An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

people are commonly men of mean birth, but of great wealth, and

frequently of great pride. They are too proud to marry their

equals, and women of quality disdain to marry them. They

frequently resolve, therefore, to live bachelors; and having

neither any families of their own, nor much regard for those of

their relations, whom they are not always very fond of

acknowledging, they desire only to live in splendour during their

own time, and are not unwilling that their fortune should end

with themselves. The number of rich people, besides, who are

either averse to marry, or whose condition of life renders it

either improper or inconvenient for them to do so, is much

greater in France than in England. To such people, who have

little or no care for posterity, nothing can be more convenient

than to exchange their capital for a revenue, which is to last

just as long, and no longer, than they wish it to do.

The ordinary expense of the greater part of modern governments,

in time of peace, being equal, or nearly equal, to their ordinary

revenue, when war comes, they are both unwilling and unable to

increase their revenue in proportion to the increase of their

expense. They are unwilling, for fear of offending the people,

who, by so great and so sudden an increase of taxes, would soon

be disgusted with the war ; and they are unable, from not well

knowing what taxes would be sufficient to produce the revenue

wanted. The facility of borrowing delivers them from the

embarrassment which this fear and inability would otherwise

occasion. By means of borrowing, they are enabled, with a very

moderate increase of taxes, to raise, from year to year, money

sufficient for carrying on the war; and by the practice of

perpetual funding, they are enabled, with the smallest possible

increase of taxes, to raise annually the largest possible sum of

money. In great empires, the people who live in the capital, and

in the provinces remote from the scene of action, feel, many of

them, scarce any inconveniency from the war, but enjoy, at their

ease, the amusement of reading in the newspapers the exploits of

their own fleets and armies. To them this amusement compensates

the small difference between the taxes which they pay on account

of the war, and those which they had been accustomed to pay in

time of peace. They are commonly dissatisfied with the return of

peace, which puts an end to their amusement, and to a thousand

visionary hopes of conquest and national glory, from a longer

continuance of the war.

The return of peace, indeed, seldom relieves them from the

greater part of the taxes imposed during the war. These are

mortgaged for the interest of the debt contracted, in order to

carry it on. If, over and above paying the interest of this debt,

and defraying the ordinary expense of government, the old

revenue, together with the new taxes, produce some surplus

revenue, it may, perhaps, be converted into a sinking fund for

paying off the debt. But, in the first place, this sinking fund,

even supposing it should be applied to no other purpose, is

generally altogether inadequate for paying, in the course of any

period during which it can reasonably be expected that peace

should continue, the whole debt contracted during the war ; and,

in the second place, this fund is almost always applied to other

purposes.

The new taxes were imposed for the sole purpose of paying the

interest of the money borrowed upon them. If they produce more,

it is generally something which was neither intended nor

expected, and is, therefore, seldom very considerable. Sinking

funds have generally arisen, not so much from any surplus of the

taxes which was over and above what was necessary for paying the

interest or annuity originally charged upon them, as from a

subsequent reduction of that interest ; that of Holland in 1655,

and that of the ecclesiastical state in 1685, were both formed in

this manner. Hence the usual insufficiency of such funds.

During the most profound peace, various events occur, which

require an extraordinary expense ; and government finds it always

more convenient to defray this expense by misapplying the sinking

fund, than by imposing a new tax. Every new tax is immediately

felt more or less by the people. It occasions always some murmur,

and meets with some opposition. The more taxes may have been

multiplied, the higher they may have been raised upon every

different subject of taxation; the more loudly the people

complain of every new tax, the more difficult it becomes, too,

either to find out new subjects of taxation, or to raise much

higher the taxes already imposed upon the old. A momentary

suspension of the payment of debt is not immediately felt by the

people, and occasions neither murmur nor complaint. To borrow of

the sinking fund is always an obvious and easy expedient for

getting out of the present difficulty. The more the public debts

may have been accumulated, the more necessary it may have become

to study to reduce them; the more dangerous, the more ruinous it

may be to missapply any part of the sinking fund ; the less

likely is the public debt to be reduced to any considerable

degree, the more likely, the more certainly, is the sinking fund

to be misapplied towards defraying all the extraordinary expenses

which occur in time of peace. When a nation is already

overburdened with taxes, nothing but the necessities of a new

war, nothing but either the animosity of national vengeance, or

the anxiety for national security, can induce the people to

submit, with tolerable patience, to a new tax. Hence the usual

misapplication of the sinking fund.

In Great Britain, from the time that we had first recourse to the

ruinous expedient of perpetual funding, the reduction of the

public debt, in time of peace, has never borne any proportion to

its accumulation in time of war. It was in the war which began in

1668, and was concluded by the treaty of Ryswick, in 1697, that

the foundation of the present enormous debt of Great Britain was

first laid.

On the 31st of December 1697, the public debts of Great Britain,

funded and unfunded, amounted to �21,515,742:13:8�. A great part

of those debts had been contracted upon short anticipations, and

some part upon annuities for lives; so that, before the 31st of

December 1701, in less than four years, there had partly been

paid off; and partly reverted to the public, the sum of

�5,121,041:12:0�d; a greater reduction of the public debt than

has ever since been brought about in so short a period of time.

The remaining debt, therefore, amounted only to

�16,394,701:1:7�d.

In the war which began in 1702, and which was concluded by the

treaty of Utrecht, the public debts were still more accumulated.

On the 31st of December 1714, they amounted to �53,681,076:5:6�.

The subscription into the South-sea fund, of the short and long

annuities, increased the capital of the public debt ; so that, on

the 31st of December 1722, it amounted to �55,282,978:1:3 5/6.

The reduction of the debt began in 1723, and went on so slowly,

that, on the 31st of December 1739, during seventeen years-of

profound peace, the whole sum paid off was no more than

�8,328,554:17:11 3/12, the capital of the public debt, at that

time, amounting to �46,954,623:3:4 7/12.

The Spanish war, which began in 1739, and the French war which

soon followed it, occasioned a further increase of the debt,

which, on the 31st of December 1748, after the war had been

concluded by the treaty of Aix-la-Chapelle, amounted to

�78,293,313:1:10�. The most profound peace, of 17 years

continuance, had taken no more than �8,328,354, 17:11� from it. A

war, of less than nine years continuance, added �31,338,689:18: 6

1/6 to it. {See James Postlethwaite’s History of the Public

Revenue.}

During the administration of Mr. Pelham, the interest of the

public debt was reduced, or at least measures were taken for

reducing it, from four to three per cent.; the sinking fund was

increased, and some part of the publie debt was paid off. In

1755, before the breaking out of the late war, the funded debt of

Great Britain amounted to �72,289,675. On the 5th of January

1763, at the conclusion of the peace, the funded debt amounted

debt to �122,603,336:8:2�. The unfunded debt has been stated at

�13,927,589:2:2. But the expense occasioned by the war did not

end with the conclusion of the peace ; so that, though on the 5th

of January 1764, the funded debt was increased (partly by a new

loan, and partly by funding a part of the unfunded debt) to

�129,586,789:10:1�, there still remained (according to the very

well informed author of Considerations on the Trade and Finances

of Great Britain) an unfunded debt, which was brought to account

in that and the following year, of �9,975,017: 12:2 15/44d. In

1764, therefore, the public debt of Great Britain, funded and

unfunded together, amounted, according to this author, to

�139,561,807:2:4. The annuities for lives, too, which had been

granted as premiums to the subscribers to the new loans in 1757,

estimated at fourteen years purchase, were valued at �472,500 ;

and the annuities for long terms of years, granted as premiums

likewise, in 1761 and 1762, estimated at twentyseven and a-half

years purchase, were valued at �6,826,875. During a peace of

about seven years continuance, the prudent and truly patriotic

administration of Mr. Pelham was not able to pay off an old debt

of six millions. During a war of nearly the same continuance, a

new debt of more than seventy-five millions was contracted.

On the 5th of January 1775, the funded debt of Great Britain

amounted to �124,996,086, 1:6�d. The unfunded, exclusive of a

large civil-list debt, to �4,150,236:3:11 7/8. Both together, to

�129,146,322:5:6. According to this account, the whole debt paid

off, during eleven years of profound peace, amounted only to

�10,415,476:16:9 7/8. Even this small reduction of debt, however,

has not been all made from the savings out of the ordinary

revenue of the state. Several extraneous sums, altogether

independent of that ordinary revenue, have contributed towards

it. Amongst these we may reckon an additional shilling in the

pound land tax, for three years; the two millions received from

the East-India company, as indemnification for their territorial

acquisitions ; and the one hundred and ten thousand pounds

received from the bank for the renewal of their charter. To these

must be added several other sums, which, as they arose out of the

late war, ought perhaps to be considered as deductions from the

expenses of it. The principal are,

The produce of French prizes ………….. �690,449: 18: 9

Composition for French prisoners ……… 670,000: 0: 0

What has been received from the sale

of the ceded islands ……………………. 95,500: 0: 0

Total, ……………………………….�1,455,949: 18: 9

If we add to this sum the balance of the earl of Chatham’s and

Mr. Calcraft’s accounts, and other army savings of the same kind,

together with what has been received from the bank, the

East-India company, and the additional shilling in the pound land

tax, the whole must be a good deal more than five millions. The

debt, therefore, which, since the peace, has been paid out of the

savings from the ordinary revenue of the state, has not, one year

with another, amounted to half a million a-year. The sinking fund

has, no doubt, been considerably augmented since the peace, by

the debt which had been paid off, by the reduction of the

redeemable four per cents to three per cents, and by the

annuities for lives which have fallen in; and, if peace were to

continue, a million, perhaps, might now