declared that such holders of the funds in question as did not choose to accept in future of a reduced interest of 3 per cent. should be paid off,-an alternative which comparatively few embraced. The debts that were thus reduced and consolidated amounted, at the establishment of the fund, to 17,571,5741. By the addition of new loans, they now amount to 115,104,5044. Dividends payable 5th of April and 10th of October.

4. New Annuities.-This stock was formed in 1844 by the acts 7 Vict. c. 4 and c. 5., which directed that the following stocks, viz. : —

£

157,243,517

67,701,606

9,514,369

14,401,171

£248,860,663

should be converted into a new stock bearing interest at 3 per cent. till the 10th of October, 1854, when the interest was reduced to 3 per cent., with the proviso that it is not to be farther reduced till 1874. The new unreedemed stock created under this arrangement amounted on the 31st of March, 1859, to 212,661,7397. 17s. Sel. Dividends payable 5th of April and 5th of October.

III. FUNDS BEARING MORE THAN THREE PER CENT. INTEREST.

1. New 5 per Cent. Annuities. — This stock was formed in 1830, at the same time with the new 3 per cent. annuities referred to above, under the 11 Geo. 4. c. 13. This statute gave the holders of the then existing 4 per cent. stock, the interest on which was to be reduced, the option of subscribing into the new 3 per cent. annuities, or into a new 5 per cent. stock, at the rate of 100l. 4 per cents. for 701. 5 per cents. Few, however, availed themselves of the latter alternative. Amount, 31st of March, 1859, 430,6041. 2. New 3 per Cent. Annuities, formed, as before stated, in 1853.

IV. ANNUITIES.

1. Long Annuities. These annuities were created at different periods, but they all expire together in 1860. They were chiefly granted by way of premiums or douceurs to the subscribers to loans.-Payable on the 5th of April and 10th of October.

2. Annuities per 4 Geo. 4. c. 22.-This annuity is payable to the Bank of England, and is commonly known by the name of the "Dead Weight" annuity. (See antè, p. 100.) It expires in 1867. It was equivalent to a perpetual annuity of 470,3197. 10s.