in general, signifies any sum of money appropriated for a particular purpose. Thus, that part of the national revenue which is set aside for the pay- ment of the national debt, is called the sinking fund. But, when we speak of the funds, we generally mean the large sums which have been lent to government, and constitute the national debt; and for which the lenders, or their assignees, receive interest from revenues allotted for that purpose. The term funds is used in the same sense, and is also applied to the sums which form the capital of the bank of England, the East India and South-Sea companies; the proprietors of which are entitled to a share of the profits of the respective companies.
The practice of funding was introduced by the Venetians and Genoese in the 16th century, and has been adopted since by most of the nations in Europe. Princes had often borrowed money, in former times, to supply their exigencies, and sometimes mortgaged their territories in security; but these loans were generally extorted, and their payment was always precarious; for it depended on the good faith and success of the borrower, and never became a regular burden on posterity. The origin of funds is derived from the peculiar manners and circumstances of modern Europe. Since the invention of gunpowder, and the progress of commerce, the military occupation has become a distinct employment in the hands of mercenaries; the apparatus of war is attended with more expense; and the decision of national quarrels has often been determined by command of money, rather than by national bravery. Ambitious princes have therefore borrowed money, in order to carry on their projects with more vigour. Weaker states have been compelled, in self-defence, to apply to the same resource; the wealth introduced by commerce has afforded the means; the regularity of administration, established in consequence of the progress of civility, has increased the confidence of individuals in the public security; the complicated system of modern policy has extended the scenes of war, and prolonged their duration; and the colonies established by the mercantile nations have rendered them vulnerable in more points, and increased the expense of defending them.
When a greater sum has been required for the annual expense, than could easily be supplied by annual taxes, the government have proposed terms, to their own subjects, or foreigners, for obtaining an advance of money, by mortgaging the revenue of future years for their indemnification. This mortgage may either be for a limited period, or perpetual. If the sum allotted annually for the benefit of those who advance the money, be considerably greater than the interests of the sums advanced, they may agree to accept of such allowance, for a limited time, as a full equivalent. Thus, they may either agree for the casual produce of the revenue assigned; or a fixed annuity for a greater or less number of years; or a life-annuity to themselves or nominees; or an annuity for two or more lives; or an annuity, with the benefit of survivorship, called a tontine, in which scheme, the whole sum to which the original annuitants were entitled continues to be distributed among the survivors.
When the sum allotted to the creditors of the public is only equivalent to the interest of the money advanced, the grant must be perpetual, unless the debt be redeemed by payment of the principal.
The establishment of the funds was introduced in Britain at the revolution; and has since been gradually enlarged, and carried to an amazing extent. The various methods above mentioned have been used in their turns; but perpetual annuities have been granted for the greatest part; and, even when the money was originally advanced on other conditions, the lenders have been sometimes induced, by subsequent offers, to accept of perpetual annuities, instead of the former terms. The debt for which perpetual annuities are granted, is called the redeemable debt, and the other is called the irredeemable debt. Although the debts thus contracted by government are seldom paid for a long term of years; yet, any creditor of the public may obtain money for what is due him when he pleases, by transferring his property in the funds to another; and regular methods are appointed for transacting these transfers, in an easy manner. By means of this, the stocks become a kind of circulating capital; and have the same effect, in some respects, as the circulating money in the nation. When a stockholder transfers his share, he may sometimes be able to obtain a greater price than the original value, and at other times be obliged to accept of a less one. The value of the funds depends on the proportion between the interest they bear, and the benefit which may be obtained by applying the money to other purposes. It is influenced by the plenty or scarcity of money, and by the quantity of the public debt; and it is impaired by any event which threatens the safety, or weakens the credit, of the government.
The business of stock-jobbing is founded on the variation of the prices of stock. Persons possessed of real property may buy or sell stock, according to their notion that the value is likely to rise or fall, in expectation of making profit by the difference of price. And a practice has taken place among persons who often possess no property in the funds, to contract for the sale of stock against a future day, at a price now agreed on. For instance: A agrees to sell B 1000 l. of bank-stock, to be transferred, in 20 days, for 1200 l. A has, in fact, no such stock; but, if the price of bank-stock, on the day appointed for the transfer, should be only 118 per cent. A may purchase as much as will enable him to fulfil his bargain for 1180 l., and thus gains 20 l. by the transaction; on the contrary, if the price of bank-stock be 125 per cent. he will lose L. 50. The business is generally settled without any actual purchase or transfer of stock, by A paying to B, or receiving from him, the difference between the current price of the stock on the day appointed, and the price bargained for.
This practice, which is really nothing else than a wager concerning the price of stock, is contrary to law; yet it is carried on to a great extent. In the language of Exchange-alley, where matters of this kind are transacted, the buyer is called a bull, and the seller a bear. As neither party can be compelled by law to implement these bargains, their sense of honour, and the disgrace and loss of future credit, which attend a breach of contract, are the principles by which the business is supported. When a person declines to pay his loss, he is called a lame duck, and dare never afterwards appear in the Alley. This opprobrious treatment, however, is not bestowed on those whose failure is owing to want of ability, providing they make make the same surrender of their property voluntarily, which the law would have exacted if the debt had been entitled to its sanction.
The interest or dividend on the stock is paid half-yearly; and the purchaser has the benefit of the interest due on the stock he buys, from the last term to the time of purchase. Therefore the prices of the stocks rise gradually, *ceteris paribus*, from term to term, and fall at the term when the interest is paid. In comparing the prices of the different stocks, it is necessary to advert to the term when the last interest was paid; and, allowance being made for this circumstance, the prices of all the government stocks, which bear interest at the same rate, must be nearly the same, as they all depend on the same security.
When a loan is proposed, such terms must be offered to the lenders, as may render the transaction beneficial; and this is now regulated by the prices of the old stocks. If the stocks, which bear interest at 4 per cent. fell at par, or rather above, the government may expect to borrow money at that rate; but, if these stocks are under par, the government must either grant a higher interest, or some other advantage to the lenders, in compensation for the difference. For this purpose, besides the perpetual annuity, another annuity has sometimes been granted for life, or for a term of years. Lotteries have frequently been employed to facilitate the loan, by entitling the subscribers to a certain number of tickets, for which no higher price is charged than the exact value distributed in prizes, though their market-price is generally L. 2 or L. 3 higher. Sometimes an abatement of a certain proportion of the capital has been granted, and a lender entitled to hold L. 100 stock, though in reality he advanced no more, perhaps, than L. 95.
It belongs to the Chancellor of the Exchequer to propose the terms of the loan in parliament; and he generally makes a previous agreement with some wealthy merchants, who are willing to advance the money on the terms proposed. The subscribers to the loan deposit a certain part of the sum subscribed; and are bound to pay the rest by instalments, or stated proportions, on appointed days, under pain of forfeiting what they have deposited. For this they are entitled, perhaps, not only to hold their share in the capital, but to an annuity for 10 years, and to the right of receiving a certain number of lottery-tickets on advantageous terms. They may sell their capital to one person, their annuity to a second, and their right to the tickets to a third. The value of all these interests together is called *annuitas*; and, in order to obtain a ready subscription, it ought to amount to L. 102, or upwards, on L. 100 of capital. This difference is called the *bonus* to the subscribers.
When a loan is made, a new tax is imposed to defray the annuities. For some time, each tax was particularly appropriated for the payment of annuities then created; but the method was found inconvenient, as some of the taxes fell short of the sum expected, while others exceeded it; and the multiplicity of funds produced confusion. This gave occasion to unite the various branches of the revenue into a few funds. The South-Sea Fund was established in the year 1711, for payment of the annuities due to that company. The Aggregate Fund was established in 1715, and the General Fund in 1717, for the payment of other annuities. All the other branches of the revenue then subsisting, except the annual land and malt tax, and the branches applied for the support of the civil government, were appropriated to one or other of these funds. And, as these revenues were considerably greater than the charges for which the funds were anterorable, the surplus was appointed to be collected together, and remain at the disposal of parliament; and is known by the name of the Sinking Funds, because intended for the discharge of the national debt. At the beginning of the present reign, the revenues appropriated to the civil list were added to the aggregate fund, and that fund charged with the net sum of L. 800,000, since increased to L. 900,000, in place of the same. When money has been borrowed since the establishment of these funds, the sinking fund is made a collateral security, in case the tax imposed for the payment of the annuity should prove deficient; and sometimes the new taxes have been directly paid into that fund, and the annuities charged on the same; and the faith of parliament is pledged to corroborate the security. The sinking fund has yielded an annual surplus, for many years, of more than two millions Sterling; which, in time of war, is applied to the current services; and, even in time of peace, a considerable part is diverted to the same purpose; as the annual land and malt tax, the only other unappropriated funds, are insufficient for defraying the charge of a peace-establishment.
The terms of the government loans have been very different, according to the circumstances under which they took place. The interest has generally been lower than the current interest of the nation, because it is punctually paid; and the government security is esteemed preferable to any of a private kind. Sometimes, however, when the exigencies were pressing, and the national resources, in some measure, exhausted by the continuance of war, a higher interest has been granted than was current in private debts. But, as the prices of such stocks rose above par in peaceable times, advantage was taken of that circumstance to prevail on the holders to consent to a reduction of the interest, by offering payment of the principal, in case they refused. Thus, the interest on the greater part of the national debt, contracted before the late war with France, was reduced to 3 per cent., and the stocks were united under the names of reduced and consolidated annuities. Part of the consolidated annuities bear interest at 4 per cent. till the year 1781, when it falls, like the rest, to 3 per cent. In subsequent loans, the faith of parliament has sometimes been engaged, that the debt shall not be redeemed, and, of consequence, the interest not reduced, for a number of years considered on.
The rise of the terms of the public loans, during the continuance of war, will appear from the following abstract of those which was made during the late war with France and Spain, and the present contest with America.
**Loans for French War**
| Year | Interest Rate | Amount | |------|---------------|--------| | 1755 | At 3 per cent, by lottery | L. 900,000 | | 1756 | At 3½ per cent | 1,500,000 | | | At 3 per cent, by lottery | 500,000 | | 1757 | At | Funds.
1757. At 3 per cent. and an additional life-annuity of 1 per cent. 3,100,000 1758. At 3½ per cent. 4,500,000 At 3 per cent. by lottery 500,000 1759. At 3 per cent. and a premium of 15 per cent. additional capital 7,590,000 1760. At 4 per cent. irredeemable for 20 years, and 3 per cent. thereafter, with a premium of 3 per cent. additional capital 8,240,000 1761. At 3 per cent. irredeemable for 20 years, besides ann. of L. 1 : 2 : 6 per L. 100 for 99 years 11,400,000 At 3 per cent. by lottery 600,000 1762. At 4 per cent. irredeemable for 20 years, and an annuity of 1 per cent. for 98 years 12,000,000
The remaining debt, not provided for at the peace, was partly paid off in the subsequent years, and the rest funded at 3 per cent.
Loans for American war.
1776. At 3 per cent. with premium of 8 per cent. additional capital, and benefit of lottery L. 2,160,000 1777. At 4 per cent. irredeemable for 10 years, with an annuity of 1 per cent. for 10 years, and benefit of lottery 5,500,000 1778. At 3 per cent. perpetual annuity, with an additional annuity of 2 per cent. for 30 years, and benefit of lottery 6,000,000 1777. At 3 per cent. perpetual annuity, and L. 3 : 15s. per cent. annuity for 29 years, and benefit of lottery 7,000,000
The capital advanced to the public, in the form of transferable stocks, and bearing interest from taxes appropriated for that purpose, is called the funded debt. Besides, there is generally a considerable sum due by government, which is not disposed of in that manner, and therefore is distinguished by the appellation of the unfunded debt. This may arise from any sort of national expense, for which no provision has been made, or for which the provision has proved insufficient. The forms of the unfunded debts are various, according to the circumstances by which it is occasioned. But there are two regular branches of this debt, which always subsist, to a greater or lesser extent.
1st. Exchequer Bills. These are issued from the exchequer, generally by appointment of parliament, and sometimes without such appointment, when exigencies require. They bear interest from the time when issued, and are taken in by the bank of England, which promotes their circulation.
2d. Navy-Bills. The sums annually granted for the navy have always fallen short of what that service required. To supply that deficiency, the admiralty issues bills in payment of victuals, stores, and the like, which bear interest six months after the time issued. The debt of the navy thus contracted is discharged, from time to time, by parliament.
In time of war, the public expenses, since the revolution, have always been much greater than the annual revenue; and large sums have consequently been borrowed. In time of peace, the revenue exceeds the expense, and part of the public debts have frequently been paid off. But, though there have been more years of peace than of war since the funds were established, the debts contracted during each war have much exceeded the payments during the subsequent peace. This will appear by the following abstract of the progress of the national debt.
Debt at peace of Rywich, 1697 L. 21,515,472 Debt at the beginning of war 1701 16,394,701 Discharged during peace 1697 to 1701 5,121,071 Debt at peace of Utrecht 1714, including value of annuities afterwards subscribed to South-Sea stock 55,282,978 Contracted in war 1701 to 1714 38,888,277 Debt at beginning of war 1740, including L. 1,000,000, charged on civil list 47,954,623 Discharged during peace 1714 to 1739 73,28,355 Debt at Peace of Aix-la-Chapelle, 1748 79,193,313 Contracted during war 1740 to 1748 31,238,690 Debt at beginning of war 1756 73,289,673 Paid off during peace 1748 to 1756 5,903,640 Debt funded at the peace 1763, including L. 9,839,597 then owing, which was funded in the subsequent years 133,957,270 Besides this, there was about L. 6,000,000 of debt paid off, without ever being funded.
Funded debt, 1775 125,000,000 Paid off during peace 1763 to 1775, besides unfunded debt above mentioned 8,959,270 Funded debt contracted during the American war 1776 to 1779, inclusive 20,600,000