equal in amount to what the Fund would have attained; it is obvious, on this supposition, the debt would be equally reduced; but, in this case, there would be no Sinking Fund,-no commissioners,-no drawing money in shape of taxes, and returning it again in shape of loan;in a word, there would be no delusion.

Though the principle here illustrated is that on which the Sinking Fund was founded, it is not that according to which it has been conducted. The money forming the fund has never, in fact, been lent to individuals, but employed in the purchase of stock at the market-price. The interest of stock so purchased has been added to the fund, and the total employed in the purchase of more stock; so that, by continually adding the interest of the debt redeemed to the principal of the fund, the effect has been the same as money accumulating at compound interest. If we compare this mode of employing a Sinking Fund with the former, we shall find that, if the first was chimerical, the second was useless, serving no object further than entailing an unnecessary expense on the public for management.

Suppose at the end of the year there is a surplus revenue of one million in the Exchequer; then, agreeably to the system pursued by our statesmen for many years, this million is paid to commissioners, who employ it in the purchase of stock, the stock so purchased and interest forming together the Sinking Fund. But, instead of the million being vested in commissioners, suppose it is employed by the Chancellor of the Exchequer in the purchase of stock, where, may be asked, would be the difference? In both cases the same amount of debt is redeemed, and the interest of the redeemed debt, being laid out in the purchase of more stock, accumulates in a compound ratio.

It is in the latter way the Americans manage the reduction of their debt. When there is a surplus in the Treasury, after defraying the charges of government, it is applied directly to pay off such portions of the debt as have been advertised to be paid off, and on which the interest afterwards ceases to be paid. Indeed, the principle is so plain that it is astonishing how it can ever have been misapprehended. It is obvious to the meanest capacity that, if a sum of money be owing, on which interest is payable, the gain is equal, whether we pay a part of our debt, or lend, to a third person, a sum of equal amount. Government, however, acted as if there were some substantive difference in the two cases, and they were supported for years in the egregious blunder by the "collective wisdom of the nation."

We have not yet conducted the reader to the chief absurdity in the Sinking Fund. We have been all along supposing an actual surplus revenue, and considering the most advantageous mode of employing this surplus; but the fact is, there never was any such surplus, except during the first few years after the establishment of the fund. Every year government incurred debt, and this debt it attempted to pay by borrowed money; that is, it borrowed money of A to pay B, and in this consists the GRAND BUBBLE of the Sinking Fund, which we will now endeavour to expose.

The late Professor Hamilton, the first writer who exposed the delusion of the Sinking Fund, so as to attract general attention, lays down the following principle of finance:-"The excess of revenue above expenditure is the only real Sinking Fund by which the public debt can be discharged. The increase of the revenue or the diminution of expense is the only means by which this Sinking Fund can be enlarged, and its operations rendered more effectual; and all schemes for discharging the National Debt by sinking funds, operating by compound interest, or in any other manner, unless so far as they are founded on this principle, are illusory."-Inquiry into the Rise and Progress of the National Debt, p. 44.

This proposition is wholly incontrovertible, and has been, in part, already established. The same principles regulate the discharge of the debt of an individual and of a nation. Suppose an individual has contracted a certain extent of debt, and, afterwards, attains to circumstances which enable him to discharge it. If no unfair measures are practised against him by his creditors, and, if he pay the interest regularly, the sum which he must pay altogether, before he be clear of debt is the amount of money he borrowed, and the simple interest of the same from the time of its being borrowed to the time of re-payment. Suppose he borrows £10,000, and that for ten years he pays the interest, but no part of the principal. If the rate of interest be 5 per cent. he pays £500 annually for interest, or £5000 altogether; and if, by a sudden acquisition of wealth, he is able to discharge the debt at the end of ten years, he pays exactly £15,000 altogether. But suppose, by an amelioration in his circumstances, he is enabled to pay £1000 annually for principal and interest. The first year he pays £500 for interest, and £500 towards the discharge of the principal: the remaining debt is £9500, and the interest of this being £475, if he can pay £1000 next year he discharges £525 of the principal, leaving a debt of £8975. If he continue to act in this manner, applying each year £1000 to the payment of principal and interest, the whole debt will be discharged in about fourteen years and a quarter.

Instead of conducting the business in this way, he may pay only the £500 of interest to his creditors, and lend out the other £500 at interest, and lend again £500 more at the end of the next year, and so on, accumulating the sums lent, by compound interest, till they amount to £10,000, and then discharge his whole debt at once. It will require exactly the same time, of fourteen years and a quarter, to accomplish this. If he transact the business himself, the second way will be attended with more trouble, but the result will be the same. If he employ an agent to transact the loans, he will be a loser by following the last-mentioned method to the extent of the fees paid for agency.

Substitute millions or ten millions for thousands, and the above reasoning is equally applicable to the debt of a nation. If the debt be ever discharged, it can only be done by a surplus revenue; and, if the business be transacted, as private affairs are, the time required for the discharge of a public debt will be the same as the time required for the

discharge of a private one, when the proportion of surplus revenue is the same; and this holds whether the surplus be paid annually, in discharge of part of the debt, or accumulated in a Sinking Fund in the hands of commissioners appointed for that purpose: the only difference is that, in the latter method, an additional expense is incurred equal in amount to the fees and salaries of the commissioners, which would have been saved had the surplus been applied directly to pay a part of the Debt.

Hitherto we have supposed a surplus revenue; but suppose the expenditure of an individual exceeds his income £500 annually, and the deficiency is to be made up by borrowing. The first year he incurs a debt of £500; the second year, £500 more, which, with the interest of the first £500, makes his debt £1025; and the third year, £1551:5; and so on, till, at the end of fourteen years and a quarter, the total amount of debt and interest is £10,000.

Suppose, instead of borrowing £500, the individual is persuaded, by some calculator, to borrow a larger sum, with a view of establishing a Sinking Fund. Suppose he borrow, annually, £600 of A, £500 to satisfy his necessities, and £100 to lend to B for a Sinking Fund, to accumulate by compound interest. If he continue this plan for fourteen years, he will, at the end of that time, owe A £12,000, and B owe him £2000. But where would be his advantage? If he has a Sinking Fund of £2000, his debt is £12,000, being £2000 more, on account of the additional £100 borrowed to establish the Sinking Fund. On this plan, it is obvious the borrower would not, in the least, retard the embarrassment of his affairs, for, however much his Sinking Fund might increase, his debt would augment in as great a proportion: whatever he had owing from B, he would owe in addition to A.

Suppose the borrower paid for the management of his fund, he would incur a positive loss equal to the amount of B's charge for management. On this extremely absurd principle the Debt, for nearly half a century, was conducted. Every year a sum was borrowed, not only to meet the deficiency of the revenue, but to support the delusion of a Sinking Fund. If the exigencies of government demanded a loan of twenty millions, a loan of twenty-one millions was obtained, so that one million might be set apart for the Fund. From what has been said, it is clear such a system was either futile or pernicious. If the Fund cost nothing for management it was merely nugatory; if it cost something, it was a positive loss to the community to the amount of that cost.

The expense of management was by no means the extent of the evil; it was a principal cause of the augmentation of the Debt. So great was the delusion that no one felt any concern about the increase of the Debt; whatever might be the amount, it was conceived the Fund would be adequate to its redemption. Hence public credit became as unlimited as public credulity. Men, in other respects enlightened, were deceived, and it would be easy to cite, from the speeches of distinguished living statesmen, the most extravagant encomiums of this great

financial error. But the subject has ceased to be of intense interest, and is chiefly valuable as an additional testimony of these epidemic aberrations to which human nature, in all ages, has been exposed. Even Lord Grenville has lived to discover and acknowledge he was deceived by the Sinking Fund; and this appears not the only error of the Pitt system, of which his lordship appears likely to survive the refutation.

But the worst part of the business still remains unnoticed; the public has not only incurred a great loss from the charge of managing the Sinking Fund, but also from the additional sums borrowed for its maintenance.

In every loan the contractors have a profit at the expense of the public, and the greater the loan the greater their gain, and consequently the public loss. From 1793, the Sinking Fund was supported by borrowed money; besides the loan for the public service, an additional sum was raised for the Fund. Had there been no such Fund, the annual loans would have been less by the amount of the sum paid to the commissioners for the redemption of the Debt. The question then is, supposing the sum borrowed for the Fund, since 1793, be 250 millions, how much has the public lost by the operation?

Professor Hamilton answered this question. He ascertained the total loss to the public, by annually borrowing additional loans to support the delusion of the Fund, at THIRTY MILLIONS. The interest of thirty millions, at five per cent. per annum is a million and a half. A million and a half then is the gain of the loan-contractors, and the annual loss entailed on the country by the farce of a Sinking Fund.

A question may be here asked-If we had had no Sinking Fund, in what way were we to look forward to the redemption of the Debt. Our opinion is that, in case of a surplus revenue, it ought to have been applied to the purchase of stock at the market price, and a portion of the Debt cancelled equal to the amount of stock purchased. But we are not much in favour of government having a surplus revenue to dispose of, but think it better that taxes should be remitted to the amount of the surplus; or, in case the times are favourable to an effort for the reduction of the Debt, that it should be made by a direct assessment on the community expressly for the purpose. The advocates of a surplus revenue think it tends to support public credit; but the surest mode of supporting public credit is to contribute, in all possible ways, to promote public prosperity. Public credit obviously depends on the abundance of public wealth; in other words, on the ability of the community to support the burthens necessary to pay the interest, or ultimately the principal of the debt; and this ability is augmented, not by taking money from the people, but by leaving it in their pockets: it is not by tying up capital, in a sort of mortmain, in the hands of government commissioners that national wealth is amassed, but by leaving it to be employed in the extension of commerce, manufactures, and agriculture. Every shilling levied in taxes takes from productive capital, thereby impoverishing the country, and lessening the security of the public creditor.

In short, we trust the people have learnt wisdom by experience, and they see the policy of keeping every administration in a kind of strait waistcoat, neither suffering them to have a surplus revenue, nor surplus military force, nor surplus power of any kind, beyond the current exigencies of the state, at their disposal. Without this precaution, the country is sure to be drawn into some wanton and profligate crusade. All governments are prone to war, because it augments patronage and emolument, and gratifies pride, insolence, and ambition. If we have not been involved in hostilities ere this, it has been more owing to the protecting Egis of our pecuniary embarrassments than the absence of inclination in our rulers. Can it be supposed we should not have been embroiled about Portugal, Turkey, France, or Belgium had not the Exchequer been empty? A surplus revenue, however, under the pretext of a Sinking Fund, at all times supplies the needful, and it is easy to foresee, from past experience, were such a fund tolerated, it would be dissipated in domestic profusion or foreign aggression. As to really applying the fund to the redemption of the debt, it is mere delusion: the aristocracy, notwithstanding the solemn ejaculations of many of them about preserving, inviolate, public faith, have got a more efficient receipt for reducing the Debt than paying it off, as soon as the necessities of their unprincipled system demand the application.

DEAD-WEIGHT ANNUITY PROJECT.

We are induced shortly to notice this project, because it is the most recent, and, we believe, the last attempt which will ever be made to play tricks of legerdemain in matters of finance.

In the year 1822 a plan was adopted for relieving the country, in some degree, from the immediate pressure of the dead weight, by extending the payment of it over a longer series of years than the natural duration of the lives of the individuals holding half-pay, pensions, and allowances, under this denomination, would extend to. For this purpose an annuity of £2,800,000 was appropriated, out of the existing revenue, for 45 years, and vested in trustees for the discharge of the then payments, which, for that year, were estimated at £4,900,000, subject to yearly diminution by the death of annuitants. It was computed, that, according to the ordinary duration of human life, these annuities for the lives of the then holders would be equal to the annuity of £2,800,000 for forty-five years. The trustees were, therefore, empowered to sell, from time to time, such portions of this annuity as would provide the funds required for the payment of the dead weight, according to a computation made of the amount which would, probably, be due in each year. The act by which this arrangement was sanctioned took effect from the 10th of October, 1822.

The trustees failed in their first negotiation, which was entered into with some public companies, and ultimately made an engagement with the Bank of England, for supplying the funds required for six years, by the transfer to that corporation of an annuity of £585,740, part of