In the year 1720 the South-Sea Act was passed, authorising the company to take in, by subscription or purchase, the redeemable and unredeemable debts of the nation, the object being to reduce all the debts under one head of account at one uniform rate of interest. In the ac complishment of this scheme the pro jectors only partially succeeded, while the disgraceful frauds by which the pro ceedings of the company at that time were marked led to a parliamentary in vestigation which caused the disgrace of some of the ministers, the chancellor of the exchequer being expelled the House, and committed to the Tower for his share in the plot. This scheme was attempted at the same time with the equally famous Mississippi scheme, which, with a similar object, was projected in France by John Law, under the sanction of the Regent Duke of Orleans.
In 1736 the public debt of England amounted to about 50 millions, but the annual charge had been reduced below two millions. At the peace of Aix-la Chapelle, in 1748, the national debt ex ceeded 78 millions, but in the following year the public obtained some relief from the burthen through the lowering of the rate of interest. Little else was done in the way of alleviation at this time, and at the breaking out of the Seven Years' War, in 1756, the debt still amounted to 75 millions. A public writer of some repute, Mr. S. Hannay, says, at that date, " It has been a generally received notion among political arithmeticians, that we may increase our debt to 100,000,0001., but they acknowledge that it must then cease by the debtor becoming bankrupt." When the Seven Years' War was ended by the peace of Paris, the debt reached 139 millions and the annual charge was 4,600,000/. During the twelve following years, a period of pro found peace, only 10,400,000/. of the debt was discharged. The war of the Ame rican Independence raised the debt from 129 to 268 millions, and the annual charge in respect of the same to 9,512,232/. So little was done in the way of liquida tion during the following ten years, that at the beginning of the war of the French Revolution the debt still amounted to 260,000,0001., and its annual charge to 9,437,862/. But between 1793 and the peace of Amiens the addition made to the capital of the debt amounted to 360 millions and the annual burthen was in creased from 9,437,8621. to 19,945,624/. Between the recommencement of the war in 1803 and its termination after the battle of Waterloo in 1815, there were added 420 millions to the capital of the debt, which then amounted, including the unfunded debt, to 885 millions, and the annual charge upon the public ex ceeded 32 millions of money.
A plan for the gradual extinction of the national debt by the establishment of a Sinking Fund was proposed and par tially applied in 1716 by Sir R. Walpole. The scheme for that purpose proposed under the same name by Mr. Pitt iu 1786
had a greater show of reality about it. By this scheme the sum of one million was annually set apart from the income of the country towards the extinction of its debt. Other sums were rendered available for the same purpose, and it was supposed that at the expiration of 28 years the annual income of the sinking fund would amount to four millions, a part of which might then be applied towards relieving the burthen of the pub- I Re. So far the project bore the stamp of reasonableness and prudence : had the fund of one million annually assigned to commissioners been an actual surplus of income over expenditure, its operation must speedily have been highly advan tageous to the country. The fallacy consisted in this, that the sums devoted to it were borrowed for the purpose. The only real advantage secured by this I means arose from the unfounded confi- I deuce which it imparted to the public, under which they willingly bore a higher rate of taxation than might have been tolerable but for the expectation of future relief through its means. Now that the absurdity is acknowledged of borrowing in order to pay off debt, which absurdity would in the case of an individual always have been apparent, it is difficult to ac count for the blindness with which the whole nation clung to this so called fund as the certain means of extinguishing the debt, which in effect it contributed to augment through the less advantageous terms upon which the money was bor rowed than those upon which an equiva lent amount of debt was afterwards re deemed. The difference between the average rates at which money was bor rowed and at which purchases were made by the Commissioners who managed the sinking fund between 1793 and 1814 was such, that through the operations of the fund, upon which such confident hope of relief was placed, the country owed upwards of 11 millions more at the end of the war than it would have owed but for those operations. At the period just mentioned the annual income of the sinking fund amounted to 13,400,0001., arising from dividends on stock pur chased by the commissioners with funds borrowed at a higher rate of interest for the purpose. It was impossible, how ever, during a time of peace to raise by means of taxes so large an amount, in addition to the actual current expenditure of the country and the interest upon the unredeemed portion of the debt. During the war, when the deficiency of income was covered by yearly loans, the fallacy was not quite so apparent as it now soon became, for a few years after the peace the deficiency in the public income was borrowed from the sinking fund commis sioners by parliament, a course which served to render the absurdity only the more apparent, and in 1824 the plan of keeping up a large nominal sinking fund in the absence of actual surplus income was abandoned.