Suppose a war to take place, and the expendi ture to be increased to sixty millions, while its re venue continued as before forty-one millions, still keeping on the operation of the commissioners, with respect to the investment of one million. If it were to raise war-taxes for the payment of the twenty millions additional expence, the million of sinking fund would operate to the reduction of the national debt at compound interest as it did before. If it raised twenty millions by loan in the stocks or in exchequer bills, and did not provide for the interest by new taxes, but obtained it by an addition to the loan of the following year, it would be accumulat ing a debt of twenty millions at compound interest, and while the war lasted, and the same expenditure continued, it would not only be accumulating a debt of twenty millions at compound interest, but a debt of twenty millions per annum, and, consequently, the real increase of its debt, after allowing for the ope ration of the million of sinking fund, would be at the rate of nineteen millions per annum at compound in terest. But if it provided by new taxes 5 per cent. interest for this annual loan of twenty millions, it would, on one hand, simply increase the debt twenty millions per annum; on the other, it would diminish it by one million per annum, with its com pound interest. If we suppose that, in addition to the 5 per cent. interest, it raised also by annual taxes L. 200,000 per annum, as a sinkiiig laid, for each loan of twenty millions, it would, the first year of the war, add L.200,000 to the sinking fund ; the second year L. 400,000 ; the third year L. 600,000, and so on, L. 200,000 for every loan of twenty millions. Every year it would add, by means of the additional taxes, to its annual revenue, without increasing its expenditure. Every year too that part of this re• venue which was devoted to the purpose of purchas ing debt, would increase by the amount of the divi dends on the stock purchased, and thus would its revenue still farther increase, till at last the revenue would overtake the expenditure, and then once again it would have an efficient sinking fund for the re duction of debt.
It is evident, that the result of these operations would be the same, the rate of interest being sup posed to be always at 5 per cent. or any other rate, if, during the excess of expenditure above revenue, the operation of the commissioners in the purchase of stock were to cease. The real increase of the nit. tional debt must depend upon the excess of expen diture above revenue, and that would be no ways al. tered by a different arrangement. Suppose that, in stead of raising twenty millions the first year, and paying off one million, only nineteen millions bad been raised by loan, and the same taxes had been raised, namely, L. 1,200,000. As 5 per cent. would be paid on nineteen millions only, instead of on twenty millions, or L. 950,000 for interest instead of one million, there would remain, in addition to the original million, L. 250,000 towards the loan of the following year, consequently, the loan of the second year would be only for L.18,750,000,—but as L.1,200,000 would be again raised by additional taxes, or L.2,400,000 in the whole the second year, besides the original million, there would be a sur plus, after paying the interest of both loans, of L. 1,512,500, and therefore the loan of the third year would be for L.18,487,500. The progress during five years is shown in the following table: If, instead of thus diminishing the loan each year, the same amount of taxes precisely had been raised, and the sinking fund had been applied in the usual manner, the amount of debt would have been exactly the same at any one of these periods. In the third column of the above table it will be seen that, in the 5th year, the debt had increased to L.92,371,844. On
the supposition that L. 200,000 per annum had each year been added to the sinking fund, and invested in stock by the commissioners, the amount of unre deemed debt would have been the same sum of L. 92,371,844, as will be •sees by the last column of the following table : A full consideration of this subject, in all its de tails, has led Dr Hamilton to the conclusion, that this first mode of raising the supplies during war, viz. by diminishing the amount of the annual loans, and stopping the purchases of the commissioners in the market, would be more economical, and that it ought therefore to be adopted. In the first place, all the expenses of agency would be saved. In the se cond, the premium usually obtained by the contrac tor for the loan would be saved, on that part of it which is repurchased by the commissioners in the open market. It is true that the stocks may fall as well as rise between the time of contracting for the loan, and the time of the purchases made by the commissioners; and, therefore, in some cases, the public may gain by the present arrangement ; but as these chances are equal, and a certain advantage is given to the loan contractor to induce him to ad vance his money, independently of all contingency of future price, the public now give this advantage on the larger sum instead of on the smaller. On an average of years this cannot fail to amount to a very considerable sum. But both these objections would be obviated, if the clause in the original sinking fund bill, authorizing the commissioners to subscribe to any loan for the public service, to the amount of the annual fund which they have to invest, were uni formly complied with. This is the mode which has, for several years, been strongly urged on ministers by Mr Grenfell, and is far preferable to that which Dr Hamilton recommends. Dr Hamilton and Mr Grenfell both agree, that, in time of war, when the expenditure exceeds the revenue, and when, there fore, we are annually increasing our debt, it is a use less operation to buy a comparatively small quantity of stock in the market, while we are the same time under the necessity of making large sales ; but Dr Hamilton would not keep the sinking fund as a separate fund, Mr Grenfell would, and would have it increased with our debt by some known and fixed rules. We agree with Mr Grenfell. If a loan of twenty millions is to be raised annually, while there is in the hands of the commissioners ten millitms which they annually receive, the obvious and simple operation should be really to raise only ten millions by loan ; but there is a convenience in calling it twenty millions, and allowing the commissioners to subscribe ten millions. All the objections of Dr Hamilton are by these means removed ; there will be no expense for agency ; there will be no loss on account of any difference of price at which the pub lic sell and buy. By calling the loan twenty mil lions, the public will be induced more easily to bear the taxes which are necessary for the interest and sinking fund of twenty millions. Call the loan only ten millions, abolish, during the war, the very name of the sinking fund in all your public accounts, and it would be difficult to show to the people the expe diency of providing L.1,200,000 per annum by ad ditional taxation, for the interest of a loan of ten millions. The sinking fund is, therefore, useful as an engine of taxation; and, if the country could depend on ministers, that it would be faithfully devoted to the purposes for which it was established, namely, to afford at the termination of war a clear additional surplus revenue beyond expenditure, in proportion to the addition made to the debt, it would be wise and expedient to keep it as a separate fund, subject to fixed rules and regulations.