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The merits of Walpole in this respect were very great, for in the eyes of most impartial observers there was much in the financial condition of the country since the Revolution that was extremely serious. The expenses of the administration had increased, and the National Debt, which at the time of the Revolution was only 648,000l., amounted on the death of William to more than sixteen millions, and on the accession of George I. to more than fifty-four millions. Accustomed as we are to the far more gigantic burden of our present debt, it is perhaps difficult for us to estimate the consternation with which this phenomenon was regarded, and the National Debt is historically so closely connected with the Revolution that Whig historians have shown a strong tendency to depreciate its importance. They have urged with truth that the existence of some debt was inevitable, that Italy, Holland, France, and Spain had already taken considerable steps in the same direction, that the increased perfection of military organisation, by adding largely to the cost of war, had made it eminently advisable to spread the expense of a great struggle over several years of peace, that in 1692, when the funded system began, it would have been impossible to have raised the war taxes within the year without seriously crippling industry and shaking the Government, and that, on the other hand, the abundance of money seeking investment made a loan peculiarly advisable. They have added, too, that the evils of a national debt have been greatly exaggerated, and that its advantages are by no means inconsiderable. It is certain, notwithstanding the prognostications of innumerable economists, that the material prosperity of England has steadily advanced in spite of its debt. It is certain that although a debt which a nation owes to itself is economically an evil, it is an evil of a very different magnitude from a debt i owed to a foreign nation. There is also a real and a considerable ⚫ advantage in the possession of a secure and easy mode of investing money accessible to all classes, universally known, and furnishing the utmost facilities for transfer. Nor should it be forgotten that a financial system which gives a large proportion of the people

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a direct pecuniary interest in the stability of the Government is a great pledge of order and a firm bond of national cohesion.

But, admitting these arguments, the evils of national debts, both moral and economical, are very serious. Economically they almost invariably imply an enormous waste of capital with a proportionate injury to the working classes. The principal of the debt is usually spent unproductively by the Government as revenue, and it is drawn in a large part from capital/ which would have been otherwise productively employed and which forms part of the wage fund of the nation. It is a transparent though common fallacy to suppose that it reproduces itself in interest. A moment's reflection is sufficient to show that, except in the rare cases in which the borrowed money is employed in some reproductive work, no such interest accrues, and that the annual sum which the Government engages to pay to its creditors is derived from other sources, from a general taxation levied on funds part of which, at least, would otherwise have been productively employed. And the economical evil of this dissipation of capital is greatly aggravated by moral causes. Many forms of lavish unproductive expenditure, and especially the splendours and the excitements of war, are naturally so popular that any minister or sovereign whose position is insecure or whose character is ambitious is almost irresistibly tempted to resort to them if there is no strong counteracting influence. The natural restraint upon these extravagances is the necessity of raising by taxation the whole sum that is required. The sacrifice and disturbance caused by such an increase of taxation arouse a feeling which at once checks the progress of the evil. But by the funding system this invaluable restraint is almost wholly removed. The money that is required is borrowed. increase of taxation that is necessary to pay the mere interest appears trifling and almost imperceptible. The process which should be resorted to, only in extreme emergencies of the State, is found so easy and popular that it is constantly repeated. The nation, losing all habit of financial sacrifice, borrows in every moment of difficulty, contents itself in time


of prosperity with simply paying the interest of the debt, and makes no serious effort to reduce the principal. Thus by stealthy and insidious steps the evil creeps on till the national prosperity and industry are heavily mortgaged, and the consequences of the crimes and blunders of one generation are entailed upon the remotest posterity. In ancient times, the traces of the most horrible war were soon effaced. In a few years the misery and desolation that followed it were forgotten. The waste of national wealth which might appear a more permanent calamity was so immediately and acutely felt that it at once produced an increase of energy and self-sacrifice to replace it, and thus the effects of political errors usually disappeared almost with those who perpetrated them. In modern times the chief expenditure of a war is raised by a loan, which is often drawn from the capital that would otherwise have given employment to the poor, which rarely or never produces in the community any considerable increase of economy, and which always perpetuates the calamity of war by throwing its accumulated burdens upon a distant posterity. Every English household is now suffering from the American policy of North and the French policy of Pitt, and the political errors of the Second Empire will be felt by Frenchmen as a present evil long after the children and grandchildren of those who perpetrated them are in their graves.

Nor is it true that the sinister predictions of such economists as Hume and Adam Smith, though they have been falsified by the result, rested upon any fundamental error of principle. If the National Debt before the American War did not arrest, though it undoubtedly retarded, the material progress of England, this was merely because the resources of the country were so large and its circumstances and situation so favourable that the normal increase of wealth was considerably greater than the increase of the burden. If the debts that were contracted during the great American and French Wars did not ruin the country it was owing to a series of events which no human sagacity could have predicted. The great mechanical inventions

of Hargreaves, Arkwright, Crompton, Watt, and Stephenson, followed by a peace of almost unexampled duration, and by a policy of free trade, have produced an increase of wealth that is wholly unparalleled in the history of mankind; while Californian and Australian gold, by depreciating the value of money, have considerably lightened the burden of the debt, at the cost of great loss and injury to the fundholder. It remains, however, as true as ever that European nations have never in time of peace paid off their debts with a rapidity at all corresponding to that with which they accumulated them in time of war; that the increased taxation necessitated by national debts has led, and may easily lead, to national bankruptcy; and that long before it reaches this point, it produces distress, difficulty, and privation, and seriously endangers the security of the State. It is one of the worst features of national debts that they deprive nations of the power of regulating their expenditure by their resources. A permanent taxation, which may be easily borne in time of great commercial prosperity, may become crushing if the course of commerce takes another channel, and if the income of the nation is proportionately reduced. History shows how easily this may happen. A war, a new invention, the exhaustion of some essential element of national industry, the progress of a rival, or a change in the value or conditions of labour, may speedily turn the stream of wealth, while the burden of debt remains. And, indeed, this burden itself is one of the most likely causes of such a change. When other things are equal,\ the least indebted nation will always have the advantage in industrial competition; for the heavy taxation necessitated by debts at once raises prices and reduces profits, and thus causes the emigration both of capital and labour.

These considerations may serve in some degree to justify the great dread with which the National Debt was regarded by the wisest political observers in the eighteenth century. Their judgments were not formed merely by theory. France actually proclaimed herself bankrupt in 1715 and 1769. Holland had already entered into a period of commercial decadence, which

was largely due to the emigration of capital resulting from the excessive taxation rendered necessary by her debt. The whole sum raised by taxation in England at the time of the Revolution but slightly exceeded two millions, and it was raised with difficulty, and in the hard years that followed that event the produce of the taxes considerably diminished.' It is not surprising, therefore, that the growth of the debt should have appeared bewildering in its rapidity, and that very erroneous estimates should have been formed of the capabilities of the nation. Thus Davenant, the chief commercial writer under William and Anne, predicted in 1699 that England could never flourish in trade and manufactures till the greater part of the National Debt was liquidated, and the annual taxation of the country reduced to about 2,300,000l. Unless this can be compassed,' he added, 'we shall languish and decay every year. Our gold and silver will be carried off by degrees; rents will fall, the purchase of land will decrease; wool will sink in its price; our stock of shipping will be diminished; farmhouses will go to ruin; industry will decay, and we shall have upon us all the visible marks of a declining people.' These figures, however, were speedily passed. Carteret complained bitterly in 1738 that the estimates had now risen to no less than six millions.3 Smollett considered the sum of ten millions which was raised in 1743 'enormous.' Bolingbroke noted that the Parliamentary aids. from the year 1740 exclusively, to the year 1748 inclusively, amounted to about 55 millions, 'a sum,' he added, that will appear incredible to future generations.' 5 The most acute observers imagined that the nation had now all but touched the extreme limits of her resources. As early as 1735 Lord Hervey wrote, 'I do not see how it would be possible on any exigence, or for the support of the most necessary war, for England to raise above one million a year more than it now raises.' The Craftsman,’


I See Sinclair's Hist. of the Revenue, i. 406-407.


2 Davenant's Works (1771), ii. 283. 3 Smollett's Hist. of England, iii.

Hist. of England, iii. 120.
Reflections on the Present State

of the Nation.

"Hervey's Memoirs, i. 487.

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