millions cent loans loan debts capital annual amount burden charge
NATIONAL DEBT. Details as to the national debts of individual countries are given under their respective headings, and for the economical principles of the subject the reader is referred to the articles FINANCE and POLITICAL ECONOMY. In the present article the subject will be considered briefly in what may be regarded as its technical aspects, - including the special character of the institution, the different classes of debt, the various methods of raising loans, interest, funding systems, comparative statistics of national debts, methods of estimating the burden of debt, and other points.
National debt is so universal an institution that it has been described as the first stage of a nation towards civilization. A nation, so far as its finances are concerned, may be regarded as a corporate body or even as an individual. Like the one or the other it may borrow money at rates of interest, and with securities, general or special, proportionate to its resources, credit, and stability. But, while in this respect there are certain points of analogy between a state and an individual, there are important points of difference so far as the question of debt is concerned. A state, for example, may be regarded as imperishable, and its debt as a permanent institution which it is not bound to liquidate at any definite period, the interest, unless specially stipulated, being thus of the nature of transferrible perminent annuities. While an individual who borrows engages to pay interest to the lender personally, and to reimburse the entire debt within a certain date, a state may have an entirely different set of creditors every six months, and may make no stipulation whatever with regard to the principal. A state, moreover, is the sole judge of its own solvency, and is not only at liberty either to repudiate its debts or compound with its creditors, but even when perfectly solvent may materially alter the conditions on which it originally borrowed. These distinctions explain many of the peculiarities of national debts as 'contrasted with those of individuals, - though a nation, like an individual, may by reckless bad faith utterly destroy its credit and exhaust its borrowing powers.
A well-organized state ought to have within itself the means of meeting all its ordinary expenses ; where this is not the case, either through insufficiency of resources or maladministration, and where borrowing is resorted to for what may be regarded as current expenses, a state imperils, not only its credit, but, when any crisis occurs, its very existence ; in illustration of this we need only refer to the cases of Turkey in Europe and some of the states of Central and South America. Even for meeting emergencies it is not always inevitable that a state should incur debt ; its ordinary resources, from taxation or from state property, may so exceed its ordinary expenses as to enable it to accumulate a fund for extraordinary contingencies. This, it would seem, was a method commonly adopted in ancient states. The Athenians, for example, amassed 10,000 talents in the interval between the Persian and the Peloponnesian wars, and the Lacedmonians are said to have done the same. At Susa and Ecbatana Alexander found a great treasure which had been accumulated by Cyrus. In the early days of Rome the revenue from certain sources was accumulated as a sacred treasure in the temple of Saturn ; and we know that when Pompey left Italy he made the mistake of leaving behind him the public treasury, which fell into the hands of Caesar. In later times, also, the more prudent emperors were in the habit of amassing a hoard. We find that the method of accumulating reserves prevailed among some of the early French kings, even down to the time of Henry IV. This system has long prevailed in Prussia, and even at the present day exists to some extent in reconstituted Germany. Frederick IL, when he ascended the throne, found in the treasury a sum of 8,700,000 thalers, and it is estimated that at his death he left behind him a hoard of from 60 to 70 million thalers. And similarly, in our own time, of the five milliards of indemnity paid by France as a result of the Franco-German War, 150 millions were set apart to reconstitute the traditional war-treasury. The German empire, apart from the individual states which comprise it, had in 1882 a debt of about £24,000,000, while its invested funds amounted to £37,390,000, including a war-treasure of £6,000,000. The majority of economists disapprove of such an accumulation of funds by a state as a bad financial policy, maintaining that the remission of a proportionate amount of taxation would be much more for the real good of the nation. At the same time the possession of a moderate war-fund, it must be admitted, could not but give a state a great advantage in the case of a sudden war. In the case of England, apart from the private hoardings of a few sovereigns, there does not seem to have existed any deliberately accumulated public treasure ; before the time of William and Mary English monarchs borrowed money occasionally from Jews and from the city of London, but emergencies were generally met by " benevolences " and increased imposts.
All modern states, it may be said, have been compelled to have recourse to loans, either to meet war expenses, to carry out great public undertakings, or to make up the recurrent deficits of a mismanaged revenue. Resources obtained in this way are what constitute national debt proper. Loans have been divided into forced and voluntary. Forced loans can, of course, only be raised within the bounds of the borrowing country ; and, apart from the injustice which is sure to attend such an impost, it is always economically mischievous. The loans which the kings of England were wont to exact from the Jews were really of the character of forced loans, though the method has never been used in England in modern times so extensively as on the Continent. There the sum sought to be obtained in this way has never been anything like realized. In 1793, for example, a loan of this class was imposed in France, on the basis of income ; and of the milliard (francs) which it was sought to raise only 100 millions were realized. In Austria and Spain, also, recourse has been had at various times to forced loans, but invariably with unsatisfactory results. Other methods of a more or less compulsory character have been and are made use of in various states for obtaining money, which, as they involve the payment of interest, may be regarded as of the nature of loans ; but the debt incurred by such methods is comparatively insignificant, and some of the methods adopted are peculiarly irritating and mischievous. On the other hand, it has occasionally been attempted to raise voluntary loans by appeals to a nation's patriotism ; the method has been confined almost exclusively to France. After the revolutions of 1830 and 1848 appeals were thus made to the patriotism of French capitalists to buy 5 per cents direct from the Government at par, at a time when the French 5 per cents were selling at 80; but the results were quite insignificant. Even if the amount sought for by a Government could be obtained on the voluntary principle, the method itself is vicious, withdrawing as it does from the general working capital of the country a sum of serious dimensions. In short, the only economically sound method of meeting expenses which the ordinary resources of a state cannot meet is by borrowing in the open market on the most advantageous terms obtainable. On this normal method of borrowing, loans are divided into different categories, though there are really only two main classes, which may be designated perpetual and terminable. Borrowing in quasi-perpetuity has hitherto been the mode adopted by most states in the creation of the bulk of their debt. Not that any state ever borrows with the avowed intention of never paying off debts ; but either no definite period for reimbursement is fixed, or the limit has been so extended as to be practically perpetual, or in actual practice the debt has been got rid of by the creation of another of equal amount under similar or slightly differing conditions as to interest. Of course a state is not bound to retain any part of its debt as a perpetual burden; it is at liberty to liquidate whenever it suits its convenience. This quasi-perpetuity of debt in the case of a state in a sound financial condition involves no hardship upon its creditors, who may at any moment realize their invested capital by selling their titles as creditors in the open money market, it may be at the price they paid, or it may be a little below or a little above it, according to the state of the market at the time. Loans, again, contracted on the terminable principle are of various classes ; the chief of these are (1) life annuities, (2) terminable annuities, (3) loans repayable by instalments at certain intervals, (4) loans repayable entirely at a fixed date.
From the time of William III. life and terminable annuities have been a favourite mode in England either of borrowing money or of commuting, and thus gradually paying off, the existing funded debt. At first, and indeed until comparatively recent times, the system of life annuities resulted in serious loss to the country, owing to the calculation of the rate of annuity on too high a scale, a result arising from imperfect data on which to base estimates of the average duration of life. The system of life annuities was sometimes combined in England with that of perpetual annuities, or interest; on the permanent debt, - the life annuity forming a sort of additional inducement to lenders of limited means to invest their money. At one time the form of life annuities known as tontine was much in vogue both in England and France, the principle of the tontine being that the proceeds of the total amount invested by the contributors should be divided among the survivors, the last survivor receiving the whole interest or annuity. The results of this system were not, however, encouraging to the state. In England, at least, the terminable annuity has been a favourite mode of borrowing from the time of William III. ; it has been generally conjoined with a low rate of permanent interest on the sum borrowed. Thus in 1700 the interest on the consolidated debt amounted to only £260 000, while the terminable annuities payable amounted to £308,407. In 1780 a loan of 12 millions was raised at 4 per cent. at par, with the additional benefit of an annuity of £1, 16s. 3d. per cent. for eighty years. Even so late as the Crimean War in 1855, a loan of 16 millions at 3 per cent. at par was contracted, the contributors receiving in addition an annuity of 14s. 6d. per cent. for thirty years. Latterly, however, this beneficiary system has been abandoned, though the system of terminable annuities has received increased favour, especially as a means of reducing the funded debt. Of the total debt of England in 1882, upwards of 35/ millions were in terminable annuities, while in 1883 the sum was only £29,492,125.
The third method of contracting terminable loans, that of gradual repayment or amortization within a certain limit of years, has been a favourite one among certain nations, and specially commends itself to those whose credit is at a low ebb - as Turkey, Russia, and Egypt. When the final term of repayment is fixed upon, a calculation is easily made as to how much is to be paid half-yearly until the expiry of the term, so that at the end the whole, principal and interest, will have been paid. At first, of course, the amount paid will largely represent interest, but, as at each half-yearly drawing of the numbers of the bonds to be finally paid off the principal will be gradually reduced, there will be more and more money set free from interest, for the reduction of the actual debt. This method, as we have said, has its advantages, and when conjoined with stipulations as to liberty of conversion to debt bearing a lower rate of interest than that originally offered, and when the bonds are not issued at a figure much below par, might be the most satisfactory method of raising money for a state under certain emergencies. What is known as the "Morgan loan" of France in 1870 was contracted on such conditions.
The last form of temporary loan, that repayable in bulk at a fixed date, is one which, when the sum is of considerable amount, is apt to be attended with serious disadvantages. The repayment may have to be made at a time when a state may not be in a position to meet it, and so to keep faith with its creditors may have to borrow at a higher rate in order to pay their claims. It has, however, worked well in the United States, most of the debt of which has been contracted on the principle of optional payment at the end of a short period, say five years, and compulsory payment at the end of a longer period, say twenty years. Thus the loan of 515 millions of dollars contracted in 1862 was issued on this principle, at 6 per cent., and so with other loans between that year and 1868. In European states, however, the risks of embarrassment are too great to permit of the application of this method on an extensive scale ; and for loans of great amount the methods most likely to yield satisfactory results are loans bearing quasi-perpetual interest, or those repayable by instalments on the basis of half-yearly drawings within a certain period.
What are known as lottery loans are greatly favoured on the Continent, either as an independent means of raising money, or as an adjunct to any of the methods referred to above. These must not be confounded with the lottery pure and simple, in which the contributors run the risk of losing the whole of their investment. The lottery loan has been found to work well for small sums, when the interest is but little below what it would have been in an ordinary loan, and when the percentage thus set aside to form prizes of varying amounts forms but a small fraction of the whole interest payable. The principle is that each contributor to such a loan has a greater or less chance of drawing a prize of varying amount, over and above the repayment of his capital with interest.
What are known as exchequer bills and treasury bills insignificant interest, even so low as per cent. They are a useful means of raising money for immediate wants and for local loans, and form handy investments for capitalists who are reserving their funds for a special purpose.
Exchequer bonds are simply a special form of the funded debt, to be paid off generally within a certain period of years.
There are two principal methods of issuing or effecting a loan. Either the state may appeal directly to capitalists and invite subscriptions, or it may delegate the negotiation to one or more bankers. The former method has been occasionally followed in France and Russia, but in practice it has been found to be attended with so many disadvantages to the borrowing state or city that the best financial authorities consider it unsound. The great banking-houses have such a command over the money-market that it is difficult to keep even a direct loan out of their hands. The majority of loans, therefore, are negotiated by one or more of these houses, and the name of Rothschild is familiar to every one in connexion with such transactions. By this method a borrowing state can assure itself of having the proceeds of the loan with the least possible delay and with the minimum of trouble. A loan may be issued at, above, or below par, though generally it is either at or below par, - " par " being the normal or theoretical price of a single share in the loan, the sum which the borrowing Government undertakes to pay back for each share on reimbursement, without discount or premium. Very generally, as an inducement to investors, a loan is offered at a greater or less discount, according to the credit of the borrowing Government. England, for example, may borrow at any time at par or at a mere fraction below it, while a Central-American state might find difficulty in raising a small loan at 50 per cent. discount. Sometimes a state may offer a loan to the highest bidders ; for example, the city of Auckland in 1875 invited subscriptions through the Bank of New Zealand to a loan of £100,000 at 6 per cent. ; offers were made of six times the amount, but only those were accepted which were at the rate of 98 per cent. or above. The rate of interest offered generally depends on the credit of the state issuing the loan. England, for example, would have no difficulty in raising any amount at 3 per cent. or even less, while less stable states may have to pay or 9 per cent. The nominal percentage is by no means, however, always an index of the cost of a loan to a state, as the history of the debt of England disastrously shows. During last century various expedients were employed, besides that of terminable annuities already referred to, to raise money for the great wars of the period, at an apparently low percentage. For example, from 3 to 5 per cent. would be offered for a loan, the actual amount of stock per cent. allotted being sometimes 1071 or even 111; so that between 1776 and 1785, for the £91,763,842 actually borrowed by the Government, £115,267,993 was to be paid back. In 1797 a loan of £1,620,000 was contracted, for every £100 of which actually subscribed, at 3 per cent., the sum of £219 was allotted to the lender. In 1793 a 3 per cent. loan of 4i millions was offered at the price of £72 per cent., the Government thus making itself liable for £6,250,000. Greatly owing to this reckless method the debt of Great Britain in 1815 amounted to over 900 millions. France in this respect has been quite as extravagant as England ; many of her loans during the present century have been issued at from 52i to 34 per cent., one indeed (1848) so low as 45 per cent., - as a rule with 5 per cent. interest. The enormous and embarrassing increase of the French debt during the present century is doubtless greatly due to this disastrous system. Nearly every European state and most of the Central and South American states have aggravated their debts by this method of borrowing, and got themselves into difficulty with their creditors. Both Turkey and Egypt are notable examples, while states such as Austria and Italy have been compelled to resort to various expedients to reduce their enormous liabilities. Financiers almost unanimously maintain that in the long run it is much better for a state to borrow at high interest at or near par, than at an apparently low interest much below par. A state of even the highest rank may find itself in the midst of a crisis that will for a time shake its credit ; but when the crisis is past and its credit revives it will be in a much more sound position with a high interest for a debt contracted at par than with a comparatively low interest on a debt much in excess of what it really received. If a state, for example, borrows at par at 6 per cent. when its credit is low, it may easily when again in a flourishing condition reduce the interest on its debt to 4 or even 3 per cent. The United States Government has actually done so with the debt it had to contract at the time of the civil war. This method of reducing the burden of a debt is evidently no injustice to the creditors of a Government, when used in a legitimate way. A state is at liberty at any time to pay off its debts, and, if it can borrow at 3 per cent. to pay off a 6 per cent. debt, it may with perfect justice offer its creditors the option of payment of the principal or of holding it at a reduced interest. Government debts are, however, sometimes reduced after a fashion by no means so legitimate as this ; we need only refer to Turkey, where both principal and interest have been enormously reduced on a debt on which little or no interest was ever paid. Other states have been even more unprincipled, and have got rid of their debts at one sweep by the simple method of repudiation ; some of the States of the American Union are notorious examples of this easy method.
When a state has a variety of loans at varying rates of interest, it may consolidate them into a single debt at a uniform interest. For example, in 1751 several descriptions of English debt were consolidated into one fund bearing a uniform interest of 3 per cent., an operation which gave origin to the familiar term " consols " (" consolidated funds "). In the early days of the English national debt, a special tax or fund was appropriated to the payment of the interest on each particular loan. This was the original meaning of "funds," a term which has now come to signify the national debt generally. So also the origin of the term " funded " as applied to a debt which has been recognized as at least quasi-permanent, and for the payment of the interest on which regular provision is made. Unfunded or floating debt, on the other hand, means strictly loans for which no permanent provision requires to be made, which have been obtained for temporary purposes with the intention of paying them off within a brief period. Exchequer and treasury bills are included in this category, and such other moneys in the hands of a Government as it may be required to reimburse at any moment. Where a Government is the recipient of savings banks deposits, these may be included in its floating debt, and so also may the paper-money which is issued so largely by some Governments. The unfunded debt of England is comparatively small, while in Austria and some other states it has attained formidable and embarrassing dimensions. A state with an excessive floating debt must be regarded as in a very critical financial condition.
National debt, again, is divided into external and internal, according as the loans have been raised within or without the country, - some states, generally the smaller ones, having a considerable amount of exclusively internal debt, though it is obvious that the bulk of national debts are both external and internal.
We referred above to various ways of reducing the burden of a debt, and also to methods of contracting loans by which within a certain period they are amortized or extinguished. Most states, however, are burdened with enormous quasi-permanent debts, the reduction or extinction of which gives ample scope for the financial skill of statesmen. A favourite method of accomplishing this is by the establishment of what is known as a sinking fund, formed by the setting aside of a certain amount of national revenue for the reduction of the principal of the debt. Unless carefully managed, a sinking fund is likely to prove a snare. Where it is the genuine result of surplus revenue, and not of money which is in reality borrowed, the only sure method of making it accomplish its purpose is to sink it yearly in the discharge of debt. Where it is allowed to accumulate "at compound interest," as in Pitt's famous experiment, there is great danger of its being diverted from its purpose, and the debt increased instead of diminished. In 1786 a " new sinking fund" was established in England, and certain commissioners appointed to carry its object into effect. With certain modifications in 1829, the fund continued in force ti111875, when another "new sinking fund" was established by which ultimately almost 29 millions were set aside for the annual service of the debt, the difference between the sum actually required and this fixed amount being applied to purchase of stock. This fund was to continue in operation for ten years. Meantime Mr Childers, chancellor of the exchequer, has had an Act passed (1883) for the creation of a large amount of terminable annuities (from five to twenty years), by the operation of which £173,000,000 of stock will be cancelled in twenty years. The existing 28 millions (over 29 millions in 1883-4) will continue to be the yearly charge of the debt, but, as the annuities into which it is proposed to convert a large portion of the debt fall in, more and more of this sum will be set free for the reduction of the principal of the debt. In the United States the large surplus of revenue over expenditure is regularly applied to the reduction of the debt, so that the enormous liabilities incurred owing to the civil war are being reduced with unprecedented rapidity. The sinking fund also plays a prominent part in the new arrangements which have been made with the creditors of Turkey and Egypt.
Questions as to the policy of a state contracting debt belong properly to the general subjects of finance and political economy ; here we shall briefly deal with actual facts, the progress of the leading national debts, and their present comparative magnitudes.
The debt of the United Kingdom at the Revolution in 1688 amounted to only £664,263, with an annual charge of £39,855. During the reign of William III. this increased to the comparatively large sum of £12,767,000, with an annual charge of £1,215,324, which at the accession of George I. had grown to £36,000,000 and £3,063,135 respectively. In 1727 the capital had increased to £53,979,000, while by reduction of interest the annual charge had diminished to £2,360,930. Partly by the operation of the sinking fund, the debt in 1739 had decreased by upwards of 7 millions, but the wars which followed left it at the treaty of Aix-la-Chapelle in 1748 at the sum of £77,488,940. By the end of the Seven Years' War, however, in 1763, the debt had risen to £133,287,940, besides terminable annuities, and the annual charge to £5,032,732. At the commencement of the American War, 1775, the debt had fallen to £126,842,800, but as a result of that war this was more than doubled, and the burden had grown to £273,000,000, including the capitalized value of terminable annuities. After a diminution of about 10 millions during the nine years' peace, the long French wars, which terminated in 1815, left the country burdened with a debt of over 900 millions, at an annual charge of £32,645,618. With various fluctuations during the next forty years, the debt gradually diminished to a little over 800 millions. The two years of war with Russia cost upwards of 30 millions, and in 1857 the capital sum had risen to £838,900,000 and the annual charge to £28,681,177. In 1870 it had fallen again to 800 millions, which in 1883 had diminished to £756,376,519, with an annual charge of £29,678,672, including terminable annuities and the charge thereon, as well as the sinking fund. As we have already pointed out, the actual capital of the British debt does not represent by any means the sums actually received by the state. During the past and the early years of the present century enormous sums were borrowed at a price far below par, the difference adding many millions to the actual burden of the debt. At the same time some relief has been obtained from this burden by judicious conversions into lower-priced stock and the creation of terminable annuities. For the relations between the South Sea Company and the Bank of England and the British national debt, we must refer to the articles BANKING and FINANCE. In the above estimates we have taken no account of the indebtednesses of cities, counties, and other local divisions, which can scarcely be regarded as included in the debt of the nation as a whole. Were these sums added they would increase the total amount of the debt by about 150 millions.
One peculiar.; ty if the national debt of France is that it is reckoned, not according to capital, but according to rente or interest; so that any estimates based on rente must be regarded as approximate. Another peculiarity is the minute distribution of the consolidated debt among a multitude of creditors, most of whom are French ; this arises from the fact that the shares in French debt may be subdivided into minute parts, and an investor may thus purchase a few francs' worth of rente. Thus in 1883 the number of holders of rente was over 4,000,000. The debt of France can be traced as far back as 1375, and at the death of Louis XIV. in 1715 it is estimated to have amounted to a capital of £124,000,000, though this was arbitrarily reduced in the following year to 80 millions. The republican Government of 1793 cancelled nearly the whole of the then existing debt, reducing it to a capital of £32,000,000, with a rente of £1,600,000. During the empire, notwithstanding Napoleon's extensive wars, the debt had only grown to £70,645,000, including a floating debt of 20 millions. Under the,-.Bourbons, what with war-levies and constant deficits, it grew rapidly, and in 1830-stood at £141,770,000. To this the Orleans dynasty added 40 millions, leaving the debt in 1848 at 182 millions. During the four years of the republic this grew to £245,250,000, while the enormous deficits and the wars of the second empire raised it to £550,000,000 in December 1870. The further cost of the German war, with its enormous indemnity and the foreign occupation of 1870– '3, added upwards of 300 millions to this. Since then the French debt has steadily grown, and in 1883 stood (capitalizing all classes of debt) at about £1,000,000,000, with an annual charge of £52,722,300, - the largest in the world.
In 1763, at the end of the Seven Years' War, Austria had a debt of only £15,000,000 ; but, as it is a country of almost constant deficits, this sum has rapidly increased. In 1815 it was £82,500,000; in 1830, 108 millions; in 1848, 125 millions; in 1862, after the French war, £252,671,860, to which the war with Prussia added 40 millions in 1866. Since then it has grown apace, and in 1883 stood at £380,000,000, including floating debt, paper-money, and Austria's special liabilities, amounting to £105,700,000, but excluding the special debt of Hungary, which amounted to over 104 millions ; Hungary, besides, contributes three-tenths to the interest of the common debt, this interest in 1883 amounting to £12,024,070, in addition to over 2 millions for Austria's special debt.
The debt of Prussia in 1800 was only £5,250,000, which as a result of the French wars grew by 1820 to 31 millions. By 1842 10 millions were paid off, but in 1866 it had risen to 42 millions, partly from deficits, partly from war preparations, and partly from money sunk in the construction of railways. The war with Austria, and the annexations in 1866, raised it by 1870 to £56,400,000. Since then it has nearly doubled, and in 1882 had reached the sum of £102,984,071, with an annual charge of £4,381,032. Much of the debt of Prussia has, however, been contracted for railways and the development of the resources of the country, and is in fact nearly covered by the revenue of the state-railways, domains, and mines. The German empire, as such, had no debt at the time of its re-establishment in 1870, though one has since been created ; in 1883 the total funded debt was £18,500,000 at 4 per cent. interest. There was also an unfunded debt consisting of state treasury bills amounting to £7,698,210. The expenses of the French war were far more than covered by the indemnity, while the various invested funds of the empire amounted to £37,390,523. Besides Prussia, each of the German states has its own special debt. In all these amounted to about 170 millions, most of this sum having been borrowed for the construction of railways, so that the actual burden is comparatively small. Thus the total debt of the empire and of the states composing it is only a little over 300 millions.
It is difficult to obtain any trustworthy figures as to the debt of Russia. The history of its finance is a history of almost continual deficits, largely covered since the time of Catherine II. by the issue of paper roubles, which at her death amounted to about 30 million pounds sterling, and in 1817 to 125 millions. The total debt was first stated for 1853, when it was given as 125 millions, including paper-money. In 1858, after the Crimean War, it was 240 millions, and in 1869, including the floating debt, 300 millions. In 1880 it was estimated at 640 millions, one-third of which was paper roubles. Were the depreciated rouble taken at par, the sum would be nearly half as much again. The interest on the debt in 1880 amounted to 17 millions, and in the budget for 1882 the total charge of the debt was set down at over 28 millions.
In 1876 the debt of Turkey stood at 296 millions, but since then, by a process of reduction, it has been brought down to 150 millions, besides an internal debt estimated at 20 millions.
The united kingdom of Italy began in 1860 with a debt of 97i million pounds sterling, which, mainly through continual deficits, but partly by the construction of railways, had grown to 446i millions in 1881, with a net interest of 17 millions, a heavy burden on one of the poorest countries of Europe.
Like Austria, Spain has been a country of constant deficits, combined with frequent repudiations and chronic inability to meet the claims of creditors. Spain was deeply in debt so long ago as the 16th century ; -the amount in 1745 was 9 millions sterling, which was repudiated by Ferdinand VI. A commission in 1822 reported the debt at 140 millions, but in 1822 a second junta reduced it to 52 millions. In 1851, with the floating debt, the amount was 113 millions, one half of which was declared passive, bearing no interest. In twenty years this had more than doubled, being in 1870 £237,400,000, with an annual charge of £6,735,000. In 1881 the capital sum had increased to 512 millions, but by a process of conversion this was to be reduced to 240 millions, according to official statement, bearing an annual charge of £9,500,000.
Portugal has for its size a large debt, the result also of vicious financial administration. It began in 1796 with £900,000, which in 1854 rose to 20 millions, in 1866 to 43 millions, in 18711 to £64,333,000, and in 1881 to £97,512,000, with an annual charge of £3,065,285.
Greece began her independence by becoming a debtor in 1824 for £800,000, and her borrowings since have loaded the little kingdom with a debt of 15 millions, the interest on which has never been regularly and fully paid. Part of the debt is guaranteed by England, France, and Russia.
The debt of Holland began in the 16th and 17th centuries in her struggle with Spain and wars with England, and in 1778 the Dutch were oppressed with a debt of 62 millions, which by 1814 had risen to 144 millions, the annual charge per head of population being over 30s. By 1851 the capital was reduced to 102i millions, which has gone on steadily decreasing, and in 1882 the capital sum was £78,442,370, with an annual interest of £2,419,222, being about 12s. per head, though the revenue of the state railways makes it somewhat less. A sinking fund of £833,000 is annually devoted to the redemption of the debt. The debt of Belgium began with 10 millions taken over from Holland after 1830, which, after growing to 39 millions and again falling by the operation of the sinking fund to £24,400,000 in 1865, has since steadily grown to about 72 millions in 1882, including the railway purchases, the annuities granted for which represent about 13 millions. Most of the remainder of the debt is covered by the proceeds of the various public works for which it has been raised.
The debt of Denmark was £4,150,000 in 1821. Partly through deficits, partly through war with Prussia, and partly owing to the construction of state railways, this grew to £14,862,465 in 1865. This declined to £9,629,257 in 1830, but subsequent loans raised it to over 11 millions in 1882, the annual charge being £554,400. So much of the debt, however, is caused by productive investments that the annual burden is only 2s. a head. Only £700,000 of the debt is external.
The existing debt of Sweden began with a railway loan of £1,228,575 in 1858, and nearly all her subsequent loans have been contracted for similar purposes, the total debt in 1882 being 12-h millions. So much of this is covered by the proceeds of the railways that the annual burden is less than 9d. per head of population.
The debt of Norway, which has grown from £1,656,315 in 1871 to £5,806,222 in 1882, has also been largely contracted for railways, though the net annual charge per head is 2s. 6d.
Switzerland in 1882 had a nominal debt of £1,477,881, more than covered by the " federal fortune " or property belonging to the state. The separate cantonal debts amounted in all to 12 millions sterling, in most cases also covered by the proceeds of cantonal property.
Outside Europe we can only refer to the progress of the debts of the United States and India. The former began their career as a federal republic with a debt of 15 millions sterling (1791), on which there was little increase till 1816, when it reached 25 millions, which in 1835 was almost extinguished. The debt, however, rose again, but never exceeded 14 millions till 1860, the year before the civil war, when it reached 18 millions. During the next four years the debt rose rapidly, and after the conclusion of the war in 1866 the country was saddled with a debt of £556,685,175. This has gone on decreasing since with wonderful rapidity, on account of the systematic application of the large surplus revenue to its reduction, and in 1882 it had sunk to £383,662,598, being at the rate of over 10 millions a year. At this rate the debt would be extinguished within forty years. Each of the States has, besides, a debt of its own, these amounting to about 57 millions sterling in 1882.
The debt of India, as might be expected from its peculiar con- India, ditions, far exceeds that of any other British dependency. During the early years of the century there were considerable deficits in the revenue owing to the various wars, and these by 1820 had reached over 5 millions. In 1834, taking the nominal value of the rupee as 2s., there was a total debt of £41,350,952. When the administration was taken over by the imperial Government there was a debt of 81 millions (1859), which, with slight fluctuations, has gone on increasing, until in 1882 it had reached £156,820,614, with interest of about 4i millions. Were the Government guarantees of railway and other undertakings added, this would raise the liabilities of the country to about 250 millions. The large receipts from productive investments, however, considerably reduce the net burden of the debt, which has fallen from 9id. a head in 1871 to about 5d. at the present time.
In the following table we give a list of the leading national debts (1882 and 1883), with various other items, by which some idea may be formed of their comparative burdensomeness The total debt of the British empire may be set down at about 1080 millions sterling, or at the rate of about £4, 6s. per head of the population of the empire. The gross debt of all the states of the world is estimated at about 5200 millions in 1882, or about £6 per head. In some of the Central and South American states it is scarcely possible to obtain the actual amount and burden of the debt, as the interest has remained unpaid for years. For example, the debt of Costa Rica is equal to £22, 8s. per head, but as no interest has beenpaid for years, the actual burden is nil. In the case of Honduras, if the overdue interest were added to the outstanding debt, the burden per head would be something like £38. Most of those states, however, have been defaulters, and have sought to escape the burden of their liabilities by not meeting them. The classification given by Mr Dudley Baxter in 1874 (Jour. Stat. Soc.) is still (except as regards the United States) essentially correct. He classified the hollowing states into four categories, according to the rate of interest on the market-price of their stocks:-(1) low interest states, 3 and 4 per cent.-United Kingdom, Denmark, Holland, Belgium, Germany, India, Canada, Australasia, Sweden ; (2) moderate interest, 5 to 6i per cent.-Morocco, United States, Brazil, Russia, France, British African colonies, Chili, Argentine Republic ; (3) high interest states, 6i to 10 per cent.-Portugal, Japan, Hungary, Austria, Colombia, Roumania, Uruguay, Italy, Cuba, Egypt, Peru, Ecuador, Turkey (states whose expenditure exceeds their income, and whose other circumstances show some risk to lenders); (4) excessive interest, 14 to 66 per cent -Guatemala, Bolivia, Spain, Mexico, Costa Rica, Paraguay, Venezuela, San Domingo, Greece, Honduras (states of unsettled governments and finances, and threatened or actual default of interest). Most of the last class have been or are defaulting states, and among them, in this respect, should be classed Peru and Ecuador.
The above table cannot be said to represent the real relative amounts and burdens of the various national debts. For example, the interest per head of the British debt is 17s., while that of Russia is 5s. 10d., of the United States 7s., of Australasia 31s. 9d., and of Egypt 18s. 4d. But it is evident that these figures give no adequate idea of the real burden,-that the average Englishman can more easily afford to pay his 17s. a year, the Australasian his 31s. 9d., and much more the average American his 7s., than the average Russian his 5s. 10d., or the poor Egyptian his 18s. 4d. It has been sought (Fenn's Compendium) to show the real comparative indebtedness by readjusting the capital sums on a 5 per cent. basis. In this way the British debt would be represented by about 460 millions ; that of France by 780 millions ; Austria, 226 millions; Russia, 485i millions ; Italy, 432i millions ; United States, 225 millions ; India, 118i millions ; Belgium, 53i millions ; Holland, 50 millions ; Japan, 93 millions ; Egypt, 99 millions. If, moreover, from these sums be deducted the amount covered by the net earnings of reproductive investments, a considerable reduction would have to be made in some cases in the amounts to be provided for by taxation. In the case of Prussia, for example, the whole of the debt in 1882 was met by the proceeds of reproductive investments. The Cape Colony, on the 5 per cent. basis, had only half her nominal debt to provide for by taxation, and so more or less with the Australian colonies ; the debt of India would thus be reduced by one-third, of Belgium by about one-half, Norway the same, Sweden by about nine-tenths. Perhaps the most satisfactory test, according to the above table, of the relative burden of the various debts, is a comparison between the interest per head and the annual value per head of exports. Compare, for example, Great Britain with 17s. per head of interest and £8,. 8s. of exports, Australasia 31s. 9d. and £17, 8s., Canada 8s. 8d. and £4, 6s. 11d., the United States 7s. and £3, ls. 7d., and Holland lls. 9d. and £12, 13s. with France and its £1, 8s. of interest per head and £3, 16s. 8d. of exports, Russia 5s. 10d. and 15s. 9d., Austria-Hungary lls. 8d. and £1,17s. 10d., Spain Ils. and £1, 8s. 5d., Egypt 18s. 4d. and £2, 85., Portugal 12s. 11d. and 19s. 5d., Japan 3s. and 3s. 6d.,-and some idea will be obtained of the different conditions of the countries to meet their national liabilities. But even this comparison does not give anything like a complete idea of the real burden of national debt, and should be supplemented by reference to the total income of each nation from all sources and the total amount of its capital, supposing all its assets were realized. Estimates, which can only be regarded as roughly approximate, have been made of the value of national capital of the leading states and the amount of their national income. Taking, then, the capital of the United Kingdom at 10,000 millions sterling, we find that the national debt, 756 millions, bears to this the proportion of only a little over 7i per cent.; and even if we added the local debts the proportion would be only about 9 per cent. Taking again the national income at 1200 millions, we find that the annual charge of the debt is only 2) per cent. of this sum, and even if we added the charges of the local debts the percentage would scarcely be above 3. The whole national and local debt could be paid off by about two-thirds of a year's income ; as they could be also by the produce of three years' exports.
The national capital of France may be roughly estimated at 7500 millions sterling, to which the debt, 960 millions, bears the large proportion of 12.8 per cent., while if the local debts be included the proportion rises to 14i per cent. The income of France may be taken at 950 millions, to which the annual charge of the debt bears the proportion of 3'65 per cent., and that of the local debts would raise it to 4 at least. It would take nearly five years even of the proceeds of the "general exports " of France to pay off the national debt.
The national capital and income of the United States increase with unexampled rapidity. The former cannot be less at present than 7000 millions, and the latter 1500 millions (more than even that of the United Kingdom). The national debt is 5 per cent. of the former, and the total federal and State debts only 6 per cent., while the interest (including that of the Pacific Railway loans, for which there are reimbursements), £17,775,000, is only 1.2 per cent. of the rapidly increasing income. One-fourth of a year's income would pay off the whole of the debt.
If we take the total debts of the German empire and all the states at 300 millions, and the national capital at 4500 millions, we find the former only 6 per cent. of the latter. Belgium and Holland are equally favourably situated in this respect, while in the Scandinavian countries the proportion of debt to national capital is only about 2 per cent. Coming to Russia, we find the debt bears the enormous proportion of 23 per cent. to the approximate national capital, while the interest is 5 per cent. of the national income. Estimating the latter at 560 millions, we see that one year would not suffice to pay off the 640 millions of debt. Austria-Hungary is not quite so bad, as the debt is only 17 per cent. of the capital, and it could be nearly paid off by a year's income. Italy seems even in a worse state than Russia, as her debt is estimated at 27 per cent. of her capital, which it would take two years' income to pay off, while Spain and Portugal (even with the greatly reduced principal of the former) have a combined debt amounting to 29 per cent. of their united national capitals. India and the British colonies are nearly as favourably situated in this respect as the mother-country, while the rapid development of the enormous resources of Canada and the Australian colonies tends constantly to diminish the proportion of debt to capital.
Other elements which ought to be taken into consideration in estimating the real burden of national debt, besides the above and the increased development of the world's resources, are the increase of population and the depreciation of the precious metals. Thus, while the annual charge of the British"debt per head was 34s. 8d. in 1815, it was only 16s. 10d. in 1882, and this not solely from the decrease of the debt, but even more largely by the increase of the population. Moreover, owing to the decreased value of money, 16s. 10d. in 1882 is in reality very considerably less than the half of 34s. 8d. in 1815. Thus even by the operation of the unearned increment, not to speak of the increasing value of reproductive investment, the natural tendency is for the actual burden of national debt to decrease every year, unless it is recklessly increased by fresh loans.
See Leroy-Beaulieu, Traite de la Science des Finances; Rau, Finanzwissenschaft; M'Culloch, On Taxation and the Funding System; Hamilton, Inquiry concerning the Rise and Progress of the English Debt; Taylor. History of Taxation in Engla-nd; Fenn, Compendium of English and Foreign Funds; A. Johnstone Wilson, The National Budget ; Dudley Baxter, National Debts, and his paper in the Stp/. Soc. Jour., 1874; The Statesman's Year-Book, 1883; 51. Block, Annuaire de l'Economie Potitique et de la Statistique, 1883 ; Dictionnaire General de Polltique; and Statistique de la France comparee avec les divers pays de t'Europe; Cohen, Compendium of Finances; J. Gander, Traitd de Finances; papers by Leone Levi (1862), Hyde Clarke, and R. Gillen (1878), and others in Jour. of Stat. Soc.; paper by Ernest Seyd, in Soc. of Arts Jour., 1878 ; the parliamentary reports on Public Income and Expenditure, 1688-1869. (J. S. K.)