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-
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