An Inquiry into the Principles of Political Oeconomy (Vol. 2 of 2) / Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes

by Sir James Steuart

Here I analize briefly the sentiments of Dr. Davenant, and compare them with those established in our days, when the latter policy has taken place; and upon the whole I determine, that the difference in the system of public credit then and at present, has proceeded principally from the difference in the state of circulation, and from the expedients now fallen upon for increasing the quantity of money, in proportion to the uses found for it.

Chap. IV. I then compare the state of public credit in France, during the administration of Cardinal de Richlieu, with that of England after the revolution. Here I endeavour to point out the influence which the different forms of government have upon the stability of public credit, both in contracting and in paying off public debts.

In France, the power of the Prince furnishes many expedients for paying off capitals, which had been borrowed at an exorbitant interest in times of public distress.

In England, the limited power of the crown, and the responsibility of ministers for their exercise of it, is a great security to those who lend money to the state; and consequently, proves a very great advantage in contracting debts upon reasonable terms.

The longer the two states subsist, the greater will the advantage be found in favour of that which adheres the most strictly to the faith of its public engagements.

When the credit of France and England are compared together, the difference between them is most remarkable. The strict adherence to the faith of public engagements has established, in England, so nice and scrupulous a credit, that the smallest deviation from its principles may prove fatal to the whole system. The credit of France, on the other hand, has been accustomed to a rougher usage; and the frequent acts of power, to the prejudice of creditors, rather occasion a temporary damp than a total destruction of their credit for the future. Such acts of power, however, in critical circumstances, prove extremely hurtful; and the advantage of a well established credit will, in all probability, either open the eyes of that nation to their own interest, or bring calamities upon them, which now appear little to be feared, in their present situation.

Chap. V. This chapter contains a short sketch of the plan of public credit, as carried on in Great Britain, from the end of the last century, to the conclusion of the peace in 1763. I here enumerate the principal operations, calculated for enlarging the fund of British circulation, by engaging the bank of England to turn into money the discredited bills and tallies of the exchequer. I have pointed out the principle which circumscribes this power in the bank within certain limits. I have traced the progress and fluctuations of the interest of money; which have constantly been in proportion to the demand for borrowing or lending in the market at the time. I have mentioned the rise of the sinking fund, and the use which has been made of it. I have endeavoured to explain the methods of borrowing by premium, and have pointed out the inconvenience attending that plan, as long as the principal view of diminishing a nation’s debt is confined to expedients for lowering the interest of the capital. I have given a progressive state of the augmentation of the debts of Great Britain at the end of every war; to which I have subjoined a short state of the nation at the last peace.

I conclude my chapter, by assigning reasons for the present low state of public credit in Great Britain; which has been principally owing to the large sums of borrowed money invested in the funds before the peace, upon the prospect of a sudden rise in their price, on the return of public tranquillity. This rise would, undoubtedly, have happened, had it not been obstructed by the necessity which the nominal stockholders were put to, of bringing their funds to market, in order to answer the demands of those from whom they had borrowed what they had invested in stock: and until this operation be compleated, that is, until the funds of Great Britain become vested in the real proprietors of them, the state of public credit will constantly be undetermined.

Chap. VI. Having given a short sketch of the present state of public credit in England, I endeavour, in this chapter, to extract, from the best private authorities to which I could have access, a parallel view of the affairs of France, so far as relates to its revenues, taxes, and debts, at the peace 1763.

By the revenue of France, I here understand, not only what comes clear and nett into the King’s coffers, but also what is farther levied upon his people. The parallel therefore will not hold between the revenue of France and that of England, as represented in the preceeding chapter, without attending to this difference.