The decline & fall of the English system of finance: By Thomas Paine, author of Common sense, American crisis, Age of reason, &c. [One line of quotation]
Paine, Thomas, 1737-1809.
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NOTHING, they say, is more cer∣tain than death, and nothing more un∣certain than the time of dying; yet we can always fix a period beyond which man cannot live, and within some mo∣ments of which he will die. We are enabled to do this, not by any spirit of prophesy, or foresight into the event, but by observation of what has happened in all cases of human or animal existence. If then any other subject, such, for in∣stance, as a system of finance, exhibits in its progress a series of symptoms in∣dicating decay, its final dissolution is certain, and the period of it can be calculated from the symptoms it exhibits.

Those who have hitherto written on the English system of finance (the sun∣ding Page  6system) have been uniformly im∣pressed with the idea of its downfal hap∣pening some time or other. They took, however, no data for that opinion, but expressed it predictively, or merely as opinion, from a conviction that the per∣petual duration of such a system was a natural impossibility. It is in this man∣ner that Dr. Price has spoken of it; and Smith, in his Wealth of Nations, has spo∣ken in the same manner; that is, mere∣ly as opinion without data. "The pro∣gress," says Smith,

of the enor∣mous debts which at present oppress, and will in the long-run most probably ruin, all the great nations of Europe, (he should have said governments) has been pretty uniform.
But this ge∣neral manner of speaking, though it might make some impression, carried with it no conviction.

It is not my intention to predict any thing; but I will shew from data already known, from symptoms and facts which the English funding system has already exhibited publicly, that it will not con∣tinue to the end of Mr. Pitt's life, suppo∣sing Page  7him to live the usual life of a man. How much sooner it may fall, I leave to others to predict.

Let financiers diversify systems of cre∣dit as they will, it is nevertheless true, that every system of credit is a system of paper money. Two experiments have already been had upon paper money; the one in America, the other in France. In both those cases the whole capital was emitted, and that whole capital, which in America was called continental money, and in France assignats, appeared in cir∣culation; the consequence of which was, that the quantity became so enormous, and so disproportioned to the quantity of population, and to the quantity of objects upon which it could be employ∣ed, that the market, if I may so ex∣press it, was glutted with it, and the value of it fell. Between five and six years de∣termined the fate of those experiments. The same fate would have happened to gold and silver, could gold and silver have been issued in the same abundant manner as paper had been, and confined in the country as paper money always is, by hav∣ing Page  8no circulation out of it; or to speak on a larger scale, the same thing would hap∣pen in the world, could the world be glut∣ted with gold and silver, as America and France has been with paper.

The English system differs from that of America and France in this one par∣ticular, that its capital is kept out of sight; that is, it does not appear in cir∣culation. Were the whole capital of the national debt, which at the time I write this is almost four hundred mil∣lion pounds sterling, to be emitted in as∣signats or bills, and that whole quantity put into circulation, as was done in Ame∣rica and in France, those English assign∣ats, or bills, would sink in value as those of America and France have done; and that in a greater degree, because the quantity of them would be more dispro∣portioned to the quantity of population in England, than was the case in either of the other two countries. A nominal pound sterling in such bills would not be worth one penny.

But though the English system, by thus keeping the capital out of sight, is Page  9preserved from hasty destruction, as i the case of America and France, it ne∣vertheless approaches the same fate, and will arrive at it with the same certainty, though by a slower progress. The dif∣ference is altogether in the degree of speed by which the two systems ap∣proach their fate, which, to speak in round numbers, is as twenty is to one; that is, the English system, that of fund∣ing the capital instead of issuing it, con∣tained within itself a capacity of endur∣ing twenty times longer than the system adopted by America and France; and at the end of that time it would arrive at the same common grave, the Potter's field, of paper money.

The datum, I take for this proportion of twenty to one, is the difference be∣tween a capital and the interest at five per cent. Twenty times the interest is equal to the capital. The accumulation of paper money in England is in propor∣tion to the accumulation of the interest upon every new loan; and therefore the progress to dissolution is twenty times slower than if the capital were to be emitted and put into circulation imme∣diately. Page  10Every twenty years in the English system is equal to one year in the French and American systems.

The English funding system began one hundred years ago; in which time there has been six wars, including the war that ended in 1697.

1. The war that ended, as I have just said, in 1697.

2. The war that began in 1702.

3. The war that began in 1739.

4. The war that began in 1756.

5. The American war, that began in 1775.

6. The present war, that began in 1793.

The national debt, at the conclusion of the war, which ended in 1697, was twenty-one millions and an half. (See Smith's Wealth of Nations, chapter on Public Debts.) We now see it ap∣proaching fast to four hundred millions. If between those two extremes of twen∣ty-one millions and four hundred millions, embracing the several expences of all the including wars, there exists some common ratio that will ascertain arith∣metically the amount of the debt at the Page  11end of each war, as certainly as the fact is now known to be, that ratio will in like manner determine what the amount of the debt will be in all future wars, and will ascertain the period within which the funding system will expire in a bankruptcy of the government; for the ratio I allude to, is the ratio which the nature of the thing has established for itself.

Hitherto no idea has been entertain∣ed that any such ratio existed, or could exist, that could determine a problem of this kind, that is, that could ascer∣tain, without having any knowledge of the fact, what the expence of any for∣mer war had been, or what the expence of any future war would be; but it is, nevertheless, true that such a ratio does exist, as I shall shew, and also the mode of applying it.

The ratio I allude to is not in Arith∣metical progression, like the numbers 2, 3, 4, 5, 6, 7, 8, 9; nor yet in geometrical progression, like the numbers 2, 4, 8, 16, 32, 64, 128, 256: Page  12but is in the series of one half upon, each preceding number; like the num∣bers 8, 12, 18, 27, 40, 60, 90, 135.

Any person can perceive that the se∣cond number, 12, is produced by the preceding number, 8, and half 8; and that the third number, 18, is in like man∣ner produced by the preceding number, 12, and half 12; and so on for the rest. They can also see how rapidly the sums increase as the ratio proceeds. The dif∣ference between the two first numbers is but four; but the difference between the two last is forty-five: and from thence they may see with what immense rapidity the national debt has increased, and will continue to increase, till it exceeds the ordinary powers of calculation, and loses itself in cyphers.

I come now to apply the ratio as a rule to determine all the cases.

I begin with the war that ended in 1697, which was the war in which the funding system began. The expence of that war was twenty-one millions and an half. In order to ascertain the expence of the next Page  13war, I add to twenty-one millions and an half, the half thereof (ten millions and three quarters), which makes thirty-two millions and a quarter, added to the former debt of twenty-one millions and an half, carries the national debt to fifty-three mil∣lions and three quarters. Smith, in his chapter on Public Debts, says, Thenation∣al debt was at this time fifty-three millions.

I proceed to ascertain the expence of the next war, that of 1739, by adding, as in the former case, one half to the ex∣pence of the preceeding war. The ex∣pence of the preceding war was thirty-two millions and a quarter: for the sake of even numbers, say thirty-two millions, the half of which (16) makes forty-eight millions for the expence of that war.

I proceed to ascertain the expence of the war of 1756, by adding, according to the ratio, one half to the expence of the preceding war. The expence of the pre∣ceding war was taken at 48 millions, the half of which (24) makes 72 millions for the expence of that war. Smith (chap∣ter on public debts) says, the expence of Page  14the war of 1756 was 72 millions and a quarter.

I proceed to ascertain the expence of the American war, of 1775, by adding, as in the former cases, one half to the ex∣pence of the preceding war. The ex∣pence of the preceding war was 72 millions, the half of which (36) makes 108 milli∣ons for the expence of that war. In the last edition of Smith (chapter on Public Debts) he says, the expence of the Ame∣rican war was more than an hundred mil∣lions.

I come now to ascertain the expence of the present war, supposing it to conti∣nue as long as former wars have done, and the funding system not to break up before that period. The expence of the preced∣ing war was 108 millions, he half of which (54) makes 162 millions for the ex∣pence of the present war. It gives symp∣toms of going beyond this sum, supposing the funding system not to break up; for the loans of the last year and of the pre∣sent year, are twenty-two millions each, which exceeds the ratio compared with the loans of the preceding war. It will Page  15not be from the inability of procuring loans that the system will break up. On the contrary, it is the facility with which loans can be procured, that hastens that event. The loans are altogether paper transactions, and it is the excess of them that brings on, with the accelerating speed, that progressive depreciation of funded paper money that will dissolve the funding system.

I proceed to ascertain the expence of fu∣ture wars, and I do this merely to shew the impossibility of the continuance of the fund∣ing system, and the certainty of its disso∣lution.

The expence of the next war after the present war, according to the ratio that has ascertained the preceding cases will be

  • —243 millions
  • Expence of the second war 364 millions
  • — third war — 546 millions
  • — fourth war — 819 millions
  • — fifth war — 1228 millions
  • — 3200 millions
which, at only 4 per cent, will require taxes to the nominal amount of one hun∣dred Page  16and twenty-eight millions to pay the annual interest, besides the interest of the present debt, and the expences of govern∣ment, which are not included on this ac∣count. Is there a man so mad, so stupid, as to suppose this system can continue?

When I first conceived the idea of seek∣ing for some common ratio that should ap∣ply as a rule of measurement to all the ca∣ses of the funding system, so far as to ascer∣tain the several stages of its approach to dissolution, I had no expectation that any ratio could be found that would apply with so much exactness as this does. I was led to the idea merely by observing that the funding system was a thing in con∣tinual progression, and that whatever was in a state of progression might be suppo∣sed to admit of, at least, some general ratio of measurement, that would apply without any very great variation. But who could have supposed that falling sys∣tems, or falling opinions, admitted of a ratio apparently as true as the descent of falling bodies? I have not made the ra∣tio, any more than Newton made the ra∣tio of gravitation. I have only discovered Page  17it, and explained the mode of applying it. To shew at one view the rapid progres∣sion of the funding system to destruction, and to expose the folly of those who blind∣ly believe in its continuance, or who art∣fully endeavour to impose that belief upon others, I exhibit in the annexed table, the expence of each of the six wars since the funding system began, as ascertained by the ratio, and the expence of six wars yet to come, ascertained by the ratio.

First six wars.
121 millions
233 millions
348 millions
472 millions *
5108 millions
6162 millions
Total444 millions
Second six wars.
1243 millions
2364 millions
3546 millions
4819 millions
51228 millions
61842 millions
Total5042 millions

Page  18Those who are acquainted with the power with which even a small ratio act∣ing in progression, multiplies in a long series, will see nothing to wonder at in this table. Those who are not acquaint∣ed with that subject, and not knowing what else to say may be inclined to deny it. But it is not their opinion one way, nor mine the other, that can influence the event. The table exhibits the natural march of the sunding system, to its irre∣deemable dissolution. Supposing the pre∣sent government of England to continue, and to go on as it has gone on since the funding system began, I would not give twenty shillings for one hundred pounds in the funds to be paid twenty years hence. I do not speak this predictively; I produce the data upon which that belief is founded: and which data it is every Page  19body's interest to know, who have any thing to do with the funds, or who are going to bequeath property to their de∣scendants to be paid at a future day.

Perhaps it may be asked, that as go∣vernments or ministers proceeded by no ratio in making loans or incurring debts, and as nobody intended any ratio, or thought of any, how does it happen that there is one? I answer, that the ratio is founded in necessity; and I now go to ex∣plain what that necessity is.

It will always happen, that the price of labour, or of the produce of labour, be that produce what it may, will be in pro∣portion to the quantity of money in a country, admitting things to take their natural course. Before the invention of the funding system, there was no other money than gold and silver; and as na∣ture gives out those metals with a sparing hand, and in regular annual quantities from the mines, the several prices of things were proportioned to the quantity of money at that time, and so nearly sta∣tionary as to vary but little in any fifty or sixty years of that period.

Page  20When the funding system began, a sub∣stitute for gold and silver began also. That substitute was paper; and the quan∣tity of it increased as the quantity of inte∣rest increased upon accumulated loans. This appearance of a new and additional species of money in the nation soon began to break the relative value which money and the things it will purchase bore to each other before. Every thing rose in price, but the rise at first was little and slow, like the difference in units between the two first numbers, 8 and 12, compared with the two last numbers, 90, and 135, in the table. It was however sufficient to make itself considerably felt in a large transaction. When therefore government, by engaging in a new war, required a new loan, it was obliged to make a higher loan than the former loan to balance the increased price to which things had risen; and as that new loan increased the quanti∣ty of paper in proportion to the new quan∣tity of interest, it carried the price of things still higher than before.

The next loan was again higher, to balance that further increased price; and Page  21all this in the same manner, though not in the same degree, that every new emission of continental money in America, or of assignats in France, were greater than the preceding emission, to make head against the advance of prices, till the com∣bat could be contained no longer. Herein is founded the necessity of which I have just spoken. That necessity proceeds with accelerating velocity, and the ratio I have laid down is the measure of that acceler∣ation; or to speak the technical language of the subject, it is the measure of the in∣creasing depreciation of funded paper money, and of bank-notes continues to multiply. What else but this can account for the difference between one war's cost∣ing 21 millions, and another war's costing 160 millions?

The difference cannot be accounted for on the score of extraordinary efforts, or extraordinary atchievements. The war that cost 21 millions, was the war of the confederates, historically called the grand alliance, consisting of England, Austria, and Holland, in the time of William the Third, against Louis the Fourteenth, and Page  22in which the confederates were victorious. The present is a war of much greater confederacy—a confederacy of England, Austria, Prussia, the German Empire, Spain, Holland, Naples, and Sardinia, eight powers against the French Republic singly, and the Republic has beaten the whole confederacy. But to return to my subject—

It is said in England, that the value of paper keeps equal with the value of gold and silver. But the case is not rightly stated; for the fact is, that the paper has pulled down the value of gold and silver to a level with itself. Gold and silver will not purchase so much of any purchasable article at this day as if no paper had ap∣peared, nor so much as it will in any country in Europe where there is no pa∣per. How long this hanging together of money and paper will continue makes a new case; because it daily exposes the system to sudden death, independent of the natural death it would otherwise suffer.

I consider the funding system as being now advanced into the last twenty years Page  23of its existence. The single circumstance were there no other, that a war should cost nominally one hundred and sixty mil∣lions which when the system began cost but twenty-one millions, or that the loan for one year only, (including the loan to the Emperor) should now be nominally greater than the whole expence of that war, shews the state of depriciation to which the funding system has arrived. Its depreciation is in the proportion of eight for one, compared with the value of its money when the system began; which is the state the French assignats stood in a year ago (March, 1795), com∣pared with gold and silver. It is there∣fore that I say, that the English funding system, has entered into the last twenty years of its existence. Comparing each twenty years of the English system with every single year of the American and French systems, as before stated.

Again, supposing the present war to close as former wars have done, and with∣out producing either revolution or reform in England, another war at least must be looked for in the space of the twenty Page  24years I allude to; for it has never yet happened that twenty years have passed off without a war, and that more especi∣ally since the English government has dabbled in German politics, and shewn a disposition to insult the world, and the world of commerce, with her navy. That next war will carry the national debt to very nearly seven hundred millions, the interest of which, at four per cent. will be twenty-eight millions, besides the taxes for the (then) expences of govern∣ment, which will increase in the same pro∣portion, and which will carry the taxes to at least 40 millions: and if another war only begins, it will quickly carry them to above fifty; for it is in the last twenty years of the funding system, as in the last year of the American and French systems without funding, that all the great shocks begin to operate.

I have just mentioned that paper, in England, has pulled down the value of gold and silver to a level with itself; and that this pulling down of gold and silver money has created the appearance of paper mo∣ney's keeping up. The same thing, and Page  25the same mistake, took place in America and in France, and continued for a consi∣derable time after the commencment of their system of paper; and the actual depreciation of money was hidden under that mistake.

It was said in America, at that time, that every thing was becoming dear; but gold and silver could then buy those dear articles no cheaper than paper could; and therefore it was not called depreciation. The idea of dearness established itself for the idea of depreciation. The same was the case in France. Though every thing rose in price soon after assignats appeared, yet those dear articles could be purchased no cheaper with gold and silver than with paper, and it was only said that things were dear. The same is still the language in England. They call it dearness. but they will soon find that it is an actual de∣preciation, and that this depreciation is the effect of the funding system; which, by crowding such a continually increasing mass of paper into circulation, carries down the value of gold and silver with it. Page  26But gold and silver will, in the long run, revolt against depreciation, and separate from the value of paper; for the progress of all such systems appears to be, that the paper will take the command in the beginning, and gold and silver in the end.

But this succession in the command of gold and silver over paper, makes a crisis far more eventful to the funding system than to any other system upon which pa∣per can be issued; for, strictly speaking, it is not a crisis of danger, but a symptom of death. It is a death stroke to the fun∣ding system. It is a revolution in the whole of its affairs.

If paper be issued without being fund∣ed upon interest, emissions of it cannot be continued after the value of it sepa∣rates from gold and silver, as we have seen in the two cases of America and France. But the funding system rests altogether upon the value of paper being equal to gold and silver; which will be as long as the paper can continue carrying down the value of gold and silver to the same level to which itself descends, and no longer. But even in this state, that of Page  27descending equally together, the minister, whoever he may be, will find himself be∣set with accumulating difficulties; because the loans and taxes voted for the service of each ensuing year will wither in his hands before the year expires, or before they can be applied. This will force him to have recourse to emissions of what are called exchequer and navy bills, which, by still increasing the mass of paper in circulation, will drive on the depreciation still more rapidly.

It ought to be known that taxes in En∣gland are not paid in gold and silver, but in paper (bank notes). Every person who pays any considerable quantity of taxes, such as malsters, brewers, distillers (I appeal for the truth of it to any of the collectors of excise in England, or to Mr. Whitbread), knows this to be the case. There is not gold and silver enough in the nation to pay the taxes in coin, as I shall shew; and consequently there is not mo∣ney enough in the bank to pay the notes. The interest of the national funded debt is paid at the bank in the same kind of pa∣per in which the taxes are collected. Page  28When people find, as they will find a re∣servedness among each other in giving gold and silver for bank notes, or the least preference for the former over the latter, they will go for payment to the bank, where they have a right to go. They will do this as a measure of prudence, each one for himself, and the truth or delusion of the funding system will then be proved.

I have said in the foregoing paragraph, that there is not gold and silver enough in the nation to pay the taxes in coin, and consequently, that there cannot be enough in the bank to pay the notes. As I do not choose to rest any thing upon asserti∣on, I appeal for the truth of this to the publications of Mr. Eden (now called Lord Aukland), and George Chalmers, Secretary to the Board of Trade and Plantation, of which Jenkinson (now called Lord Hawkesbury) is president. [These sort of folks change their names so often, that it is as difficult to know them as it is to know a thief.] Chalmers gives the quantity of gold and silver coin from the returns of coinage at the mint; and, af∣ter Page  29deducting for the light gold recoined, says, that the amount of gold and silver coin is about twenty millions. He had bet∣ter not have proved this, especially if he had reflected, that, public credit is suspici∣on asleep. The quantity is much too little.

Of this twenty millions (which is not a fourth part of the quantity of gold and silver there is in France, as is shewn in Mr. Neckar's Treatise on the Administra∣tion of the Finances) three millions at least must be supposed to be in Ireland some in Scotland, and in the West-Indies, Newfoundland, &c. The quantity there∣fore in England cannot be more than sixteen millions, which is four millions less than the amount of the taxes. But ad∣mitting there to be sixteen millions, not more than a fourth part thereof (four millions) can be in London, when it is considered that every city, town, village, and farm-house in the nation must have a part of it, and that all the great manu∣factories, which most require cash, are out of London. Of this four millions in London, every banker, merchant, trades∣man, Page  30in short, every individual must have some. He must be a poor shop-keeper indeed, who has not a few guineas in his till. The quantity of cash therefore in the bank can never, on the evidence of circumstances, be so much as two milli∣ons; most probably not more than one million; and on this slender twig, always liable to be broken, hangs the whole fun∣ding system of four hundred millions, be∣sides many millions in bank notes. The sum in the bank is not sufficient to pay one fourth of only one years interest of the national debt, were the creditors to demand payment in cash, or to demand cash for the bank notes in which the in∣terest is paid. A circumstance always li∣able to happen.

One of the amusements that has kept up the farce of the funding system, is, that the interest is regularly paid. But as the interest is always paid in bank notes, and as bank notes can always be coined for the purpose, this mode of payment proves nothing. The point of proof is, can the bank give cash for the bank notes on which the interest is paid? If it can Page  31not, and it is evident it cannot, some mil∣millions of bank notes must go without payment, and those holders of bank notes who apply last will be worst off. When the present quantity of cash in the bank be paid away, it is next to impossible to see how any new quantity is to arrive. None will arrive from taxes, for the taxes will all be paid in bank notes; and should the go∣vernment refuse bank notes in payment of taxes, the credit of bank notes will be gone at once. No cash will arrive from the busi∣ness of discounting merchants bills, for every merchant will pay off those bills in bank notes, and not in cash. There is therefore no means left for the bank to obtain a new supply of cash after the pre∣sent quantity be paid away. But, besides the impossibility of paying the interest of the funded debt in cash, there are many thousand persons in London and in the country, who are holders of bank notes that came into their hands in the fair way of trade, and who are not stock holders in the sunds; and as such persons have had no hand in increasing the demand upon the bank, as those have had, who, for their Page  32own private interest, like Boyd and others, are contracting, or pretending to contract, for new loans, they will conceive they have a just right their bank notes should be paid first. Boyd has been very sly in France, in changing his paper into cash. He will be just as sly in doing the same thing in London; for he has learned to calculate: and then it is probable he will set off for America.

A stoppage of payment at the bank is not a new thing. Smith, in his Wealth of Nations, book 2, chap. 2, says, that in the year 1696, exchequer bills fell forty, fifty, and sixty per cent. bank notes twen∣ty per cent. and the bank stopt payment.— That which happened in 1696, may hap∣pen again in 1796. The period in which it happened was the last year of the war of king William. It necessarily put a stop to the further emission of exchequer and navy bills, and to the raising of new loans; and the peace which took place the next year was probably hurried on by this circumstance, and saved the bank from bankruptcy. Smith, in speaking of the circumstances of the bank, upon another Page  33occasion, says, (book 2, chap. 2,)—

This great company has been reduced to the necessity of paying in sixpences.
When a bank adopts the expedient of pay∣ing in sixpences, it is a confession of in∣solvency.

It is worthy of observation, that every case of failure in finances, since the system of paper began, has produced a revolution in governments, either total or partial. A failure in the finances of France pro∣duced the French revolution. A failure in the finance of assignats, broke up the revolutionary government, and produced the present French Constitution. A fai∣lure in the finances of the old Congress of America, and the embarrassments it brought upon commerce, broke up the system of the old confederation, and produced the present federal constitution. If then we admit of reasoning by compari∣son of causes and events a failure in the English finances will produce some change in the government of that country.

As to Mr. Pitt's project of paying off the national debt by applying a million a year for that purpose, while he continues Page  34adding more than twenty millions a year to it, it is like setting a man with a wood∣en leg to run after a hare. The longer he runs the farther he is off.

When I said that the funding system had entered the last twenty years of its exist∣ence, I certainly did not mean that it would continue twenty years and then ex∣pire as a lease would do. I meant to des∣cribe that age of decripitude in which death is every day expected, and life can∣not continue long. But the death of cre∣dit, or that state that is called bankruptcy, is not always marked by those progressive stages of visible decline, that mark the decline of natural life. In the progression of nautral life, age annot counterfeit youth nor conceal the departure of juvenile abili∣ties. But it is otherwise with respect to the death of credit; for though all the approaches to bankruptcy may actually exist in circumstances, they admit of being concealed by appearances. Nothing is more common than to see the bankrupt of to-day a man in credit but the day before; yet no sooner is the real state of his affairs known than every body can see he had been insolvent long before. Page  35In London the greatest theatre of bankrupt∣cy in Europe, this part of the subject will be well and feelingly understood.

Mr. Pitt continually talks of credit, and of the national resources. These are two of the feigned appearances by which the approaches to bankruptcy are concealed. That which he calls credit may exist as I have just shewn, in a state of insolvency and is always what I have before described it to be, suspicion asleep.

As to national resources, Mr. Pitt, like all the English financiers that pre∣ceded him since the funding system be∣gan, has uniformly mistaken the nature of a resource: that is, they have mista∣ken it consistently with the delusion of the funding system; but time is explain∣ing the delusion. That which he calls, and which they called, a resource, is not a resource, but it is the anticipation of a resource. They have anticipated what would have been a resource in another ge∣neration, had not the use of it been so anticipated. The funding system is a system of anticipation. Those who es∣tablished it an hundred years ago, antici∣pated the resources of those who were to Page  36live an hundred years after; for the peo∣ple of the present day have to pay the interest of the debts contracted at that time, and of all debts contracted since. But it is the last feather that breaks the horse's back. Had the system began an hundred years before, the amount of tax∣es at this time to pay the annual interest at four per cent. (could we suppose such a system of insanity could have continu∣ed) would be two hundred and twenty millions annually; for the capital of the debt would be 54886 millions, according to the ratio that ascertains the expence of the wars for the hundred years that are past. But long before it could have reached this period, the value of bank notes, from the immense quantity of them, (for it is in paper only that such a nomi∣nal revenue could be collected) would have been as low or lower than continental paper money has been in America, or assignats in France; and as to the idea of exchanging them for gold and silver, it is too absurd to be contradicted.

Do we not see that nature in all her o∣perations, disowns the visionary basis Page  37upon which the funding system is built? She acts always by renewed successions, and never by accumulating additions per∣petually progressing. Animals and ve∣getables, men and trees, have existed ever since the world began; but that ex∣istence has been carried on by successions of generations, and not by continuing the same men and the same trees in existence that existed first; and to make room for the new she removes the old. Every natural idiot can see this. It is the stock-jobbing idiot only that mistakes. He has conceived that art can do what nature cannot. He is teaching her a new system —that there is not occasion for men to die—That the scheme of creation can be carried on upon the plan of the funding system—That it can proceed by continual additions of new beings, like new loans, and all live together in eter∣nal youth. Go, count the graves, thou idiot, and learn the folly of thy arith∣metic.

But besides these things, there is some∣thing visibly farcical in the whole opera∣tion Page  38of loaning. It is scarcely more than four years ago that such a rot of bankrupt∣cy spread itself over London, that the whole commercial fabric tottered; trade and credit were at a stand; and such was the state of things, that to prevent, or sus∣pend, a general bankruptcy, the govern∣ment lent the merchants six millions in go∣vernment paper, and now the merchants lend the government twenty two millions in their paper; and two parties, Boyd and Morgan, men but little known, con∣tend who shall be the lenders. What a farce is this! It reduces the operation of loaning to accommodation paper, in which the competitors contend, not who shall lend but who shall sign, because there is something to be got for signing.

Every English stock-jobber and minis∣ter boasts of the credit of England. Its credit, say they, is greater than that of any country in Europe. There is a good reason for this; for there is not another country in Europe that could be made the dupe of such a delusion. The English funding system will remain a monument of wonder, not so much on account of the Page  39extent to which it has been carried, as of the folly of believing in it.

Those who had formerly predicted that the funding system would break up when the debt should amount to one hundred or one hundred and fifty millions, erred only in not distinguishing between insolvency and actual bankruptcy; for the insolvency commenced as soon as the government be∣came unable to pay the interest in cash, or to give cash for the bank notes in which the interest was paid, whether that ina∣bility was known or not, or whether it was suspected or not. Insolvency always takes place before bankruptcy; for bank∣ruptcy is nothing more than the publica∣tion of that insolvency. In the affairs of an individual, it often happens that insol∣vency exists several years before bankrupt∣cy, and that the insolvency is concealed and carried on till the individual is not able to pay one shilling in the pound. A government can ward off bankruptcy long∣er than an individual; but insolvency will inevitably produce bankruptcy, whether in an individual or in a government. If then the quantity of bank notes payable Page  40on demand, which the bank has issued, are greater than the bank can pay off, the bank is insolvent; and when that insolven∣cy be declared, it is bankruptcy.


Page  41 I come now to shew the several ways by which bank notes get into circulation. I shall afterwards offer an estimate on the total quantity or amount of bank notes ex∣isting at this moment.

The bank acts in three capacities. As a bank of discount; as a bank of deposit; and as banker for the government.

First as bank of discount. The bank discounts merchants bills of exchange for two months. When a merchant has a bill that will become due at the end of two months, and wants payment before that time, that bank advances that payment to Page  42him, deducting therefrom at the rate of five per cent. per ann. The bill of ex∣change remains at the bank as a pledge or pawn, and at the end of two months it must be redeemed. This transaction is done altogether in paper; for the profits of the bank, as a bank of discount, arise entirely from its making use of paper as money. The bank gives bank notes to the merchant in discounting the bill of ex∣change, and the redeemer of the bill pays bank notes to the bank in redeeming it. It very seldom happens that the real mo∣ney passes between them.

If the profits of a bank be, for example, two hundred thousand pounds a year (a great sum to be made merely by exchang∣ing one sort of paper for another, and which shews also that the merchants of that place are pressed for money for pay∣ments, instead of having money to spare to lend to government,) it proves that the bank discounts to the amount annually, or 666,666l. every two months; and there never remains in the bank more than two months pledge, of the value of 666,666l. at any one time, the amount Page  43of bank notes in circulation at any one time should not be more than to that a∣mount. This is sufficient to shew that the present immense quantity of bank notes, which are distributed through e∣very city, town, village, and farm-house in England, cannot be accounted for on the score of discounting.

Secondly, as a bank of deposit. To deposit money at the bank means to lodge it there for the sake of convenience, and to be drawn out at any moment the de∣positer pleases, or to be paid away to his order. When the business of discount∣ing is great, that of depositing is necessa∣rily small. No man deposits and applies for discount at the same time; for it would be like paying interest for lending money, instead of for borrowing it. The deposits that are now made at the bank are almost entirely in bank notes, and consequently they add nothing to the abi∣lity off the bank to pay of the bank notes that may be presented for payment; and besides this, the deposits are no more the property of the bank than the cash or bank notes in a merchant's counting house Page  44are the property of his book-keeper. No great increase therefore of bank notes, be∣yond what the discounting business admits, can be accounted for on the score of de∣posits.

Thirdly. The bank acts as banker for the government. This is the connection that threatens ruin to every public bank. It is through this connection that the cre∣dit of a bank is forced far beyond what it ought to be, and still further beyond its ability to pay. It is through this connec∣tion that such an immense redundant quantity of bank notes have gotten into circulation; and which, instead of being issued because there was property in the bank, have been issued because there was none.

When the treasury is empty, which happens in almost every year of every war, its coffers at the bank are empty also. It is in this condition of emptiness that the minister has recourse to emissions of wht are called exchequer and navy bills, which continually generates a new increase of bank notes, and which are sported upon the public without there Page  45being property in the bank to pay them. —These exchequer and navy bills (being, as I have said, emitted because the trea∣sury and its coffers at the bank are empty and cannot pay the demands that come in) are no other than an acknowledgement that the bearer is entitled to receive so much money. They may be compared to the settlement of an account, in which the debtor acknowledges the balance he owes, and for which he gives a note of hand, or to a note of hand given to raise money upon it.

Sometimes the bank discounts those bills as it would discount merchants bills of exchange; sometimes it purchases them of the holders at the current price; and sometimes it agrees with the minister to pay an interest upon them to the holders, and keep them in circulation. In every one of those cases an additional quantity of bank notes get into circulation, and are sported, as I have said, upon the public, without there being property in the bank, as banker for the government, to pay them: and besides this, the bank has now no money of its own; for the money Page  46that was originally subscribed to begin the the credit of the bank which at its first es∣tablishment, has been lent to government, and wasted long ago.

The bank (says Smith, book 2, chap. 2,) acts not only as an ordinary bank, but as a great engine of state; it receives and pays the greater part of the annuities which are due to the cre∣ditors of the public.
(It is worth observing, that the public, or the nation, is always put for the government in speak∣ing of debts.) It circulates (says Smith)
exchequer bills, and it advances to go∣vernment the annual amount of the land and malt taxes which are frequent∣ly not paid till several years afterwards.
(This advancement is also done in bank∣notes, for which there is not property in the bank.)
In those different operati∣ons, (says Smith) its duty to the public may sometimes have obliged it, without any fault of its directors, to over stock the circulation with paper money,
bank notes. How its duty to the public can induce it to over stock that public with pro∣missory bank notes which it cannot pay,Page  47and thereby expose the individuals of that public to ruin, is too paradoxical to be explained; for it is on the credit which individuals give to the bank, by receiving and circulating its notes, and not upon its own credit or its own property, for it has none that the bank sports. If how∣ever it be the duty of the bank to expose the public to this hazard, it is at least equally the duty of the individuals of that public to get their money and take care of themselves; and leave it to place∣men, pensioners, government contractors, Reeves's association, and the members of both houses of Parliment, who have vot∣ed away the money at the nod of the minister, to continue the credit if they can, and for which their estates individual∣ly and collectively ought to answer as far as they will go.

There has always existed, and still ex∣ists, a mysterious, suspicious connection, between the minister and the directors of the bank, and which explains itself no otherways than by a continual increase of bank notes. Without, therefore, enter∣ing into any further details of the various Page  48contrivances by which bank notes are is∣sued, and thrown upon the public, I pro∣ceed, as I before mentioned, to offer an estimate on the total quantity of bank notes in circulation.

However disposed governments may be to wring money by taxes from the peo∣ple, there is a limit to the practice esta∣blished in the nature of things. That limit is the proportion between the quan∣tity of money in a nation, be that quan∣tity what it may, and the greatest quan∣tity of taxes that can be raised upon it. People have other uses for money besides paying taxes; and it is only a proportion∣al part of that money they can spare for taxes, as it is only a proportional part they can spare for house-rent, for clothing, or for any other particular use. These proportions find out and establish them∣selves; and that with such exactness, that if any one part exceeds its propor∣tion, all the other parts eel it.

Before the invention of paper money (bank notes), there was no other money in the nation than gold and silver, and the greatest quantity of money that ever Page  49was raised in taxes during that period, never exceeded a fourth part of the quan∣tity of money in the nation. It was high taxing when it came to this point. The taxes in the time of William the Third never reached to four millions before the invention of paper, and the quantity of money in the nation at that time was estimated to be about sixteen millions. The same proportions established them∣selves in France. There was no paper money in France before the present revo∣lution, and the taxes were collected in gold and silver money. The highest quan∣tity of taxes never exceeded twenty-two millions sterling; and the quantity of gold and silver money in the nation at the same time, as stated by Mr. Neckar, from returns of coinage at the mints, in his Treatise on the Administration of the Fi∣nances, was about ninety millions sterling. To go beyond this limit of a fourth part, in England, they were obliged to intro∣duce paper money; and the attempt to go beyond it in France, where paper could not be introduced broke up the Page  50government, This proportion therefore of a fourth part, is the limit which the nature of the thing establishes for itself, be the quantity of money in a nation more or less.

The amount of taxes in England at this time is full twenty millions: and there∣fore the quantity of gold and silver, and of bank notes, taken together, amounts to eighty millions. The quantity of gold and silver, as stated by Lord Hawkesbu∣ry's secretary, (George Chalmers), as I have before shewn, is twenty millions; and therefore the total amount of bank notes in circulation, all made payable on demand, is sixty millions. This enormous sum will astonish the most stupid stock-jobber, and overpower the credulity of the most thoughtless Englishman: but were it only a third of that sum, the bank cannot pay half a crown in a pound.

There is something curious in the move∣ments of this modern complicated ma∣chine, the funding system; and it is only now that it is beginning to unfold the full extent of its movements. In the first part of its movements it gives great powers Page  51into the hands of government, and in the last part it takes them completely away.

The funding system set out with raising revenues under the name of loans, by means of which government became both prodigal and powerful. The loaners as∣sumed the name of creditors, and though it was soon discovered that loaning was government-jobbing, those pretended loaners, or the persons who purchased into the funds afterwards, conceived themselves not only to be creditors, but to be the only creditors.

But such has been the operation of this complicated machine, the funding system, that it has produced, unperceived, a se∣cond generation of creditors, more nu∣merous and far more formidable, and withal more real than the first generation; for every holder of a bank note is a cre∣ditor, and a real creditor, and the debt due to him is made payable on demand. The debt therefore which the government owes to individuals is composed of two parts; the one about four hundred milli∣ons bearing interest, the other about sixty millions payable on demand. The one is Page  52called the funded debt, the other is the debt due in bank notes.

This second debt (that contained in the bank notes) has, in a great measure, been incurred to pay the interest of the first debt; so that in fact little or no real in∣terest has been paid by government. The whole has been delusion and fraud. Go∣vernment first contracted a debt in the form of loans with one class of people, and then run clandestinely into debt with another class, by means of bank notes, to pay the interest. Government acted of itself in contracting the first debt, and made a machine of the bank to contract the second.

It is this second debt that changes the seat of power and the order of things; for it puts it in the power of even a small part of the holders of bank notes (had they no other motive than disgust at Pitt and Greenville's sedition bills to controul any measure of government they found to be injurious to their interest; and that not by popular meetings, or popular so∣cieties, but by the simple and easy opera∣••on of with-holding their credit from Page  53that government; that is, by individually demanding payment at the bank for every bank note that comes into their hands. Why should Pitt and Greenville expect that the very men whom they insult and injure should at the same time continue to support the measure of Pitt and Green∣ville, by giving credit to their promissory notes of payment? No new emissions of bank notes could go on while payment was demanding on the old and the cash in the bank wasting daily away; nor any new advances be made to government or to the emperor to carry on the war; nor any new emission be made of exche∣quer bills.

"The bank," says Smith, (book ii. ch. 2.) "is a great engine of state." And in the same paragraph he says, "The stabili∣ty of the bank is equal to that of the Bri∣tish government;" which is the same as to say that the stability of the government is equal to that of the bank, and no more. If then the bank cannot pay, the arch∣treasurer of the holy Roman empire) S. R. I. A. *) is a bankrupt. When folly in∣vented Page  54vented titles, she did not attend to their application; for ever since the go∣vernment of England has been in the hands of arch-treasurers, it has been run∣ning into bankrupty; and as to the arch-treasurer apparent, he has been a bankrupt long ago. What a miserable prospect has England before its eyes!

Before the war of 1755 there were no bank notes lower than twenty pounds. During that war bank notes of fifteen pounds and of ten pounds were coined; and now, since the commencement of the present war, they are coined as low as five pounds. These five pound notes will circulate chiefly among little shop-keepers, butchers, bakers, market people, renters of small houses, lodgers, &c. All the high departments of commerce, and the affluent stations of life were already over-stocked, as Smith expresses it, with the bank notes. No place remained open wherein to croud an additional quantity of bank notes but among the class of peo∣ple I have just mentioned, and the means of doing this could be best affected by coming five pound notes. This conduct Page  55has the appearance of that of an unprin∣cipled insolvent, who, when on the verge of bankruptcy to the amount of many thou∣sands, will borrow as low as five pounds of the servants in his house, and break the next day.

But whatever momentary relief or aid the minister and his bank might expect from this low contrivance of five pound notes, it will increase the inability of the bank to pay the higher notes, and hasten the destruction of all; for even the small taxes that used to be paid in money will now be paid in those notes, and the bank will soon find itself with scarcely any other money than what the hair powder guinea tax brings in.

The bank notes make the most serious part of the business of finance; what is called the national funded debt is but a trifle when put in comparison with it; yet the case of the bank notes has never been touched upon. But it certainly ought to be known upon what authority, whether that of the minister or of the directors, and upon what foundation, such immense quantities are issued. I have stated the Page  56amount of them at sixty millions sterling: I have produced data for that estimation; and besides this, the apparent quantity of them, far beyond that of gold and silver in the nation, corroborates therewith. But were there but a third part of sixty millions, the bank cannot pay half a crown in the pound; for no new supply of money as before said, can arrive at the bank, as all the taxes will be paid in paper.

When the funding system began, it was not doubted that the loans that had been borrowed would be repaid. Co∣vernment not only propagated that be∣lief, but it began paying them off. In time this profession came to be abandon∣ed; and it is not difficult to see that bank notes will march the same way; for the amount of them is only another debt un∣der another name; and the probability is that Mr. Pitt will at last propose funding them. In that case bank notes will not be so valuable as French assignats. The assignats have a solid property in reserve in the national domains; bank notes have none; and besides this, the English re∣venue must then sink down to what the Page  57amount of it was before the funding sys∣tem began; between three and four mil∣lions. One of which the arch-treasurer would require for himself, and the arch∣treasurer apparent would require three quarters of a million more to pay his debts. "In France," says Sterne,

they order these things better.

I have now exposed the English system of finance to the eyes of all nations. In doing this, I have done an act of justice to those numerous citizens of neutral na∣tions who have been imposed upon by that fraudulent system, and who have pro∣perty at stake upon the event.

As an individual citizen of America, and as far as an individual can go, I have revenged (if I may use the expression without any immoral meaning) the pirat∣ical depredations commited on the Ame∣rican commerce by the English govern∣ment. I have retaliated for France on the subject of finance; and I conclude with retorting on Mr. Pitt the expression he used against France, and say, that the English system of finance

is on the Page  58verge, nay, even in the gulph of bank∣ruptcy.


Paris, Germinal 9th, 4th year.April 8, 1796.