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.'
'Certain it is, therefore,' says the doctor, in a general survey of
his arithmetical salvation of the country, 'that if our affairs are to
be relieved, it must be by a fund increasing itself in the manner I
have explained. The smallest fund of this kind is indeed omnipotent,
if it is allowed time to operate.' And again: 'It might be easily
shewn that the faithful application from the beginning of the year
1700, of only L.200,000 annually, would long before 1790,
notwithstanding the reductions of interest, have paid off above
L.100,000,000 of the public debts. The nation might therefore some
years ago have been eased of a great part of the taxes with which it
is loaded. The most important relief might have been given to its
trade and manufactures; and it might now have been in better
circumstances than at the beginning of last war: its credit firm;
respected by foreign nations, and dreaded by its enemies.'
That such a tone should be assumed by an enthusiastic speculator is
not wonderful. The payment of the national debt has been one of the
staple dreams of enthusiasts. It would be difficult to believe the
wild nonsense that has been written on it; and Hogarth, in his
dreadful picture of a madhouse, appropriately represents one of his
principal figures hard at work on it. But the remarkable thing--and
what shews the perilous nature of such speculations--is, that these
theories were worked out by chancellors of the exchequer, and adopted
by parliament. There was a faint sinking-fund so early as 1716; but
Walpole one day swept it up and spent it, having probably just
discovered that it was a fallacy. It was in the days of the younger
Pitt, however, that it came out in full bloom. After it had been for
several years in operation, a retired and absent-minded mathematical
student, Robert Hamilton, shewed its falsity in a book printed in
1813. The exposure was conclusive, and no one since that time has
ventured to support a sinking-fund.
As already stated, it is a very good thing to save something out of
the revenue and pay off part of the debt. But no good is done by
keeping it to accumulate at interest, because the debt it would pay
off is just accumulating against it. Apply this to private
transactions. You are in debt L.110. You have L.10, and the question
is: Are you to pay it at once, and reduce your debt to L.100, or are
you to keep it accumulating at interest? It is much the same which you
do, only the latter is the more troublesome mode. If you pay it at
once, you will just have so much less interest to hand over to your
creditor. If you put it out at interest, you will have to pay over to
him what you receive for it, in addition to the interest of the L.100.
There is an incidental purpose for which it has been deemed right that
the government should, however, have a fund at its disposal--that is
for buying into the funds when they fall very low, and thus
accomplishing two services--the one the paying a portion of the debt
at a cheap rate, the other stopping the depreciation of the funds.
This is in itself we doubt not a very just practical object, but we
believe the sums that can be applied to it are very small in
comparison with the reserves which formed the old sinking-fund.
But another and a very different argument has been adduced, not
certainly for the re-establishment and support of a sinking-fund,
since its fallacy has been exposed, but against the policy of having
exposed it. It is said that the belief in the potency of a
sinking-fund for clearing off the debt inspired public confidence in
the stability of the funds, and that it was wrong to shake this
confidence even by the promulgation of truth. It has often been
supposed, indeed, that the statesmen who mainly carried out the system
were in secret conscious of its fallacy, but were content to carry it
out so long as they saw that it inspired confidence in the public. It
is in allusion to this that we have spoken of the sinking-fund as a
great hoax. We cannot sanction the morality of governments acting on
conscious fallacies; and in this instance the natural confidence in
the funds rather enlarged than decreased when the fallacy was exposed
and the system abandoned.
Keeping in view Dr Price's views of the potentiality of compound
interest, we now give a brief account of a singular attempt made in
France to put them in practice, and by their omnipotence pay our
national debt and that of other nations too, out of a small private
fortune. In the year 1794, a will was registered in France by one
Fortuné Ricard, disposing of a sum of 500 livres, a little more than
L.20 sterling. Fortuné stated that this sum was the result of a
present of twenty-four livres which he had received when he was a boy,
and had kept accumulating at compound interest to a period of advanced
age. By his will he left it in the hands of trustees, making
arrangements for a perpetual succession, as the purposes of the trust
were not to be all accomplished for a period of several centuries. The
money was to be divided into five portions, each of 100 livres, and so
to be put out at compound interest.
The first portion was to be withdrawn at the end of a century: it
would then amount to 13,000 livres, or about L.550. It is scarcely
worth while mentioning the purposes to which this trifle was to be
applied, but for the credit of M. Ricard it may be mentioned that they
were all unexceptionable. In two centuries the second sum would be
released, amounting to 1,700,000 livres. At the end of the third
century, the third instalment was to be released, when it would
consist of 226,000,000 livres. The destination of these magnificent
sums was also unexceptionable--it was for national education, the
erecting of public libraries, and the like. The instalment to be
released at the end of the fourth century would amount to about
30,000,000,000 livres: it was to be employed partly in the building of
100 towns, each containing 150,000 inhabitants, in the most agreeable
parts of France. 'In a short time,' says the benevolent founder,
'there will result from hence an addition of 15,000,000 of inhabitants
to the kingdom, and its consumption will be doubled--for which service
I hope the economists will think themselves obliged to me.' Malthus
had not then published his principles of population.
We must draw breath as we approach the destination of the fifth and
last instalment. It was to amount to four millions of millions of
livres--about a hundred and seventy thousand millions of pounds. We
take for granted that Fortuné's calculations are correct, and have
certainly not taken the trouble of verifying them. Among other truly
benevolent and cosmopolitan destinations of this very handsome sum, it
may be sufficient to mention these:--
'Six thousand millions shall be appropriated towards paying the
national debt of France, upon condition that the kings, our good lords
and masters, shall be entreated to order the comptrollers-general of
the finances to undergo in future an examination in arithmetic before
they enter on the duties of their office.
'Twelve thousand millions shall likewise be employed in paying the
public debts of England. It may be seen that I reckon that both these
national debts will be doubled in this period--not that I have any
doubt of the talents of certain ministers to increase them much more,
but their operations in this way are opposed by an infinity of
circumstances, which lead me to presume that these debts cannot be
more than doubled. Besides, if they amount to a few thousands of
millions more, I declare that it is my intention that they should be
entirely paid off, and that a project so laudable should not remain
unexecuted for a trifle more or less.'[1]
M. Ricard, it will be observed, must have drawn his will while royalty
was in the ascendant; it was registered during the Reign of Terror,
and one would be curious to know how many weeks, instead of centuries,
his 500 livres remained sacred. Money in the most steadily-governed
states--in our own, for instance--is subject to continual casualties.
The most acute men of business cannot command perfectly certain
investments for their own money--they are often miserably deceived,
and suffer heavy losses. M. Ricard, however, supposed that a set of
irresponsible trustees would for centuries always discover perfectly
sure investments, and act with consummate watchfulness and honesty. If
it were possible to leave behind one money with the qualification of
always being securely invested, while the rest of the property in the
world remained insecure, it would gradually suck all the wealth of the
world into its vortex. But it would require supernatural agency to
make it thus absolutely secure.
* * * * *
[Footnote 1: See the will at length in the appendix to Lord
Lauderdale's _Inquiry into the Nature and Origin of Public Wealth_.]