An inquiry into the nature and causes of the wealth of

756

The Wealth of Nations

fund, which was charged not only with the payment of the bank

annuity, but with several other annuities and burdens of different

kinds. This fund was afterwards augmented by the third of George

I., c.8., and by the fifth of George I., c. 3, and the different duties

which were then added to it were likewise rendered perpetual.

In 1717, by the third of George I., c. 7, several other taxes were

rendered perpetual, and accumulated into another common fund,

called the general fund, for the payment of certain annuities,

amounting in the whole to £724,849:6:10½.

In consequence of those different acts, the greater part of the

taxes, which before had been anticipated only for a short term of

years were rendered perpetual, as a fund for paying, not the capi-

tal, but the interest only, of the money which had been borrowed

upon them by different successive anticipations.

Had money never been raised but by anticipation, the course of

a few years would have liberated the public revenue, without any

other attention of government besides that of not overloading the

fund, by charging it with more debt than it could pay within the

limited term, and not of anticipating a second time before the

expiration of the first anticipation. But the greater part of Euro-

pean governments have been incapable of those attentions. They

have frequently overloaded the fund, even upon the first anticipa-

tion; and when this happened not to be the case, they have gener-

ally taken care to overload it, by anticipating a second and a third

time, before the expiration of the first anticipation. The fund be-

coming in this manner altogether insufficient for paying both prin-

cipal and interest of the money borrowed upon it, it became nec-

essary to charge it with the interest only, or a perpetual annuity

equal to the interest; and such improvident anticipations neces-

sarily gave birth to the more ruinous practice of perpetual fund-

ing. But though this practice necessarily puts off the liberation of

the public revenue from a fixed period, to one so indefinite that it

is not very likely ever to arrive; yet, as a greater sum can, in all

cases, be raised by this new practice than by the old one of antici-

pation, the former, when men have once become familiar with it,

has, in the great exigencies of the state, been universally preferred

to the latter. To relieve the present exigency, is always the object

which principally interests those immediately concerned in the

administration of public affairs. The future liberation of the pub-

lic revenue they leave to the care of posterity.

During the reign of queen Anne, the market rate of interest had

fallen from six to five per cent.; and, in the twelfth year of her

reign, five per cent. was declared to be the highest rate which could

lawfully be taken for money borrowed upon private security. Soon

after the greater part of the temporary taxes of Great Britain had

been rendered perpetual, and distributed into the aggregate, South-

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757

Adam Smith

sea, and general funds, the creditors of the public, like those of

private persons, were induced to accept of five per cent. for the

interest of their money, which occasioned a saving of one per cent.

upon the capital of the greater part or the debts which had been

thus funded for perpetuity, or of one-sixth of the greater part of

the annuities which were paid out of the three great funds above

mentioned. This saving left a considerable surplus in the produce

of the different taxes which had been accumulated into those funds,

over and above what was necessary for paying the annuities which

were now charged upon them, and laid the foundation of what

has since been called the sinking fund. In 1717, it amounted to

£523,454:7:7½. In 1727, the interest of the greater part of the

public debts was still further reduced to four per cent.; and, in

1753 and 1757, to three and a-half, and three per cent., which

reductions still further augmented the sinking fund.

A sinking fund, though instituted for the payment of old, facili-

tates very much the contracting of new debts. It is a subsidiary

fund, always at hand, to be mortgaged in aid of any other doubt-

ful fund, upon which money is proposed to be raised in any exi-

gency of the state. Whether the sinking fund of Great Britain has

been more frequently applied to the one or to other of those two

purposes, will sufficiently appear by and by.

Besides those two methods of borrowing, by anticipations and

by a perpetual funding, there are two other methods, which hold

a sort of middle place between them; these are, that of borrowing

upon annuities for terms of years, and that of borrowing upon

annuities for lives.

During the reigns of king William and queen Anne, large sums

were frequently borrowed upon annuities for terms of years, which

were sometimes longer and sometimes shorter. In 1695, an act

was passed for borrowing one million upon an annuity of four-

teen per cent., or £140,000 a-year, for sixteen years. In 1691, an

act was passed for borrowing a million upon annuities for lives,

upon terms which, in the present times, would appear very ad-

vantageous; but the subscription was not filled up. In the follow-

ing year, the deficiency was made good, by borrowing upon annu-

ities for lives, at fourteen per cent. or a little more than seven years

purchase. In 1695, the persons who had purchased those annu-

ities were allowed to exchange them for others of ninety-six years,

upon paying into the exchequer sixty-three pounds in the hun-

dred; that is, the difference between fourteen per cent. for life,

and fourteen per cent. for ninety-six years, was sold for sixty-three

pounds, or for four and a-half years purchase. Such was the sup-

posed instability of government, that even these terms procured

few purchasers. In the reign of queen Anne, money was, upon

different occasions, borrowed both upon annuities for lives, and

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