CHAPTER II.

STATE OF FINANCE DURING THE WAR OF THE FRENCH REVOLUTION.

Financial Exigencies.-Hoarding of Treasure.-Early Modes of Borrowing Money.-Commencement of the National Debt.-Debt at the Revolution in 1688.-The National Debt from Queen Anne to George III.-Perplexity at the Growth of the Debt.- The Sinking Fund.-Loans contracted by Mr. Pitt.-The Loyalty Loan.-The Income Tax.-Review of Mr. Pitt's Financial Policy.-Public Income and Expenditure, 1760-1820.

To realise the injurious influence of war we must turn our attention to the finances of the nation during this eventful period. It is easy to declare war, but we cannot raise and maintain large armies, build, equip, and put in commission huge ships of the line, and secure the aid of needy allies and mercenary troops, without incurring a heavy expenditure. No greater evidence, in truth, could we possess of the wonderful power wielded by Mr. Pitt at this momentous crisis, than the influence he exercised, the hold he obtained on the leading capitalists, with whom, after all, it rested to supply the necessary funds. Often he must have been at a loss how to solve the difficult dilemma of negotiating new loans and imposing tax upon tax, and it must have been an irksome task to him to knock so frequently at the door, either of the Bank of England or of the few bankers and money dealers who bad then the monopoly of capital. We know that where there is no competition a contract is always made at great disadvantage, and we may well fancy how ill Mr. Pitt fared when he had no other alternative but to recur again and again to the same parties, who formed one united band, for the negotiation of his successive loans. Nor could there be any disguising of the pressing necessity. The revenue of the country was far from meeting the annual expenditure. The diagram herein annexed of the public income and expenditure from 1760 to 1820 shows that the ordinary income of the country has never been sufficient to meet the exigencies of war. Fresh taxes cannot be imposed without regard to the resources of the nation. If war is to be continued it must

The total net income of Great Britain from customs, excise, stamps, taxes, post office, and other receipts, in 1793, was 18,131,3427., and at about that limit it continued till 1799, when it increased to 31,783,0847. The total expenditure meanwhile increased from 35,118,1547. in 1793 to 86,163,8167. in 1799.

be with borrowed money; and we need not be surprised if under such circumstances we find Mr. Pitt consenting to almost any terms in order to obtain the wherewithal to pay for the armies and navies, and to meet the many other exigencies of war. The wonder is whence the money came from. Had the millions, yearly expended, been accumulated from the labour of former years? Did they represent the actual saving of the nation? We fear they did so only to a limited extent. Past earnings were indeed used almost to the last farthing, but future earnings were also mortgaged. And in so far as the amount expended really represented the earnings of previous labour, it was not that of England alone, but that of the whole of Europe-aye, of America also, whence came large amounts that were, so to say, hypothecated.2 England being then probably the safest state in Europe, foreign capitalists invested their funds more readily in British than in any other securities. Only England became indebted for it all, and she is still bearing the burden on her shoulders.

The story of the national debt3 is an interesting one, and before we enter into the immense additions made to it in consequence of the French Revolution and war, it may be well to see how the nation came to adopt this method of borrowing. The resources of national credit were not known among the ancients; consequently, in time of peace, they used to amass stores of wealth to meet the contingencies of war. Cyrus, it is said, accumulated a considerable treasure, and the treasure of Ptolemæus Philadelphus was estimated at 74,000 talents. Alexander found at Ecbatana 38,000 talents. Tiberius had amassed vast amounts of sesterces, which Caligula wasted in one year. Cæsar seized a treasure at the battle of Pharsalia, and in later times Charles V., Henry IV., Popes Paul and Sixtus V., and the Swiss Cantons each amassed treasures for their wars. Napoleon, too, made use of a treasure found in the crypt of the Tuileries for the battles of 1813 and 1814, and large sums were understood to be buried in the fortress of St. Petersburg previous to the Crimean war. But whatever may have been done in the direction of hoarding in ancient times and by other nations, England and France had no resources of that nature when they entered into their destructive enterprises.

The earliest traces of a state borrowing money for national purposes may be found in the history of Venice. In 1170, the finances of that republic having fallen into a state of disorder, in consequence of a disastrous conflict with the Mussulmans and a war with Frederick Barbarossa, the Great Council raised a forced loan, for the interest of which the public revenues were pledged.

* The amount of foreign property in the British funds on November 24, 1810, was 14,566,9941. Stocks, and 5,7601. Terminable Annuities.

See Return of Income and Expenditure, 1688-1869 (366 of 1869); History of the National Debt, by J. J. Grellier, Londor, 1810.

In England the early sovereigns, experiencing great difficulty in raising the necessary income, not only anticipated the revenue by tallies, but frequently resorted to borrowing money, sometimes from the clergy, often from the Jews and foreigners, and occasionally by the sudden levying of forced or compulsory loans. Henry III. pawned the Crown jewels, the regal ornaments, and his very robe of state to get funds. As a security for the repayment of a loan of 200,000l. granted to her by the citizens of London, Queen Mary, in 1558, mortgaged land; Queen Elizabeth resorted to Hamburg, Cologne, and Antwerp for small loans, paying 10 to 12 per cent. interest; and King Charles, in 1625, sent the Duke of Buckingham to Holland to borrow 300,000l. on the pledge of the Crown jewels. He also borrowed money from the farmers of the customs, and afterwards the House of Commons took from them their new lease, leaving them without any security. Privy seals and letters patent were also used as securities for loans. But the sovereign was wont in olden times to contract debt upon his own authority and on his own account. It was only during the reign of Henry VI. that the burden of the debt was first shifted from the King's shoulders to those of the nation. In 1664 a more formal and systematic mode of raising money was inaugurated. The sum of 1,250,000l. was obtained by tallies of loan and orders of repayment. But the repayments were suspended in 1672, and the Treasury only issued the legal interest at 6 per cent. Even this payment stopped in 1685, and a suit, protracted for about twelve years, which ended by a judgment against the Crown in 1697, was set aside. Two years after, however, an act was passed charging the hereditary revenue with interest at 3 per cent. for the principal sum, subject to be redeemed upon the payment of a moiety thereof, or 664,263l.

The word 'tallies,' derived from the French, signifies cutting. The tallies were pieces of wood cut in a peculiar manner of correspondency: for example, a stick or rod of hazel, or some other wood, well dried and seasoned, was cut square and uniform at each end and in the shaft. The sum of money which it bore was cut in notches in the wood by the Cutter of the Tallies, and likewise written upon two sides of it by the Writer of the Tallies. The tally was cleft in the middle by the deputy chamberlains with a knife and mallet, through the shaft and the notches, whereby it made two halves, each half having a superscription and a half part of the notch or notches. A notch of such a largeness signified M. 1.; a notch of another largeness, c. 1., &c. It being thus divided or cleft, one part of it was called a tally, the other a counter-tally. And when these two parts came afterwards to be joined, if they were genuine, they fitted so exactly that they appeared evidently to be parts the one of the other.— Madox, History of the Exchequer, fol. ed. p. 709.

King Henry III. borrowed of Richard, Earl of Cornewall, 5,000 marks sterling, and for securing the payment thereof assigned and set over all his Jews of England to the said Earl, and bound them to pay the Earl 3,000 marks, which they owed to the King, at certain terms or days, under pain of forfeiting 500l. for every default of payment, and gave the Earl power to distrain them by their chattels and bodies for the same.-Madox, from Roll of 39th Henry III., anno 1253.

At the time of the revolution in 1688, the whole amount outstanding on tallies of loan, excluding the bankers' debt, contracted in consequence of the shutting of the Exchequer in 1672, was 84,888., which was issued in anticipation of the duties on French linen, besides arrears due to the army and navy amounting to 300,000l. But the war expenditure incurred under successive reigns, without regard to present means for discharging the same, necessitated the raising of large sums by loan in addition to increased taxation. At first such sums were raised in the ordinary mode by tallies of loan charged on and in anticipation of various duties. In consequence, however, of the large amount required, the several funds thus burdened proved wholly insufficient to meet the charges upon them, and the tallies fell to a heavy discount. It then became necessary to raise money by loan in other ways, and the first operation was made in 1692 by the commencement of the system of government life annuities and tontines," followed soon after by long annuities. But the sums obtained even in this manner were far from sufficient. A better plan was, however, suggested. Encourage the erection of a great national bank. Let it lend its capital to the state at a handsome rate of interest, Let state security, as good as money, be granted, and in return for the accommodation given to the state let it have monopoly and privileges. The idea was brilliant in the extreme. At a time when but few opportunities were offered for investment, and when commercial adventures were exceedingly dangerous and speculative, money-holders were easily persuaded that they could do no better than lend to the state at a high rate of interest, whilst the suggestion of a great national bank, with the exclusive monopoly of banking, could not fail to be popular. And so the Bank of England was forthwith incorporated in 1694, and 1,200,000l. was

The war in Ireland, and against France, 1688 to 1697, entailed an expenditure of 32,643,000l.

Under the 4th W. & M. c. 3, 1,000,000l. was authorised to be raised, for which the contributors were to receive 101. per cent. per annum for seven years, and afterwards 71. per cent. on the lives of their nominees, with benefit of survivorship till the number was reduced to seven. In 1694 life annuities were granted for one, two, or three lives at the option of the purchasers. (See a paper on the Financial Statistics of British Government Life Annuities,' by Frederick Hendriks, Esq., Journal of the Statistical Society, vol. xix. 325.)

A tontine or annuity, with benefit of survivorship among the subscribers or nominees, was first proposed by Tonti, a Neapolitan, in 1653. The first time a tontine was tried in England was in 1692, in the reign of William III., under 4 W. & M. c. 3, for 1,000,0007., in shares of 1001. each. There were 1,002 nominees. The age of the oldest male life nominated was 46, and female life 51. The tontine annuity expired on July 5, 1783, by the death of the last nominee. The second tontine was in 1766, but it almost wholly failed. The third and last English tontine was created in 1789, under 29 Geo. III. c. 41, when it was proposed to raise 1,002,500l. in sums of 1007. 58. each. The total amount raised was 1,002,1407., but the contractors not being able to complete the subscriptions on these terms, the several contributors were allowed in the following year, under the act 30 Geo. III. c. 45, the alternative of a long annuity.

advanced by it to the state at 8 per cent. A few years after another 2,000,000l. was obtained on like terms from the East India Company, and thus the foundations were laid of our present national debt.

At the accession of Queen Anne in 1701, the funded debt of the nation was 3,200,000l., and the unfunded 9,352,000l.; but her reign was signalised by the war with France to humble the Bourbons and to deprive Philip of the crown of Spain; a war which lasted ten years, during which the finances continued in a wretched condition. Though heavy war taxes were raised, by the conclusion of Queen Anne's reign in 1713 the funded debt rose to 26,000,000l., and the unfunded to 8,600,000l.9 Public credit was then extremely depressed, and the securities of the state were at a discount of 40 to 50 per cent. in the market. To remedy the evil the Government allowed the Bank to purchase Exchequer tallies and other securities to the amount of 1,000,000l., and upon condition of its withdrawing them from circulation the Bank was permitted to add the amount to the capital as so much money lent to the Government. The reign of George I. was one of uninterrupted peace; yet a considerable sum was obtained from the South Sea Company; and, at the conclusion of his reign in 1727, the funded debt of the United Kingdom rose to 48,000,000l., and the unfunded to 4,531,000l. Some time afterwards the Spanish war 10 took place, which caused another large increase of debt, so that, in 1749, the funded debt amounted to 71,500,000l., and the unfunded to 6,000,000l. After it occurred the Seven Years' War, and the debt increased to 129,000,000l. funded and 35,000,000l. unfunded. No change was made in the public debt from 1763 to the commencement of the American War in 1776; but by the end of it, when the finances were somewhat organised in 1786, the nation found itself burdened with the heavy sum of 239,000,000l. funded and 6,300,000l. unfunded, which rose to 234,000,000l. funded and 14,000,000l. unfunded on January 5, 1793.

This increased legacy of debt which the American war left behind pressed hard on the conscience of the country and staggered her best politicians; the more so at a time when the moral sense of the nation was more alive to the duty of paying, not only the interest but the entire capital of the debt, than it has ever since been. Not a few indeed prognosticated a national bankruptcy; all dreaded the consequences of such a grievous burden on the industries of the nation. And there were not wanting physicians ready with their remedies." Dr. Price came forward with his appeal to

The war of the Spanish Succession, 1702–1713, cost this country 50,684,0007. 10 The war with Spain, 1718-1721, cost 4,547,0007.; and in 1739-1748, 43,655,0007. "Numerous were the writers on the national debt. They included the Earl of Stair, Earl Stanhope, Lord Newhaven, Lord Dundonald, Pulteney, Lord Bath, the Bishop of Cloyn, Baron Gilbert, Sir Matthew Decker, Sir John Dalrymple, Sir John Barnard, Edmund Burke, Samuel Johnson, Daniel Defoe, Mr. Eden,