The arguments against debt payment or rather in defense of a perpetual debt may be briefly stated. It is claimed that the burden of a public debt is gradually lessened by the de preciation of gold; but this is both too uncer tain and too tardy in effect to be assigned much weight. Another argument which is entitled to more serious consideration holds that the burden of debt will be diminished by the natural growth of the country in population, industries and wealth. Thus while the French debt, for instance, trebled between 1840 and 1870, the national wealth grew as rapidly and the burden of the larger sum was not felt any more heavily than was the smaller amount a generation before. A third argument urges that surplus revenue should be applied to other re forms before that of debt payment. Thus, Joka Stuart Mill, writing of English conditions in the forties, said, °the increase of revenue should rather be disposed of by taking off taxes than by liquidating debt, as long as any very objec tionable imposts remain." Eventually, he ad mitted, the remission of taxes should stop and the proceeds be applied to debt payment, but other writers have been unwilling to grant this and have insisted that °taxes fructify in the pockets of the taxpayers,D that these could pro mote the national welfare more if they were not taxed than if taxes were collected and applied to the payment of a national debt.
The arguments advanced in favor of a policy of debt payment rest upon firmer economic ground and justify the action of this country. These are partly economic and partly political. In the first place it has been argued that the payment of a debt will convert the bondholder, who previously had been a drone, living upon his income, into an active man of business. In order to pay the debt the government collects capital from the taxpayers and hands it over to the bondholders in exchange for their bonds. These latter must then actively interest them selves in the investment of the capital thus re paid them, and in many cases must undertake the operation of new enterprises in order to safeguard it. Society is thus better off by this addition, forced though it be, to the number of productive workers. The existence of an idle class, supported by the proceeds of general tax ation, is moreover a social menace, and the pay ment of the debt is thus socially desirable.
Another argument for debt payment has to do primarily with improvement debts, the pro ceeds of which have been applied to some capital investment, as sewers, street paving, school houses, parks, etc. In these cases the property is subject to depreciation and will require ulti mate replacement. If such debts were not paid within a reasonable time a situation would arise in which the property would have disappeared or lost its value, but society would still be pay ing interest for its use and the principal would remain as a burden upon the future. Not only
does every consideration of equity and good finance demand that such a debt be paid, but economic and engineering considerations set a definite limit to the life of such a loan: it should in no case run longer than the economic life of the property to purchase which it was incurred. This would aoolv in the United States primarily to municipal and local improvement bonds.
For the payment of our national debt the argument is a political rather than a purely economic one. The debt is almost entirely a legacy of war, and this is even more true of the debts of other nations. Nothing is of greater value to a nation in time of war than unim paired credit, and nothing impairs the national credit more than a heavy and permanent debt charge. If the adage, in time of peace prepare for warp be true, it applies with especial force to the payment of a national debt at a rate as rapid as is consistent with sound economic de velopment. It is a truism of modern war that success is determined largely by economic and financial strength. Here we have perhaps the most potent influence making for debt payment, though it must be admitted that hitherto it has not been very effective.
Methods of Debt If it is de cided that debts ought to be paid, the further question arises as to the best manner of doing so. Theethod is probably that of the si "n fun w rich still finds expression in our n gislation on this subject. Prob ably the best known application of the principle of the sinking fund was made by Ei in Eng land in.155, embodying a proposal put forward by a clergyman named Price. This scheme con sisted in the inviolable appropriation of a fixed annual sum to the purchase of public obligations, which should be placed in a fund into which should be paid each year the interest accruing on these bonds. Each year additional bonds would be purchased and placed in the fund and the interest would thus be compounded until in time it would expunge a debt of any magnitude. Indeed the calculations of Dr. Price on this point seemed magical. The payments into the sinking fund were continued during the Napole onic wars even though money had to be bor rowed to do it. But the absurdity of this piece of fiscal machinery was exposed in laaby Dr. Robert, and it was later estimated that between and 1829 the government had borrowed over L300,000,000 at 5 per cent in order to pay a debt bearing 4r/2 per cent interest. The scheme was thereupon abandoned and has never been resumed.