FUNDING SYSTEM . The practice of bor rowing money to defray the expenses of gov ernment.
In the early history of the system it was usual to set apart the revenue from some particular tax as a fund to the principal and interest of the loan. The earliest record of the funding system is found in the history of Venice. In the year 1171, during a war be tween the republic and the Byzantine emper or Manual Commenas, a Venetian fleet rav aged the eastern coasts, but, being detained by negotiations at Chios, suffered severely from the plague. The remnant of the ex pedition, returning, took with it the fright ful pestilence, which ravaged Venice and pro duced a popular commotion in which the doge was killed. To carry on the war, the new doge, Sebastian Giani, ordered a forced loan. Every citizen was obliged to contribute one hundreth of his property, and he was to be paid by the state five per cent. interest, the revenues being mortgaged to secure the faith ful performance of the contract. To manage the business, commissioners were appointed, called the Chamber of Loans, which after the lapse of centuries grew into the Bank of Venice. Florence and other Italian republics practised the system; and it afterwards be came general in Europe. Its object is to pro vide large sums of money for the immediate exigencies of the state, which it would be impossible to raise by direct taxation. In England the funding system was in augurated in the reign of William III. The Bank of England, like the Bank of Venice and the Bank of St. George at Genoa, grew out of it. In order to make it easy to pro cure money to carry on the war with France, the government proposed to raise a loan, for which, as usual, certain revenues were to be set aside, and the subscribers were to be made a corporation, with exclusive banking Privileges. The loan was rapidly subscrib ed for, and the Bank of England was the cor poration which it brought into existence. It was formerly the practice in England to bor row money for fixed periods ; and these loans were called terminable annuities. Of late years, however, the practice is different,T- loans being payable only at the option of the government ; these are termed interminable annuities. The rate of interest on the earlier loans was generally fixed at three and a half per cent. and sold at such a rate below par as to conform to the state of the money-market. It is estimated that two-fifths of the entire debt of England consists of this excess' over the amount of money actually received for it. The object of such a plan was to promote speculation and attract capitalists ; and it is still pursued in France.
Afterwards, however, the governMent re ceded from this policy, and, by borrowing at high rates, were enabled, when the rate of interest declined, by offering to pay off the loan, to reduce the interest materially. The
national debt of England consists of many different loans, all of which are included in the term funds. Of these, the largest in amount and are the per cent. consolidated annuities," or consols, as they are commonly called. They originated in 1751, when an act was passed consolidat ing several separate three per cent. loans in to one general stock, the dividends of which are payable on' the 5th of January and 5th of July at the Bank of England. The bank being the fiscal agent of the government, pays the interest on most of the funds, and also keeps the transfer-books. When stock is sold, it is transferred on the books at the bank to the new purchaser, and the interest is paid to those parties in whose names the stock is reg istered, at the closing of the books a short time previous to the dividend-day. Stock is bought and sold' at the stock exchange gen erally through brokers. Time sales, when the seller is not the actual possessor of the stock, are illegal, but common. They are usually made deliverable on certain fixed days, called accounting-days; and such transactions are called "for account," to distinguish them from the ordinary sales and purchases for cash. Stock-jobbers are persons who act as middlemen between sellers and purchasers. They usually fix a price at which they will sell and buy, so that sellers and purchasers can always find a market for stock, or can purchase it in such quantifies as they may desire, without delay or inconvenience.
In America the funding system has been fully developed. The general government, as well as those of all the states, have found it necessary to anticipate their revenue for the promotion of public works and other purposes. The many magnificent works of internal im provement which have added so much to the wealth of the country were mainly construct ed with money'borrowed by the states. The canals of 'New York, and many railroads in the western states, owe their existence to the system.
The funding system enables the government to raise money in exigencies, and to spread over many years the taxation which would press too severely on one. It affords a ready method of investing money on good security, and it tends to identify interest of the state and the people. But it is open to many objections,—the principal of which is that it induces statesmen to countenance expensive and oftentimes questionable projects who would not dare to carry out their plans were they forced to provide the means from direct taxation. McCulloch, Diet. of Comm. ; Se well, Banking.