Volume III Part 30 (1/2)
It is worthy of observation, that every case of failure in finances, since the system of paper began, has produced a revolution in governments, either total or partial. A failure in the finances of France produced the French revolution. A failure in the finance of the a.s.signats broke up the revolutionary government, and produced the present French Const.i.tution. A failure in the finances of the Old Congress of America, and the embarra.s.sments it brought upon commerce, broke up the system of the old confederation, and produced the federal Const.i.tution. If, then, we admit of reasoning by comparison of causes and events, the failure of the English finances will produce some change in the government of that country.
As to Mr. Pitt's project of paying off the national debt by applying a million a-year for that purpose, while he continues adding more than twenty millions a-year to it, it is like setting a man with a wooden leg to run after a hare. The longer he runs the farther he is off.
When I said that the funding system had entered the last twenty years of its existence, I certainly did not mean that it would continue twenty years, and then expire as a lease would do. I meant to describe that age of decrepitude in which death is every day to be expected, and life cannot continue long. But the death of credit, or that state that is called bankruptcy, is not always marked by those progressive stages of visible decline that marked the decline of natural life. In the progression of natural life age cannot counterfeit youth, nor conceal the departure of juvenile abilities. But it is otherwise with respect to the death of credit; for though all the approaches to bankruptcy may actually exist in circ.u.mstances, they admit of being concealed by appearances. Nothing is more common than to see the bankrupt of to-day a man in credit but the day before; yet no sooner is the real state of his affairs known, than every body can see he had been insolvent long before. In London, the greatest theatre of bankruptcy in Europe, this part of the subject will be well and feelingly understood.
Mr. Pitt continually talks of credit, and the national resources. These are two of the feigned appearances by which the approaches to bankruptcy are concealed. That which he calls credit may exist, as I have just shown, in a state of insolvency, and is always what I have before described it to be, _suspicion asleep_.
As to national resources, Mr. Pitt, like all English financiers that preceded him since the funding system began, has uniformly mistaken the nature of a resource; that is, they have mistaken it consistently with the delusion of the funding system; but time is explaining the delusion.
That which he calls, and which they call, a resource, is not a resource, but is the _antic.i.p.ation_ of a resource. They have antic.i.p.ated what _would have been_ a resource in another generation, had not the use of it been so antic.i.p.ated. The funding system is a system of antic.i.p.ation.
Those who established it an hundred years ago antic.i.p.ated the resources of those who were to live an hundred years after; for the people of the present day have to pay the interest of the debts contracted at that time, and all debts contracted since. But it is the last feather that breaks the horse's back. Had the system begun an hundred years before, the amount of taxes at this time to pay the annual interest at four per cent. (could we suppose such a system of insanity could have continued) would be two hundred and twenty millions annually: for the capital of the debt would be 5486 millions, according to the ratio that ascertains the expense of the wars for the hundred years that are past. But long before it could have reached this period, the value of bank notes, from the immense quant.i.ty of them, (for it is in paper only that such a nominal revenue could be collected,) would have been as low or lower than continental paper has been in America, or a.s.signats in France; and as to the idea of exchanging them for gold and silver, it is too absurd to be contradicted.
Do we not see that nature, in all her operations, disowns the visionary basis upon which the funding system is built? She acts always by renewed successions, and never by acc.u.mulating additions perpetually progressing. Animals and vegetables, men and trees, have existed since the world began: but that existence has been carried on by succession of generations, and not by continuing the same men and the same trees in existence that existed first; and to make room for the new she removes the old. Every natural idiot can see this; it is the stock-jobbing idiot only that mistakes. He has conceived that art can do what nature cannot.
He is teaching her a new system--that there is no occasion for man to die--that the scheme of creation can be carried on upon the plan of the funding system--that it can proceed by continual additions of new beings, like new loans, and all live together in eternal youth. Go, count the graves, thou idiot, and learn the folly of thy arithmetic!
But besides these things, there is something visibly farcical in the whole operation of loaning. It is scarcely more than four years ago that such a rot of bankruptcy spread itself over London, that the whole commercial fabric tottered; trade and credit were at a stand; and such was the state of things that, to prevent or suspend a general bankruptcy, the government lent the merchants six millions in _government_ paper, and now the merchants lend the government twenty-two millions in _their_ paper; and two parties, Boyd and Morgan, men but little known, contend who shall be the lenders. What a farce is this!
It reduces the operation of loaning to accommodation paper, in which the compet.i.tors contend, not who shall lend, but who shall sign, because there is something to be got for signing.
Every English stock-jobber and minister boasts of the credit of England.
Its credit, say they, is greater than that of any country in Europe.
There is a good reason for this: for there is not another country in Europe that could be made the dupe of such a delusion. The English funding system will remain a monument of wonder, not so much on account of the extent to which it has been carried, as of the folly of believing in it.
Those who had formerly predicted that the funding system would break up when the debt should amount to one hundred or one hundred and fifty millions, erred only in not distinguis.h.i.+ng between insolvency and actual bankruptcy; for the insolvency commenced as soon as the government became unable to pay the interest in cash, or to give cash for the bank notes in which the interest was paid, whether that inability was known or not, or whether it was suspected or not. Insolvency always takes place before bankruptcy; for bankruptcy is nothing more than the publication of that insolvency. In the affairs of an individual, it often happens that insolvency exists several years before bankruptcy, and that the insolvency is concealed and carried on till the individual is not able to pay one s.h.i.+lling in the pound. A government can ward off bankruptcy longer than an individual: but insolvency will inevitably produce bankruptcy, whether in an individual or in a government. If then the quant.i.ty of bank notes payable on demand, which the bank has issued, are greater than the bank can pay off, the bank is insolvent: and when that insolvency is declared, it is bankruptcy.(*)
* Among the delusions that have been imposed upon the nation by ministers to give a false colouring to its affairs, and by none more than by Mr. Pitt, is a motley, amphibious-charactered thing called the _balance of trade_.
This balance of trade, as it is called, is taken from the custom-house books, in which entries are made of all cargoes exported, and also of all cargoes imported, in each year; and when the value of the exports, according to the price set upon them by the exporter or by the custom-house, is greater than the value of the imports, estimated in the same manner, they say the balance of trade is much in their favour.
The custom-house books prove regularly enough that so many cargoes have been exported, and so many imported; but this is all that they prove, or were intended to prove. They have nothing to do with the balance of profit or loss; and it is ignorance to appeal to them upon that account: for the case is, that the greater the loss is in any one year, the higher will this thing called the balance of trade appear to be according to the custom-house books. For example, nearly the whole of the Mediterranean convoy has been taken by the French this year; consequently those cargoes will not appear as imports on the custom-house books, and therefore the balance of trade, by which they mean the profits of it, will appear to be so much the greater as the loss amounts to; and, on the other hand, had the loss not happened, the profits would have appeared to have been so much the less.
All the losses happening at sea to returning cargoes, by accidents, by the elements, or by capture, make the balance appear the higher on the side of the exports; and were they all lost at sea, it would appear to be all profit on the custom-house books. Also every cargo of exports that is lost that occasions another to be sent, adds in like manner to the side of the exports, and appears as profit. This year the balance of trade will appear high, because the losses have been great by capture and by storms. The ignorance of the British Parliament in listening to this hackneyed imposition of ministers about the balance of trade is astonis.h.i.+ng. It shows how little they know of national affairs--and Mr. Grey may as well talk Greek to them, as to make motions about the state of the nation. They understand only fox-hunting and the game laws,--_Author_.
I come now to show the several ways by which bank notes get into circulation: I shall afterwards offer an estimate on the total quant.i.ty or amount of bank notes existing at this moment.
The bank acts in three capacities. As a bank of discount; as a bank of deposit; and as a banker for the government.
First, as a bank of discount. The bank discounts merchants' bills of exchange for two months. When a merchant has a bill that will become due at the end of two months, and wants payment before that time, the bank advances that payment to him, deducting therefrom at the rate of five per cent, per annum. The bill of exchange remains at the bank as a pledge or p.a.w.n, and at the end of two months it must be redeemed. This transaction is done altogether in paper; for the profits of the bank, as a bank of discount, arise entirely from its making use of paper as money. The bank gives bank notes to the merchant in discounting the bill of exchange, and the redeemer of the bill pays bank notes to the bank in redeeming it. It very seldom happens that any real money pa.s.ses between them.
If the profits of a bank be, for example, two hundred thousand pounds a year (a great sum to be made merely by exchanging one sort of paper for another, and which shows also that the merchants of that place are pressed for money for payments, instead of having money to spare to lend to government,) it proves that the bank discounts to the amount of four millions annually, or 666,666L. every two months; and as there never remain in the bank more than two months' pledges, of the value of 666,666L., at any one time, the amount of bank notes in circulation at any one time should not be more than to that amount. This is sufficient to show that the present immense quant.i.ty of bank notes, which are distributed through every city, town, village, and farm-house in England, cannot be accounted for on the score of discounting.
Secondly, as a bank of deposit. To deposit money at the bank means to lodge it there for the sake of convenience, and to be drawn out at any moment the depositor pleases, or to be paid away to his order. When the business of discounting is great, that of depositing is necessarily small. No man deposits and applies for discounts at the same time; for it would be like paying interest for lending money, instead of for borrowing it. The deposits that are now made at the bank are almost entirely in bank notes, and consequently they add nothing to the ability of the bank to pay off the bank notes that may be presented for payment; and besides this, the deposits are no more the property of the bank than the cash or bank notes in a merchant's counting-house are the property of his book-keeper. No great increase therefore of bank notes, beyond what the discounting business admits, can be accounted for on the score of deposits.
Thirdly, the bank acts as banker for the government. This is the connection that threatens to ruin every public bank. It is through this connection that the credit of a bank is forced far beyond what it ought to be, and still further beyond its ability to pay. It is through this connection, that such an immense redundant quant.i.ty of bank notes, have gotten into circulation; and which, instead of being issued because there was property in the bank, have been issued because there was none.
When the treasury is empty, which happens in almost every year of every war, its coffers at the bank are empty also. It is in this condition of emptiness that the minister has recourse to emissions of what are called exchequer and navy bills, which continually generates a new increase of bank notes, and which are sported upon the public, without there being property in the bank to pay them. These exchequer and navy bills (being, as I have said, emitted because the treasury and its coffers at the bank are empty, and cannot pay the demands that come in) are no other than an acknowledgment that the bearer is ent.i.tled to receive so much money.
They may be compared to the settlement of an account, in which the debtor acknowledges the balance he owes, and for which he gives a note of hand; or to a note of hand given to raise money upon it.
Sometimes the bank discounts those bills as it would discount merchants'
bills of exchange; sometimes it purchases them of the holders at the current price; and sometimes it agrees with the ministers to pay an interest upon them to the holders, and keep them in circulation. In every one of these cases an additional quant.i.ty of bank notes gets into circulation, and are sported, as I have said, upon the public, without there being property in the bank, as banker for the government, to pay them; and besides this, the bank has now no money of its own; for the money that was originally subscribed to begin the credit of the bank with, at its first establishment, has been lent to government and wasted long ago.