: To give some idea of the effects of the system of 1792; if exactly followed, let us suppose, that at some period the real excess of expence beyond the revenue being only three millions, but nine millions of the revenue being appropriated, a loan of twelve millions would be wanted. This was nearly, though not exactly, the case when a new plan of finance, so severely cen sured by Professor Hamilton, was proposed by Lord Henry Petty?

In a five per cent. stock at par, the requisite augmentation of the public revenue for such a loan would be 720,000l. or it would be 800,000 7. if the capital created were a three per cent. stock, at 60.

In either case the real increase of debt being only three mil Hons, the real appropriation for its interest would be only 150,0007.; but if so, then the remaining appropriation, whether $70,000% or 650,000l. is 19 per cent. in the first case, or 13 per cent. in the second case, of the real contemporary increase of debt. The augmentation of income in the second case, which is practically more familiar, if employed at a profit of five per cent., would redeem its corresponding debt, and pay the charges incurred by the loau in little more than five years, nor would the period be much extended at four or even three per cent. We therefore really make provision in this case for redeeming the contem porary debt in about five years; and any duration of this addition to the fund beyond five years is employed in extinguishing antecedent debt.

If after an equalization of revenue and expenditure, the system might conveniently be allowed to operate according to Mr. Pitt's plan of 1792; in that case most obviously the whole appropriation would be to increase the means of redeeming old debts. But as no new debt would be contracted beyond the amount of debt redeemed, the effect might be a very incon venient increase of the revenue beyond the actual expenditure even in war. Experience and common sense in any such case would suggest how to regulate the operation of the fund, or, it may be, shew the expedience of altogether suspending it. We shall hereafter advert more fully to this topic, but at present we' need only observe, that the principle on which we justify the system established by Mr. Pitt is by no means shaken, because that system may require limitation when it has already accom plished the most essential part of its duty; and because it may be found expedient to regulate its progress according to political circumstances, and in due proportion to the work which may remain to be performed.,

We must refer, our readers to the third section of this 'part of Professor Hamilton's work, and to the tables, connected with

it for a very perspicuous analysis of the plan introduced by Lord Henry Petty. We have now before us many tables illustrating the same subject, though somewhat differently constructed, which were made while that plan was before parliament, and which fully confirm his arithmetical objections to it. The arrangements of this plan were so ingenious (as far as they were new), that they necessarily created a great prepossession in favour of it; for a time it was popular, and, as often happens in similar cases, the more prominent feature of it was admired while its defects were overlooked, or considered as of no important consequence. The great defects of this plan were, that so far as it was really new, it pushed to an extreme the peculiar expence of the system of borrowing to redeem, while it abandoned the only important compensation for it; for in fact it evaded the proportionate contemporary augmentation of the revenue to the extent of its peculiar loans, by selling, though for a limited period, portions of the disposable revenue which already existed. Instead of adding six per cent. to the revenue on account of those loans, it subtracted ten per cent. annually for their amount from the means already provided to carry on the war: and this at a time when its expences were already very great, but when it appeared highly probable that by perseverance in the system already established, the public revenue and expenditure would soon have been equalized. If it is alleged that the unexpected war in the Spanish peninsula would have disappointed that hope, it is equally true that the same circumstance would have overwhelmed the mechanism of the substituted system.

The fourth section of this part of the Professor's work is intended to demonstrate the wasteful imprudence of funding by increase of capital. Premising that on many accounts we must disapprove of the system of creating a greater funded capital than the amount of the money borrowed, we yet materially differ from him in many parts of this argument, which we think very much overstates the loss which may have been incurred by that system since 1793; and which overlooks that in certain proportions of comparative prices it may be highly probable, that in an arithmetical balance of loss and gain, a considerable present and ultimate saving may arise from borrowing at a reduced rate of interest by creating a greater amount of capital. This was evidently true on a comparison of three per cent. and four per cent. stocks for some time after the latter fund was created.

Before we explain our objections to the Professor's argument, we request the attention of our readers to the following coin

VOL. V. NO. IX.

D

parative statement of the question, according to the present

prices (August 1813).

The five per cent. are now, writing, at

The three per cent. cons. are at

58 0 0

The sum employed in comparing the effect of borrowing in the one or the other is quite immaterial, but we will assume that a loan of twenty-five millions may be wanted when the two funds bear these prices, and also that, according to the regulation of 1792, one per cent. for the capital created is to be annually transferred to the sinking fund.

If the loan should be made in five per cent. at the above price, the capital created would be

The interest would be

The sinking fund

The whole annual appropriation

28,571,428

1,428,571

285,714

1,714,285

If the loan should be made in three per cent.

cons. at the above price, the capital created

would be

'The interest

The sinking fund

The whole annual appropriation

1,293,103

431,034

1,724,137

43,103,448

Wherefore the difference of appropriated annual charge until the whole capital is redeemed would be 9,8421. less by funding in five than in three per cent. if the subscribers would be content to take the same profit on the loan, including allowance for the chance of depreciation by adding so much new stock in the market.

But calculating the same annual appropriation for the five per cent. as for the three per cent. stock, the latter being at 587., the former might be calculated as liable to almost exactly ten shillings per cent. of greater depreciation for the effects of the loan borrowed by creating them; or, in other words, a loan borrowed in five per cents. at 877. or three per cents. at 581. would, for interest and sinking fund united, according to the system of 1792, require almost exactly the same annual appropriation.

But taking the stocks at their present respective prices, or at the last-mentioned allowance for greater depreciation of the five

per cent. (conceding this to a prevalent opinion), the next question is as to the comparative progress of redemption.

Considering the different means by which five per cent. stock may be redeemed, paid off, or commuted, the average rate of its extinction may be probably stated at par; that is, 100/. in money for 100%. of the capital created, which would be as already stated, if at 871. 10s.

or at 877. money for 100/. capital

28,571,428 28,735,631

The appropriation for the sinking fund being one per cent., and the improvement, at the rate of five per cent. compound interest, these together will redeem the capital in about thirty-six years and nine months.

If the capital, being created in three per cent cons. could be redeemed at the same rate, that is, by paying 607. in money for 100/. stock, and therefore improving at five per cent. compound interest, in that case the whole capital being 43,103,448, and tho fund also being 431,0347., the redemption would be completed in twenty-eight years and five months.

But whenever a peace may arrive, it cannot be doubted that the rate of redenrption would be much higher; while five per cent. can never cost much more than their nominal value to redeem them or pay them off; three per cent. may rise, and formerly have risen, to be worth their nominal value. Between 607. and 1007. the medium is 807., which Professor Hamilton considers as the probable medium redemption price of this stock. At 80l. for 100l. stock the cost of redemption will be 34,482,7597., and the rate of compound interest being 37. 158. per cent., the whole capital would be purchased in thirty-six years and about nine months. We have allowed the precedence to his idea of eighty per cent. as the medium price, but we believe the more common and more correct opinion to be that of 751. per cent., and the difference is not immaterial.

At an average rate of 751. for 1007. capital, giving compound interest at four per cent., the cost of redemption would be only 32,327,586, and the whole capital would be purchased in thirty-five years and four months.

Or at an average rate of 863, giving three and a half per cent. only for compound interest, the cost of redemption would be 36,945,8137., and the capital would be redeemed in forty years and four months..

The importance of this question, in a practical view, will justify our endeavour to clear the misapprehensions which have perplexed it; we shall therefore bring into one view these calculations.

From this it is very evident that, so far as the question is unconnected with collateral circumstances, the preference of funding in a five per cent. or a three per cent. stock must depend on the actual comparative value of these funds, together with the opinion as to the probable medium rate of redemption.

For instance, the five per cents, being on this day at 877. 10s. per cent., and the three per cents. being 587. per cent. as already stated; if by the addition of a large capital created in the smaller stock, it must be taken at a depreciation of ten shillings more than would happen in the three per cents., the united sums for the interest, and the sinking fund to be annually appropriated, would be exactly the same; giving therefore no reason for preference, so far as concerns the annual burden. But, also, if we assume that the medium rate of redeeming the five per cents. would be at par, and the three per cents. at 807., in that case the difference would be only eleven days, or about 7th part of the period of complete redemption, so that neither in this case would there from this cause be any material reason for a pre ference.

The opinion being, that the three per cents., on an average, would be redeemed for less than eighty per cent., would so far make it better to borrow by creating them; and if, on the con trary, it should be more probable that their redemption would, on a medium, cost more than eighty per cent., then it would ob viously be more prudent to borrow, by adding to the five per cent. capital.

The only correct way to ascertain the comparative loss or gain which has resulted from the different systems of borrowing which have been adopted since 1792, is by a comparison of the market prices of the respective stocks and of exchequer bills when each loan was contracted; and also by considering what might be the difference of depreciation consequent on funding a large sum rather than a small one in any particular stock, and for which the contractors would expect in some way or other to be indemnified. For these reasons we more than doubt the accuracy of Professor Hamilton's inference, from the comparison he has instituted between the cost of raising money by loans, and by funding exchequer bills from February 1793 to February 1812, in pages