Exposition of the Funding System.

Although the feudal system was a barbarous social institution, it possessed the advantage of entailing on the fomenters of war its unavoidable cost and calamities. The old barons used to arm themselves and vassals at their own expense, and support them during the contest. There was then no standing army nor permanent revenue,—those who tilled the land fought the battles of the country. Under such a system, wars could neither be very long in their duration, nor very remote in their objects. Foreign expeditions suited as little to the national resources as the avocations of the people. The only time that could be spared to settle public quarrels was between seed-time and harvest, and the only treasure they could be provided with before-hand was the surplus produce of the preceding year. Hence, wars were generally either carried on languidly, or were of short duration. Their operations were frequently interrupted by truces, and sometimes discontinued through mere feebleness. A warlike leader was often stopped short in his victorious career, either from the want of resources, or the necessity of allowing his followers to return home to provide subsistence for the following season.

The state of the sovereign was as little favourable to protracted contests as the condition of his lieges. His revenue was derived partly from lands reserved as a royal demesne, and partly from feudal casualties, and afforded a slender provision for maintaining the royal dignity, and defraying the ordinary expenses of government, but was altogether inadequate to the support of numerous and permanent armies. Supplies from the people were obtained to a certain extent; but the people neither possessed the means, nor, happily, had acquired the habit of granting liberal supplies. Princes, under any emergency, real or supposed, or actuated by any scheme of ambition, had recourse either to borrowing or pawning. The loans which they raised were partly compulsory, and, as the repayment was ill secured, the rate of interest was high. Sometimes the jewels of the crown were pledged, and sometimes the crown-lands were mortgaged. In this manner, the revenues of most of the powers of Europe were anticipated and encumbered.

A new state of society introduced a new mode of supporting war. Instead of borrowing on their own credit, sovereigns learnt to borrow on the credit of posterity. The issue of war no longer depended on a single battle or successful irruption, but on the length of the public purse. It was not money, however, that formed the sinews of war, but credit. Credit superseded money, and modern policy found out the expedient of supporting wars for temporary objects, and entailing the burthen of them on future generations. This system possessed too many facilities to be abandoned, or not to be carried to the utmost extent of which it was capable. And, accordingly, we find wherever the system of borrowing and funding has been introduced, it has gone on with an accelerated velocity till the payment of the principal became quite chimerical, and governments were obliged to compound with their creditors for the interest.

The debt of this country, which was inconsiderable at the Revolution, has increased, in less than a century and a half, to its present magnitude. The increase during every reign, except the pacific reigns of George I. and George IV. has been greater than the preceding. The increase, during every war, has been greater than during the preceding. The increase, during the latter period of every war, has been greater than during the earlier period. The increase, by every hostile interference or warlike demonstration, has been greater than administration held forth when the measure was undertaken. The part of the Debt paid off, during peace, has borne a small proportion to that contracted by the preceding war.

These are the general characteristics which have marked the progress of the funding system: it has been the national spendthrift vice that has operated on the public welfare like the addiction to some baneful passion in an individual; indulgence augmented appetite, till, at length, the malady has reached a state of virulence which precludes all hope of cure or alleviation. As to the liquidation of the debt, that is an idea we believe not a single person to entertain; all that the most reasonable look forward to is postponement, until such a crisis in public affairs occurs, as will demonstrate to all parties the expediency of coming to terms—of a compromise, for mutual safety and advantage. We are now in the seventeenth year of peace, and, comparatively, no portion of the debt has been redeemed by actual payment; the reduction in the annual charge has been chiefly effected by the conversion of stocks of a high into those of a lower denomination,—a mode of procedure accompanied with serious suffering to particular classes of annuitants, and accomplished by ministerial combinations in the money-market, for artificially forcing up the prices of stocks, hardly justifiable. Before, however, adverting particularly to the redemption of the debt, let us give a few explanations of the funds and government paper.

By the term Fund is usually meant a real sum of money or store of treasure, reserved for a specific purpose, but so far as the term is applicable to the debt of England, it is purely an abstraction. In lieu of calling the Debt the Funds, it is more correct to call it the Public Annuities or the National Annuities. The obligation to pay a perpetual annuity of an enormous amount is, in fact, all that remains of that vast mass of capital swallowed up and lost under the donomination of the Debt, and which has been dissipated in the ruinous foreign wars and domestic profusion detailed in the last and preceding chapters.

The Sinking Fund—of which we shall, by and by, give a curious history—means a sum of money set apart for the purpose of discharging the public debt. Generally speaking, we mean, by the Funds, those large sums which have been lent to government, the record of which is preserved in the books of the Bank of England, and for which the lenders, or their assigns, receive interest from the public revenue. The term Stock is used nearly in the same sense; but is more strictly applicable to the different branches of the Debt, bearing different or the same rate of interest; as the 3 per Cents Reduced, or the 31/2 per Cents, and which together constitute the aggregate public debt. It is, also, applied to the sums which form the capital of the Bank, the East-India Company, the South-Sea Company, and other public companies, the proprietors of which are entitled to a share of their respective profits.

Although the public creditor cannot demand payment of the capital debt, the mode of transferring it, even in small sums, is so conveniently arranged, and the dividends so regularly paid, that it is considered an eligible property. The value of the Funds is liable to considerable fluctuation. It depends chiefly on the proportion between the interest they bear and the profit which may be obtained by applying capital to other purposes. It is influenced by the plenty or scarcity of money; and it is impaired by any event which threatens the safety or weakens the credit of government. It is always much higher in time of peace than in time of war; and is affected by every event, and even by every report, in time of war, favourable or unfavourable. False reports are frequently raised by knavish people for that purpose.

In the early part of the Funding System, a separate account was kept of each loan, and of the tax imposed for payment of the interest. This method was afterwards found inconvenient, as the produce of some of the taxes fell short of the expected sum, while that of others exceeded it, and the multiplicity of funds produced confusion. To obviate this inconvenience, the different funds were united, and to each various branches of revenue were appropriated, charged with the payment of the annuities.

Besides the funded debt, is a large sum due by government under the name of the Unfunded Debt. It arises from any national expense, for which no provision has been made, or the provision has proved insufficient, or not forthcoming at the time wanted. During the latter periods of the late war, and for a few years following the return of peace, its amount considerably exceeded fifty millions; in 1815 it was at the highest, and had reached a sum greatly beyond the entire amount of the debt at the accession of George II., being more than 671/2 millions. Of late years the amount of the unfunded or floating debt has not exceeded half that sum. The form in which it mostly exists is that of Exchequer bills. These were first issued in 1696, and being intended as a temporary substitute for money during the recoinage at that period, some of them were so low as £10 and £5. There are none issued now under £100, and many of them are for £500, £1000, and still larger sums. They bear interest, at a certain rate per day, for £100; and, being distributed among those who are willing to advance their value, they pass from hand to hand like bank-notes. After a certain time, they are received in payment of taxes, or other moneys due to government; and the interest due on them, at the time, is allowed in the payment. The Bank often engages to receive them to a certain extent, and thereby promotes their circulation; and the daily transactions between the Bank and the Exchequer are chiefly carried on by bills of £1000 deposited in the Exchequer by the Bank, to the amount of the sums received by them on account of government. New Exchequer-bills are frequently issued in discharge of former ones; and they are often converted into funded debt, by granting capital, in some of the stocks, on certain terms, to such holders as are willing to accept it.

Besides Exchequer-bills there are Navy-bills issued from the Navy-Office, to answer any purpose in that branch of public expenditure; and they bear interest after a certain date, if not discharged. Ordnance-bills or Debentures are issued from the Ordnance-Office, for supplying deficiencies in that branch of expenditure. Victualling and Transport Bills are issued from the respective offices in the same manner. In addition to the principal branches of the unfunded debt, there is always a number of demands on the public for bills accepted by the Treasury, army charges, and miscellaneous services of various kinds. These are daily fluctuating, and their amount at any particular time cannot be easily ascertained.

Our next object will be to exhibit a brief statement of the progress of the Debt, and its successive augmentations and diminutions during different reigns and periods of war and peace, and the total amount at the present time.

The unfunded debt, consisting of Exchequer-bills, amounted, January 5th, 1831, to £27,271,650, the interest of which, added to the interest of the funded debt, and the charges of management make the aggregate annual charge on account of the funded and unfunded debt, £28,349,754.

The diminution in the annual charge of the Debt, during the seventeen years of peace, may be ascribed, in a considerable proportion, to the reduction of the rate of interest on the 5 and 4 per cent. stocks, and on Exchequer-bills, and to the falling in of terminable annuities. A further diminution was effected in the session of 1830, by the conversion of the New Fours into a three-and-a-half per cent. stock. Altogether, the savings effected by these conversions amount to three millions and a half per annum; and the total reduction in the annuity, payable to the public creditor, amounts to four millions and a half. It appears, then, the diminution in the annual charge of the Debt has not been the result of ministerial economy and retrenchment, but of the internal state of the country—the redundancy of unemployed capital, which by lowering the rate of interest, and thereby enhancing the price of the funds, enabled government to offer to the holders of stock, of a high denomination, the option of being either paid off at par, or the acceptance of a lower rate of interest.

A desirable fact to ascertain is, the permanent charge entailed on the community by the war of 1793. From the extensive inquiries of the Finance Committee of 1828, this subject may be correctly illustrated. The annual augmentation of the permanent charge of the debt, between 1792 and 1816, was £22,744,360. To this must be added, the charge for the half-pay and pensions of the army and navy and civil retired allowances, called the dead weight, amounting to £5,363,640 per annum. We must, also, allow for the increase in salaries, in civil and colonial establishments, which were a consequence of hostilities. The results will be best expressed in a tabular form.

Such is the amount of the annual burthen entailed on the country by the last war of the Aristocracy. Yet the Oligarchy have the meanness to refuse £250,000 a year for the purposes of emigration. They have even the baseness to complain of the amount of poor-rates; they grumble to pay a few millions per annum for the relief of the aged, the infirm, and destitute, while they have wantonly burthened the community with a perpetual incumbrance of upwards of thirty millions per annum in war and devastation. Although they have thus mortgaged for ever national resources, happiness, and enjoyments, they aggravate the calamities they have created, by clinging with the grasp of death to enormous salaries, sinecures, and unmerited pensions. Can any one who has a head to think, or heart to feel, suppress indignation in contemplating this unexampled record of infatuation, injustice, and oppression?