An inquiry into the nature and causes of the wealth of

754

The Wealth of Nations

but partly, too, to the want of the support of the bank of England.

When this resource is exhausted, and it becomes necessary, in

order to raise money, to assign or mortgage some particular branch

of the public revenue for the payment of the debt, government

has, upon different occasions, done this in two different ways.

Sometimes it has made this assignment or mortgage for a short

period of time only, a year, or a few years, for example; and some-

times for perpetuity. In the one case, the fund was supposed suffi-

cient to pay, within the limited time, both principal and interest

of the money borrowed. In the other, it was supposed sufficient to

pay the interest only, or a perpetual annuity equivalent to the in-

terest, government being at liberty to redeem, at any time, this

annuity, upon paying back the principal sum borrowed. When

money was raised in the one way, it was said to be raised by antici-

pation; when in the other, by perpetual funding, or, more shortly,

by funding.

In Great Britain, the annual land and malt taxes are regularly

anticipated every year, by virtue of a borrowing clause constantly

inserted into the acts which impose them. The bank of England

generally advances at an interest, which, since the Revolution, has

varied from eight to three per cent., the sums of which those taxes

are granted, and receives payment as their produce gradually comes

in. If there is a deficiency, which there always is, it is provided for

in the supplies of the ensuing year. The only considerable branch

of the public revenue which yet remains unmortgaged, is thus

regularly spent before it comes in. Like an improvident spend-

thrift, whose pressing occasions will not allow him to wait for the

regular payment of his revenue, the state is in the constant prac-

tice of borrowing of its own factors and agents, and of paying

interest for the use of its own money.

In the reign of king William, and during a great part of that of

queen Anne, before we had become so familiar as we are now with

the practice of perpetual funding, the greater part of the new taxes

were imposed but for a short period of time (for four, five, six, or

seven years only), and a great part of the grants of every year con-

sisted in loans upon anticipations of the produce of those taxes.

The produce being frequently insufficient for paying, within the

limited term, the principal and interest of the money borrowed,

deficiencies arose; to make good which, it became necessary to

prolong the term.

In 1697, by the 8th of William III., c. 20, the deficiencies of

several taxes were charged upon what was then called the first

general mortgage or fund, consisting of a prolongation to the first

of August 1706, of several different taxes, which would have ex-

pired within a shorter term, and of which the produce was accu-

mulated into one general fund. The deficiencies charged upon

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755

Adam Smith

this prolonged term amounted to £5,160,459: 14: 9½.

In 1701, those duties, with some others, were still further pro-

longed, for the like purposes, till the first of August 1710, and

were called the second general mortgage or fund. The deficiencies

charged upon it amounted to £2,055,999: 7: 11½.

In 1707, those duties were still further prolonged, as a fund for

new loans, to the first of August 1712, and were called the third

general mortgage or fund. The sum borrowed upon it was

£983,254:11:9¼.

In 1708, those duties were all (except the old subsidy of ton-

nage and poundage, of which one moiety only was made a part of

this fund, and a duty upon the importation of Scotch linen, which

had been taken off by the articles of union) still further contin-

ued, as a fund for new loans, to the first of August 1714, and were

called the fourth general mortgage or fund. The sum borrowed

upon it was £925,176:9:2¼.

In 1709, those duties were all ( except the old subsidy of ton-

nage and poundage, which was now left out of this fund alto-

gether ) still further continued, for the same purpose, to the first

of August 1716, and were called the fifth general mortgage or

fund. The sum borrowed upon it was £922,029:6s.

In 1710, those duties were again prolonged to the first of Au-

gust 1720, and were called the sixth general mortgage or fund.

The sum borrowed upon it was £1,296,552:9:11¾.

In 1711, the same duties (which at this time were thus subject

to four different anticipations), together with several others, were

continued for ever, and made a fund for paying the interest of the

capital of the South-sea company, which had that year advanced

to government, for paying debts, and making good deficiencies,

the sum of £9,177,967:15:4d, the greatest loan which at that time

had ever been made.

Before this period, the principal, so far as I have been able to

observe, the only taxes, which, in order to pay the interest of a debt,

had been imposed for perpetuity, were those for paying the interest

of the money which had been advanced to government by the bank

and East-India company, and of what it was expected would be

advanced, but which was never advanced, by a projected land bank.

The bank fund at this time amounted to £3,375,027:17:10½, for

which was paid an annuity or interest of £206,501:15:5d. The East-

India fund amounted to £3,200,000, for which was paid an annu-

ity or interest of £160,000; the bank fund being at six per cent., the

East-India fund at five per cent. interest.

In 1715, by the first of George I., c. 12, the different taxes which

had been mortgaged for paying the bank annuity, together with

several others, which, by this act, were likewise rendered perpetual,

were accumulated into one common fund, called the aggregate

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