Cyclopædia of Political Science, Political Economy, and the Political History of the United States

DEBTS

DEBTS, Political Economy of National. Even the ablest and most conscientious management is not always able to maintain a balance between the resources and the expenses of a country. No country is insured against accidents which may decrease its income or cause unforeseen expense. An event, a period of scarcity, for instance, or a revolution, may produce both a decrease of income and a great increase of expense. Again, the suddenness of a national want, its extent and its urgent character, are such as to prevent providing for it with a rapidity corresponding to its suddenness: wealthy England herself attempted this in vain during the Crimean war. Finally, enterprises of evident usefulness, but the introduction of which demands time and are very costly, may outweigh the current resources of the state, and necessitate for a longer or shorter period an additional revenue.

—In the absence of actual resources furnished by taxation, and those which result from state savings in the past, recourse must be had to the future. The state, like the private man, discounts the future: it borrows. Much has been said of the advantages of credit in private business: its usefulness in public affairs is not less than in private. There is no essential difference between the national demand for credit and the demand for credit made by individuals: in both cases the borrower appeals to the capitalist and for time within which to return the value he received. These are the two constituent elements of every credit operation. As to the use the loan is put to and the results of the operation, the state which borrows can be compared only to the individual who borrows for purposes of consumption. In fact, the state rarely asks money for productive investment; it borrows only because its disposable or prospective funds are insufficient for the present or the near future.

—This difference, too often forgotten, is of prime importance. A manufacturer commences his business with $100,000. Seeing his custom increase, he borrows two or three times the amount of his capital in order to enlarge his business. The borrowed capital, which must bring in more than its use cost, is evidently profitable to the borrower. But the borrowing of this capital is not injurious to economic society. The manufacturer who borrows at 5 per cent. and makes the borrowed money yield him 8 or 10 per cent., evidently renders a great service to society: a given amount of capital thus acquires a productive power greater than that which it had in the hands of its previous holders. It is altogether different with the man who borrows for purposes of consumption. For this borrower the borrowing limit is found not at the point where people cease to lend him, but it is found in the measure of the wants the satisfaction of which is in question with him, and in the extent of the resources which he can command to pay back the borrowed money. The lender is justified in seeking his own advantage; otherwise why should he lend his money unless he can obtain, by lending it, a greater income from it than he could by using it or holding it himself? The general good, nevertheless, may suffer from the making of loans to consumers. If the manufacturer, who gets 6 per cent. by employing his money in his own business, or the capitalist to whom the agriculturist pays 4 per cent., lends money to spendthrift young men for 10 per cent., this credit operation, though profitable to the lenders, is not favorable to the general interest.

—We now see the value of certain paradoxical doctrines formerly current concerning the public debt. It is called an excellent investment. It may perhaps be an excellent investment for the capitalist, who in this way, without care or labor, can assure himself a fixed income; but it is not advantageous to society to favor idleness. As Montesquieu said, (Esprit des lois, book xxii., chap. 17,) by the burden of interest caused by the public debt, "the real revenue of the state is taken from those who are possessed of activity and industry, to give it to idle people: that is to say, facilities for labor are given to those who do not labor, and hinderances to labor are put in the way of those who labor." Fanatical defenders of the public debt say that the burdens imposed on the people by the existence of a great debt have much of good in them because they compel labor and saving. This is equivalent to saying that the prodigality of a young spendthrift is an excellent thing, because it forces his father to save his money and accumulate wealth. We do not mean to say that sums borrowed by the state are always expended as inconsiderately as those borrowed by spendthrift young men who borrow on the credit of their fathers' names. We all know that debts may be incurred with a view to production. But this case is the least frequent. The case in which the loan is made to meet sad but real wants is more frequent. But debt created by thoughtlessness and prodigality has perhaps played the principal part in the history of national debts. It is necessary, therefore, not to forget when the benefits of national credit are vaunted, to inquire what use is made of it, before too highly praising its utility.

—Credit is a marvelous instrument of action, one of the most powerful springs of the material and even moral progress of society. Its development, therefore, should be favored in every way; its uses and the forms it assumes can not become too numerous. But, in order to be really profitable, they should be in keeping with the very essence and real end of credit. This end is, as all know, in the first place, to keep capital from lying idle for a longer or shorter time, as the case may be, and in the second, always to place capital in the hands of those who, at a given moment, may make the most productive use of it. Credit thus assures the continued circulation and fruitful employment of a nation's capital, and adds to the motive and protective power of this mighty instrument of labor. Has national credit always this effect? The most decided advocate of the advantages of national debts would scarcely dare to give a directly affirmative answer to this question.

—By the safety and ease which it affords to investment, by the means which it possesses to inspire confidence, the state which calls for a loan, brings from their hiding places a multitude of small sums which would otherwise have remained idle. This is true; and in this way one of the objects of credit appears, to be attained: barren money is made to bear interest. But in order that it should be profitable to society also, the idle capital of yesterday should be used in production to-day; now to invest money in the state funds is seldom to employ it productively. From a general point of view if the loan did no more than absorb the idle capital of the country and the capital hidden away by its owners, it can not be said that there would be precisely what could be called a loss but only the absence of some advantage, a failure to make a certain amount of profit; the loan would not diminish the sum total of the instruments of labor in the country, since the capital above referred to was inactive. But the absorbent force of the loan is also felt by other capital, and turns it from productive employment. The more the amount of idle capital is diminished by the action of institutions, which entice such capital out of its idleness (banks, shares of stocks, bonds, etc.), the worse is the effect of the loan, on capital invested or seeking investment, because it diverts it from employment really productive to society.

—How can the landed proprietor, for example, who scarcely obtains 3 or 4 per cent. net income from his land, enter into competition with a party like the state, which offers 6 or 7 per cent. to non-invested capital? The landed proprietor would have to give up the idea of borrowing at all, or submit to ruinous conditions. And still the same national loan which renders his condition worse, and diminishes the revenue derived from the exploitation of his lands, increases his burden as a tax-payer. This applies equally to the merchant, and to the manufacturer, who, in consequence of the competition of the state, have to pay a higher rate of interest when borrowing, and whose taxes are increased by reason of this very loan. The force of attraction of national loans for capital, has more drawbacks than advantages from the point of view of the common good. Let us add that the very advantage attributed to national loans, of drawing capital from its hiding places, diminishes greatly in extent and value with the progress of economic civilization. When, under the protection of liberty and competition the business of banks is sufficiently developed to absorb all un-invested capital; when the increase and development of financial and industrial associations enable every capitalist who can not employ his money himself to share in the profits of productive investments; when, finally, the insurance system appeases the fears of those who wish to rid themselves of the cares of capital and to be concerned only with the collection of the interest on it, the advantages ascribed to state loans, as a stimulus to saving and as furnishing capital with an opportunity of investment, diminish perceptibly. Neither can the political advantage ascribed to state loans stand examination. The creditors of a government, say some, are interested in its maintenance and become supporters of the established order of things. This consideration is of great weight, it is added, especially in the case of modern national loans obtained by public subscription in which the least wealthy and often the least conservative classes take part. This argument might have had a certain semblance of truth in times when governments were, so to speak, the personal debtors of fundholders, when the latter might fear to see a debt, contracted under a particular reign, repudiated in the succeeding one. This fear can have no influence whatever in Europe to-day. The Bourbons who, when reinstated in France, refused to recognize the republic and the empire, did not think for a moment of repudiating the debts contracted under these two forms of government. However active the opposition of the liberal party to the famous milliard granted the emigrants, neither the liberals, when the revolution of July brought them to power, nor even the radicals, when the revolution of February gave them the reins of government, thought of disputing the legality of the 3 per cents of which this milliard had been the origin. The increase of the national debt under the second empire was very rapid; every one will agree, however, that its creditors have nothing to fear whatever be the vicissitudes awaiting France in the future. In all continental Europe the opposition, previous to 1848, had raised its voice against the abuse of loans, frequently contracted for the purpose of destroying liberty. Did the opposition make use of its ephemeral rule of 1848 and 1849 to repudiate these debts? The reaction, after gaining the victory, did not think of protesting the bills of exchange which the interregnum had drawn on the resources of the country. Loyalty and the very correct feeling that it was the country and not the government that had incurred the debt, were not, perhaps, the only motives of these reciprocal recognitions. Governments, no matter what may be the real or pretended opposition of their members to national debts, feel at once the necessity of having recourse themselves to credit; they feel that to get the confidence of capital, they must not commence by alarming it; that in order to borrow, it is indispensable to commence by recognizing the loans of others. Let contemporary facts be consulted. If indebtedness were a means of consolidating a country, never would governments have been more firmly established than at present. But when has their condition been more precarious?

—The grain of truth to be found in the sophism in question is, that the partisans of every de facto government, the props of the established order of things, increase with wellbeing. The more prosperity there is, the more individuals there are who have something to lose, and the greater the number interested in, and anxious to prevent, every disturbance in the course of public affairs. Now, when the national debt absorbs large sums which might have been employed more productively by their owners or by borrowers other than the state, the state debt rather undermines than strengthens the public peace, since it hinders the increase of well-being. It is evident, therefore, that the growth of taxation, the fatal consequence of indebtedness, is not one of the means of making a government popular and raising up devoted partisans for it—After the preceding observations it is superfluous to refute at length the strange doctrine which finds no drawback in a home debt, because "the interest is paid by the right hand into the left." Is it nothing to divert capital from productive investment? And then if to pay the interest on a loan, we take, let us suppose $10,000,000 in sums of $50, from 200,000 taxpayers, the majority of whom have not, it may be, $1,000 each a year for their own consumption, and that this amount of $10,000,000 is paid in sums of $1,000 to 10,000 fundholders who spend twenty times as much; and let us suppose, further, that taxation takes the $10,000 000 from where they would have acted in the capacity of an instrument of labor, i.e., have been engaged in the employment of labor, and puts them where they will be simply consumed, the most prejudiced must confess that a "movement" of capital has been made, but one which is far from profitable to the economy of the community. There was a time when the wealthy and middle classes exercised a predominant influence in the state, through parliament and the press; these were the classes who received the interest on the national debt, and a shortsighted policy might have believed that the good-will of a number of capitalists was not too dearly purchased at the price of the discontent which the debt might cause among the mass of taxpayers. In our day, with the system of universal suffrage in vogue, it is evidently impolitic to overburden millions of taxpayers in favor of a few hundred thousand holders of the bonds of the state. Besides, even this favor of the bond-holders of the state is only apparent; investments as safe and as productive as the bonds of the state are not wanting at present to the capitalist who either does not know how, or does not wish to turn his money to advantage.

—It is time to stop lauding the pretended benefits of national loans, and the political or economic advantages of a great national debt. A national loan may sometimes be a necessity. This is the sole excuse for incurring it, and its only raison d'être. But, it will be said, there are productive loans. The productive loan furnishes the wherewithal to pay the interest on it. Besides, this interest will pay off the principal debt. But even these productive loans are destined to become less frequent. The more sound economic ideas are developed and the more general they become, the more public wealth and the spirit of association increase, the less frequently will the state be obliged to engage in enterprises requiring a recourse to credit. The English government had nothing to do with the eight to ten thousand millions of francs which the railroad system of Great Britain has absorbed up to the present time. It would have been better, perhaps, if the French government had abstained altogether from intervention in the building of railroads; but able thinkers believe that its intervention was indispensable. Austria has sold the railroad lines built and controlled by the state. Italy has begun to be very liberal in its concessions to private enterprises, but it looks after the outlay of such enterprises. Belgium, in which the national network of railroads was built and is yet controlled by the state, is now opening a broader and broader field to private companies. The treasury intervenes only in the case of enterprises with which private individuals do not care to concern themselves, even as concessionaries. The government of the Netherlands has been obliged, for the same reason, to assume the burden of constructing a great part of the national system of railroads, and the Swiss government to think for a moment of buying the lines at first given over to private industry. In a word, great works of public utility which may necessitate the making of large loans, cease to require the intervention of the state in proportion as the association of capital shows more aptitude and power to carry them out. Do we not see companies undertake to carry the trans-atlantic mail, dig canals, and pierce tunnels, make streets, and build whole quarters of cities, thus successively freeing the state of everything which can properly be called enterprise, of everything except what is concerned with its daily affairs? The reasons for borrowing save for the requirements of war are thus evidently growing weaker every day or should grow weaker. We may therefore foresee the advent of an order of things, in which, in every well organized state the inadequacy of the revenue to meet public expenses will only be momentary, in which little shall be borrowed, and in which payment will be made as soon as the circumstances which caused recourse to credit shall have ceased to exist. During the last 50 years England has made but few demands on public credit; many countries are successfully endeavoring to diminish their national debt. And these countries only do their duty. If a loan is justified only by the imperious necessities of the moment; if the debt is attended by great inconvenience without any corresponding compensation, why should not endeavors be made to pay off the loan as soon as possible and thus lessen the burden of the debt? The example of England, which, after a long trial, gave up the systematic sinking of its debt, is frequently appealed to The case of Austria is cited, in which the sinking fund, created in 1817, did not prevent the public debt from doubling between 1850 and 1860. It is true, besides, that the repeated but short-lived funding process resorted to in France has been, in fact, suspended by law since 1848. It is quite true also that the sinking of the public debt is often pure deception and very burdensome besides when there is no revenue surplus, and when a debt is incurred on more onerous conditions in order to pay off an old loan. But what does this prove against the funding system? Is it not true that the United States had succeeded in 1837 in almost completely extinguishing the debts contracted during the war of independence, and that since the war of secession they have considerably reduced the loans which that war forced them to make? The popular adage, Whoever pays his debts grows rich, may not be always true in the case of private loans contracted for purposes of production, and which yield a revenue; we have seen that there may be both an individual and a social advantage in this, that the sums borrowed continue to be employed by people who know how to turn them to the best advantage. The adage, on the contrary, is true in every respect in regard to the state, which almost always borrows for purposes of consumption and not of production. By borrowing moderately and only under the pressure of imperious necessity, by hastening to pay its debt as quickly as possible, the state "grows rich" not only to the amount of the sum by which it decreases its yearly burden of interest, but also by the resulting enhancement of its credit which takes a tangible form when it has to contract a new loan.

—The more a state values its credit, the more it should hesitate to burden itself with debt, or should hasten to pay it. Is the prolonged abstention of the English government from having recourse to national credit, compared with the frequent appeals made to it by France, of small account in the higher price of English state paper? In truth, we find even to-day many people who seriously maintain that England owes its prodigious fortune to its enormous debt because its wonderful economic energy, the offspring of the nineteenth century, is contemporary with the unparalleled increase of its debt. This is simply a confusion of cause and effect. Have we not seen a similar confusion on the subject of the commercial policy of Great Britain? When the industry and commerce of that country moved with giant step, many people thought it was because of, and not in spite of, the fact that industry and commerce were shackled by the protective and prohibitive systems. At present, in view of the brilliant and universal success of commercial freedom, no reasonable man dares to maintain this theory which was considered as an axiom 20 years ago. The same fate awaits the paradoxes now bandied about on the subject of public debts. The real truth is, that England, France, Europe in general, advance in spite of, and not because of, their debts. How much their advance would be accelerated if their feet were freed from the ball and chain of their national debts! Does this mean that we should, as has been proposed, make an enormous effort to pay off the whole public debt at once? The operation is impossible, or nearly so. Let us suppose that it is only difficult and that the people are determined to redeem themselves, by the payment of the principal, from the eternal slavery of interest. The majority of taxpayers would be obliged to borrow to effect this redemption, and the debt would simply change hands. We do not wish to maintain either that in default of being able to extinguish the debt nothing at least should be added to it, and another loan never be made. This is almost impossible in great states in which the most provident and economical management will not always succeed in preserving a perfect balance between their resources and expenses. Now, rather than not satisfy legitimate wants recourse must be had to credit. There may also be cases in which a loan, without being absolutely necessary, is of such evident utility that it would not meet the opposition of even the most scrupulous financier.

—By saying that recourse should be had to a loan only when there are absolutely no means of avoiding it, and that it should be repaid as quickly as possible, we think we have answered the following question which has been so often discussed: Is it better, in case of an extraordinary want, to increase taxation or have recourse to a loan? As long as taxation suffices, without becoming unbearable, absolute necessity, which alone can justify the loan, does not exist. This was the system adopted at first by the English government at the time of the Crimean war; seeing that the war was prolonged it determined to increase the revenue yielded by their high taxation by a loan of £16,000,000. In France they began with loans and ended with loans, and yet in the mean-while did not deny themselves the pleasure of increasing taxation. The first argument in favor of the making of loans is the greater facility of quickly obtaining large sums of money; second, the advantage of distributing the burden of the debt between the present and the future, instead of imposing it altogether on the present generation. But to be right in burdening a future generation, it would be necessary to have the most incontestable proof that the load thus distributed would be fruitful in good results in the future. Leaving out of consideration certain loans made for the construction of railways, what modern national loans are there which were intended to be used productively? Even if the money in tended for railroad construction is well employed by the state, and since it is likely that, sooner or later, private industry would have done the same work of construction at less cost, the future generation might well question the justice of imposing burdens of this kind upon it. With regard to the greater facility afforded by a loan as compared with taxation, we are far from seeing an absolute advantage in it: it is precisely this facility which sometimes leads to enterprises in which enormous expenditure is not the most disastrous feature. Very blind are the nations which think themselves adroit because they allow infinite latitude to their government to borrow money rather than submit to increased taxation. They think that they do but cast their burdens on the future, while what they do consists mainly in increasing the burdens of the present.

—It is not in our time alone that the treasury acquired the habit of spending more than is warranted by the condition of the national revenue: wars do not date from yesterday, and neither does waste in time of peace. At all times, therefore, governments were more or less frequently obliged to make up the insufficiency of their current resources by extraordinary measures. The measures of former days were, in truth, "extraordinary": their iniquity was, in most cases, equaled only by their inefficacy. National credit had nothing to do with this violence. Whatever the name given to certain periodical "bleedings" or other similar methods of taking money from those who were supposed to have it, confidence, as a constituent element of credit, cut no figure in them. The making of national loans, in the proper sense of the word, could have its origin only with the establishment of domestic peace in states, with the reign of liberty and equality, with the general growth of private fortunes. It is thus seen that national debts had their origin in the Netherlands, where these conditions were found earlier than in any other European country. Dating from the commencement of the seventeenth century, we meet with complaints in the Batavian republic concerning the excessive burdens of the debt caused by war. In other writings of the period forced loans were recommended without hesitation, in case capitalists showed themselves less disposed to continue their support of the country's cause. The credit of the state, however, was very great, since it was possible to reduce the rate of interest under the stathouder Maurice from 6¼ to 5 per cent., and in 1655, under John de Witt, from 5 to 4 per cent. The reduction did not stop there; in the eighteenth century, the republic succeeded in reducing the rate to 2½ per cent. on an average. The situation became much worse toward the end of the eighteenth century. The debt had greatly increased by the participation of Holland in the war between England and America. In 1795 the republic lost several of its provinces and was obliged to pay France an indemnity of 100,000,000 florins. The difficulties of the time continued to weigh on the treasury, and forced it into debt more and more. On the accession of king Louis, the debts, old and new, amounted to 1,200,000,000 florins; which required an annual outlay of 38,000,000 in interest, while the total of the ordinary revenues amounted to only 58,000,000. Two-thirds of the debt was stricken off the books. These debts were acknowledged again under William I., but only as deferred debt (uitgestellte), without interest, of which a sum of 5,000,000 florins only was to be transferred annually to the regular debt. The interest of the latter was reduced to 2½ per cent. The revolution of 1830, which detached the Belgian provinces from it, introduced new troubles into the finances of the Netherlands. In 1836 it was deemed necessary to mortgage the colonies for the special benefit of the state creditors. The final arrangement entered into in 1839, by which Belgium assumed a part of the Dutch debt, afforded considerable relief. The Netherlands profited by the peace restored in this way to work again at the consolidation of their credit. This object has been completely attained by the elementary process, which so many pretended practical financiers still declare impossible, of making no new debts and reducing the old ones by paying them off. During the decade 1850-60, when nearly all the states of the continent used and abused credit so much, the Netherlands paid off a part of their debt. In 1846 the debt was still 1,231,122,702 florins principal, and required an annual interest of 35,787,948 florins; in 1860 the principal was reduced to 1,057,524,213 florins, and the annual interest to 31,402,675 florins. Four-fifths of the debt paid from 1½ to 2 per cent. interest; 4 per cent. is the maximum rate of interest for certain other parts of the debt.

—If we are to believe M'Culloch, it was from Holland, and by the agency of William III., that public credit was introduced into England. This does not mean that previously the treasury had not incurred debts. Loans were known and made on the other side of the channel long before the revolution that placed the Dutch stathouder on the throne of the Stuarts. Under Henry VIII., especially, the crown had made large use of its power to make forced loans. Edward VI. applied abroad, especially to Dutch capitalists, who lent him money at 14 per cent. The debt increased also under the reign of Elizabeth; the duke of Buckingham under James I. was not the man to reduce it. The reigns of Charles I. and Charles II. caused frequent recourse to credit. The loans were always made for short terms and generally in the tontine way The sinking of the debt progressed at the same rate as the creation of new indebtedness; a part of the old debt was always paid when a new one was contracted. Thus, at the accession of William III., the principal of the debt amounted to only £664,263, with an annual interest of £39,835. At his death the principal debt had increased to about £15,000,000, the average interest was 7 per cent. It increased in vaster proportions under Anne II., owing especially to the cost of the Spanish war, Anne II. left a debt of £54,000,000, requiring about £3,300,000 annual interest. Under the peaceful reign of George I. it was possible to reduce the principal debt by £2,000,000, and to reduce the average rate of interest from 8 to 5 per cent. A new conversion of the debt, effected in 1746, was intended to reduce the interest, in 15 years, from 5 to 3 per cent. This is the present rate of the consols, a name given, in 1751, to the English debt. The war of 1755 increased it by £68,000,000; in 1762 it was nearly £139,000,000. Twelve years of peace reduced it £10,000,000. The war of the American colonies for independence doubled it. The general system of funding which Dr. Price succeeded in having adopted, could not work long on account of the immense efforts made by England to maintain the war against France. Her credit naturally suffered from this, in 1798 she was obliged to borrow at 6¼ per cent., in 1802 she received only £28,000,000 for £49,000,000 subscribed; the same difference appeared in case of most of the loans contracted during the wars of the first empire. When they had come to an end, England found herself weighted with a debt amounting to the startling sum of £840,850,491. Although it has given up systematic and continuous funding, the English government has been occupied, since 1817, and not without success, in reducing the principal and the interest of the debt. On the eve of the Crimean war, the principal of the consolidated and non-consolidated debt was reduced to £771,300,000, and the annual interest to £27,800,000. This was followed by a relapse into the former state; the sum of £800,000,000 principal debt was again greatly exceeded, beginning with 1856. Its reduction was again attempted. In the beginning of 1861 the English debt amounted to £799,949,807, of which £15,529,800 were in non-consolidated debt; the annual cost for interest and administration amounted, in 1861, to £26,090,260, or a decrease of £743,210 compared with the year 1860.

—Under the ancient régime France borrowed much and at any sacrifice. We know how these debts were sometimes paid. (See BANKRUPTCY, NATIONAL.) A reglement of 1604 mentions debts incurred under Charles V. in 1375, the most ancient mentioned in French history. Sully lowered arbitrarily the interest on the debt, and putting an end to the extravagance of the court and the administration, he also put an end to the increase of debt. After his death the financial disorder of previous times reappeared. Colbert reduced the arrearage of the old debt by 8,000,000 francs; his authority, however, was not sufficient to prevent, for any length of time, new additions to the debt. The unhappy wars which marked the end of the long reign of Louis XIV. completed this disorder of the finances, and at the accession of the regency the amount of the state debts had, it is said, risen to 2,000,000,000 francs, a sum of overwhelming weight for that epoch. The general bankruptcy of the country which was seriously proposed was rejected by the regent. The brilliant promises of John Law gave a momentary and unexpected splendor to the credit of the state. The disastrous crash which followed this short-lived prosperity is well known. The reign of the Dubarrys and the administration of the Terrays caused the financial disorder of the country to reach its extreme limits, and greatly contributed to pave the way for the revolution of 1789. The revolution had much difficulty in discovering what to do with this chaos of debt. A law of Aug. 1, 1793, fixed the annual arrearages at the sum of 127,800,000 francs, of which 87,800,000 were for the old consolidated debt, 17,700,000 for various debts, and 31,300,000 as indemnification for offices and charges abolished. The imperious necessities of a war in which it was a question of life or death for France, and the false economic maxims which prevailed in all home politics at that period, brought on the irregular issue of assignats. At the end of 1795 their nominal amount exceeded the enormous sum of 45,000,000,000 francs. Measures closely resembling general bankruptcy caused the disappearance of the assignats when, in fact, depreciation had already rendered them valueless. The debt proper was regulated by the laws of Sept. 30, 1797, and Jan 29, 1798. Debts more or less doubtful were set aside, especially all claims of the emigrés; debts recognized by the state were paid, two-thirds in treasury notes, and the last third was retained as a consolidated debt and inscribed in the grand livre, bearing a fixed interest of 5 per cent. a year. The treasury notes which were to pay the two-thirds, lost 80 per cent. as soon as they were emitted; the next day they had no value at all. The creditors consequently obtained only the last third. This arrangement, called—after the minister of finance who carried it out—the Ramel liquidation, and officially the tiers consolidated, became the basis of the public debt of France. The total of the annual interest inscribed in the grand livre was 40,216,000 francs. The national credit, which was nothing at the moment of the liquidation (the rentes were quoted at 7 per cent.) improved, and the paper of the state was eagerly sought. Even at the time fortune began to turn against Napoleon I. the 5 per cent. rentes sold at more than 82 (December, 1812). We see that Napoleon was able to borrow on much better conditions than could a little later the restoration, whose first loans were made at 57 francs on 100 francs. Notwithstanding this, the annual amount of interest increased only 23,000,000 from 1798 to 1814: the restoration found it (April 8, 1814) at 63,300,000. The latter borrowed much. It was, indeed, not always free to do otherwise. The debts contracted during the first years of the restoration were used in great part to pay the arrearage of the last years of the empire, and to pay the foreign powers the indemnity (ranson) of France. This was not the case, however, with debts contracted after 1820: the justice of paying the thousand millions to the emigrés' loan contracted to aid the emigrés, was called in question, and the expedition to Spain was condemned from every point of view. The elder branch of the Bourbons at its fall left to France (Aug. 1, 1830) the burden of interest of 164,568,100 francs. The government of July figures in the grand livre of the public debt for an increase of only about 12,000,000, arising in part from loans contracted for productive purposes. March 1, 1848, the interest was thus increased to 176,845,367 francs. During the second republic the debt itself was increased about 54,000,000.

—The consolidated debt of Austria, considering its amount, comes immediately after the consolidated debts of Great Britain and of France. The wars the young heiress of Charles VI. was obliged to maintain against Europe, which was conspiring to despoil her, and especially that against Frederic II., had seriously disturbed the finances of the empire of the Haps burgs. At her accession, Maria-Theresa found a funded debt of 12,000,000 florins; 15 years later, it was 118,000,000; new wars had raised it, in 1763, to 272,000,000. Domestic troubles and the war with Turkey added to it greatly under Joseph II. At the death of Leopold II. it approximated the sum of 380,000,000. Much greater were the exigencies of the wars of the first empire, in which Austria took so large a part and played so unfortunate a rôle. With a funded debt, which had increased to the sum of 660,000,000 and required an annual interest payment of 74,000,000, Austria still found herself, in 1797, in possession of comparatively good credit; her paper was accepted as the equivalent of coin. It naturally ceased to be so accepted when, under the pressure of unhappy wars, the Austrian government no longer put any limit to the increase of its consolidated debt and the issue of paper money. In 1800 the consolidated debt had risen to 690,000,000 florins, and the paper money in circulation exceeded the sum of 200,000,000. Ten years later, the consolidated debt was reduced to 658,200,000, but the floating debt already approached 1,000,000,000, which it exceeded at the commencement of 1811. We have already mentioned elsewhere (see BANKRUPTCY, NATIONAL) the desperate measures to which such financial disorder led; we stated in that article that this liquidation did not stop the increase of the floating and of the funded debts, and that a new liquidation had to reduce it, five years later, to a proportion relatively limited. Notwithstanding this double bankruptcy and the numerous operations of credit which Austria had recourse to soon after, her credit was not slow in rising under the influence of the general peace, the internal development of the empire, and the active assistance afforded by the national bank, in improving the condition of things. Comparatively favorable conditions were offered Austria immediately after the second liquidation, and especially after 1830. Her credit was strengthened to such a degree that she was able to borrow at a premium. Her loan of 40,000,000 florins at 5 per cent. was contracted in 1841, at the rate of 2 per cent. premium; in 1843 a new loan at 5 per cent. (43,600,000) went as high as 6 per cent. premium. The events of 1848-9, and the policy of reaction into which Francis Joseph I. allowed himself to be drawn, were of such a nature as to conduct the Austrian empire, financially as well as politically, to the brink of ruin. The result was that, though having from 1848 to 1858 more than doubled her receipts (153,300,000 in 1847; 315,200,000 in 1858), Austria was none the less obliged to have recourse every year to credit. After having borrowed at home in 1851 to 1853, borrowed abroad, and borrowed on pledges, the Austrian government took advantage of the Crimean war in 1854, to make the largest loan that a government had ever made. The national loan, the so-called voluntary loan, demanded by law July 20, 1854, was to reach 500,000,000 florins, an amount never before asked at one time. It subsequently leaked out that the loan exceeded this amount by about 112,000,000. The funded debt of 804,000,000 nominal principal at the commencement of 1848, the eve of the revolution, exceeded 1,900,000,000 at the commencement of 1859, the eve of the war with Italy. The credit of the government was ruined; neither at home nor abroad could it borrow the money so persistently demanded by the necessities of this war. It again became necessary to have recourse to the good offices of the bank of Vienna which was in consequence compelled to suspend specie payments again when it had just resumed them (Jan. 1, 1859,) after a suspension of 10 years. But the reverses of 1859, by inducing the Austrian government to change its whole policy and become more liberal, at last exercised a beneficial influence on its credit. Constitutional government and financial publicity (the publication of its accounts) restored it immediately. The first report (of June 4, 1860), furnished by the special commission on the debt, appointed Dec. 23, 1859, showed the amount of the consolidated debt to be 2,268,071,532 florins, requiring an annual payment of interest of 99,465,917 florins. Next followed the war of 1866 and the arrangement with Hungary, which is spoken of in the article AUSTRIA-HUNGARY—The consolidated debts of the Netherlands, Great Britain, France and Austria, taken together, form an amount of 50,000,000,000 francs, more than two thirds of the whole permanent European debt. We shall be more brief in our reference to this last third, than we have been for the first two-thirds concentrated in a few countries. The debt of Russia is indeed considerable, but it is not easy to fix its amount with precision for a country which published its first budget only in 1862. Very different is the situation in Prussia; she is the least involved of the great powers. A part of her debt was contracted for the construction of railways, the same mania for which, in second and third rate European states, has so greatly increased the amount of public debts. Switzerland is the only state which is almost without a debt. Even Turkey itself, since admitted to the "European concert" by the congress of Paris, has hastened to copy the west in the matter of making debts inconsiderately. A state created by the same congress of 1856, Roumania, has also tried the borrowing system. United Italy has had recourse several times to public credit; and has thus succeeded in doubling in a few years the amount of the united debt of the states of which it was formed. In March, 1863, it borrowed, in one operation, the sum of 700,000,000 cash, which increased by more than 1,000,000,000 the nominal principal of debt and its corresponding burden of interest. The amount of the consolidated debt of Europe at present may, without risk of exaggeration, be set down at 70,000,000,000 francs, requiring the payment of more than 3,000,000,000 of interest annually, and absorbing more than one-fourth of the public revenues. Besides, estimates rarely include all the expenses which the debt causes. This burden would not be so regretable if the money coming from the loans had been used in productive employment. We have said already that this is scarcely true even of a small part. The wars of the first 15 years of the nineteenth century, the armed peace of the years succeeding 1848, and the wars of 1866 and 1870, created and increased the national debts of Europe to an amazing degree. The source of the evil being so evident, the remedy is easy to discover. It is not to be supposed that, with the increasing wants which social development requires the state to satisfy, civil expenses can be reduced very soon. The military budget, on the contrary, is everywhere susceptible of the greatest reduction without injury to the security of states and with great benefit to social, political and economic progress. Let us imagine only a part of the money, at present withdrawn from circulation, in the debtor state, returning by degrees to the creditors who would be obliged to seek new investments for it, would not production and consumption immediately feel the benefit of this capital? If a continually increasing portion of the 3,000,000,000 now spent in paying the interest of the debt, were employed by the state in works of public utility or remained in the hands of taxpayers to increase their instruments of labor or their means of enjoyment, would there not be the where withal to compensate liberally and seriously for the petty and fictitious advantages which self-satisfied dreamers attribute to the existence of great national debts?

J. E. HORN.