[ THE DROLLERIES OF FALSE POLITICAL ECONOMY. ]
PLANS FOR PAYING THE NATIONAL DEBT.
It is not customary to associate the ludicrous with financial operations—with budgets, schemes of taxation, and national debts. In general, they are considered to assume a formidable aspect; and when that is not the case, their details are looked on as dry and uninteresting—they are universally voted a 'bore.' Yet we engage to shew, that there have been some financial projects which at the present day we can pronounce essentially ludicrous. And they are not the mere projects of enthusiasts and theoretic dreamers. They were put in practice on a large scale; they involved the disposal of millions of money; and they were in operation at so late a period, that the present generation paid heavy taxes for the purpose of carrying them out—taxes paid for nothing better than the success of a practical hoax.
The round hundreds of millions in which our national debt is set forth seem to have often confused the brains of our most practical arithmeticians and financiers. They seem to have felt as if these did not represent real money, but something ideal; or perhaps we might say, they have treated them like certain results of the operation of figures which might be neutralised by others, as the equivalents on the two sides of an equation exhaust each other. We never hear of a man trying to pay his own personal debts otherwise than with money, but we have had hundreds of projects for paying the national debt without money, and generally through some curious and ingenious arithmetical process. We might perhaps amuse our readers by an account of some of these, for to their absurdity there are no bounds; but we adhere in the meantime to our engagement, to shew that on this subject even the practical projects of statesmen of our own day have been ridiculous.
We shall suppose that some one has occasion for L.100, which he finds a friend obliging enough to lend him. On receiving it, he requests the loan of other L.10; and being asked for what purpose, he answers, that with that L.10 he will pay up the original L.100. This is a rather startling proposal; but when he is asked how he is to manage this practical paradox, he says: 'Oh, I shall put out the L.10 to interest, and in the course of time it will increase until it pays off the L.100.' The lender is perhaps a little staggered at first by the audacious plausibility of the proposal, but it requires but a few seconds to enable him to say: 'Why, yes, you may lend out the L.10 at interest; but in the meantime, as you have borrowed it, interest runs against you upon it; so what better are you?' The lender, so far from concurring with the sanguine hopes about the fructification of the L.10, will only regret his having intrusted the larger sum to a person whose notions of money are so loose and preposterous.
Yet the proposal would only have carried into private pecuniary matters the principle of the sinking-fund, so long deemed a blessing, and a source of future prosperity to the country. A sinking-fund is an expression generally applied to any sum of money reserved out of expenditure to pay debt, or meet any contingency. Now, observe that our remarks are not directed against it in this simple form. A surplus of revenue obtained by moderate taxation, saved through frugal expenditure, and applied to the reduction of the national debt, is always a good thing. But the sinking-fund to which we chiefly refer was a system of borrowing money to pay debt. It might be said that the identical money which was borrowed was not the same which was used for paying the debt; but it came to the same thing if the sinking-fund was kept up while the nation was borrowing. Thus, taking the case of the private borrower as we have already put it, if he took L.10 of his own money and put it out at interest, that it might increase and pay off his loan, and if, by so doing, he found it necessary to borrow L.110, instead of merely L.100, it was virtually the same as if he applied L.10 of the borrowed money for his sinking-fund. Thus for the year 1808, the state required L.12,200,000 in loan above what the taxes produced. But in the same year L.1,200,000 were applied to the sinking-fund; consequently, it was necessary to borrow so much more, and therefore the whole loan of that year amounted to L.13,400,000. The loan was increased exactly in the way in which our friend added the L.10 to the L.100. It was borrowing money to pay loans.
The application of millions in this manner by our statesmen, was in a great measure owing to the enthusiastic speculations of Dr Richard Price, a benevolent, ingenious, and laborious man, who, unfortunately for the public, possessed the power of giving his wild speculations a tangible and practical appearance. He was, to use a common expression, 'carried off his feet' by arithmetical calculations. He believed compound interest to be omnipotent. He made a calculation of what a penny could have come to if laid out at compound interest from the birth of Christ to the nineteenth century, and found it would make—we forget precisely how many globes of gold the size of this earth. He did not say, however, where the proper investments were to be made; how the money was to be procured; and, most serious of all, he overlooked that where one party received such an accumulating amount of money, some other party must pay it, and to pay it must make it. In fact, the doctor looked on the increase of money by compound interest as a mere arithmetical process. The world, however, finds it to be a process of working, and the making of money by toil, parsimony, and anxiety.
When any one seizes on such a theme he is sure to be carried to extremities with it. It was one of Price's favourite theories, that the time when interest was highest was the best time for borrowing money, because the borrowed sinking-fund would then bring the highest interest. One is astonished in times like these, when people think taxes and national debt so serious, at the easy carelessness with which the doctor treats the disease, and his sure remedy. He says in his celebrated work on Annuities (i. 277): 'It is an observation that deserves particular attention here, that in this plan it will be of less importance to a state what interest it is obliged to give for money; for the higher the interest, the sooner will such a sum pay off the principal. Thus, L.100,000,000 borrowed at 8 per cent., and bearing an annual interest of L.8,000,000, would be paid off by a fund producing annually L.100,000 in fifty-six years; that is, in thirty-eight years less time than if the same money had been borrowed at 4 per cent. Hence it follows that reductions of interest would in this plan be no great advantage to a state. They would indeed lighten its present burdens; but this advantage would be in some measure balanced by the addition which would be made to its future burdens, in consequence of the longer time during which it would be necessary to bear them.'