It is worthy of observation, that every case of failure in finances, since the system of paper began, has produced a revolution in governments, either total or partial. A failure in the finances of France produced the French revolution. A failure in the finance of the a.s.signats broke up the revolutionary government, and produced the present French Const.i.tution. A failure in the finances of the Old Congress of America, and the embarra.s.sments it brought upon commerce, broke up the system of the old confederation, and produced the federal Const.i.tution. If, then, we admit of reasoning by comparison of causes and events, the failure of the English finances will produce some change in the government of that country.

As to Mr. Pitt's project of paying off the national debt by applying a million a-year for that purpose, while he continues adding more than twenty millions a-year to it, it is like setting a man with a wooden leg to run after a hare. The longer he runs the farther he is off.

When I said that the funding system had entered the last twenty years of its existence, I certainly did not mean that it would continue twenty years, and then expire as a lease would do. I meant to describe that age of decrepitude in which death is every day to be expected, and life cannot continue long. But the death of credit, or that state that is called bankruptcy, is not always marked by those progressive stages of visible decline that marked the decline of natural life. In the progression of natural life age cannot counterfeit youth, nor conceal the departure of juvenile abilities. But it is otherwise with respect to the death of credit; for though all the approaches to bankruptcy may actually exist in circ.u.mstances, they admit of being concealed by appearances. Nothing is more common than to see the bankrupt of to-day a man in credit but the day before; yet no sooner is the real state of his affairs known, than every body can see he had been insolvent long before. In London, the greatest theatre of bankruptcy in Europe, this part of the subject will be well and feelingly understood.

Mr. Pitt continually talks of credit, and the national resources. These are two of the feigned appearances by which the approaches to bankruptcy are concealed. That which he calls credit may exist, as I have just shown, in a state of insolvency, and is always what I have before described it to be, _suspicion asleep_.

As to national resources, Mr. Pitt, like all English financiers that preceded him since the funding system began, has uniformly mistaken the nature of a resource; that is, they have mistaken it consistently with the delusion of the funding system; but time is explaining the delusion.

That which he calls, and which they call, a resource, is not a resource, but is the _antic.i.p.ation_ of a resource. They have antic.i.p.ated what _would have been_ a resource in another generation, had not the use of it been so antic.i.p.ated. The funding system is a system of antic.i.p.ation.

Those who established it an hundred years ago antic.i.p.ated the resources of those who were to live an hundred years after; for the people of the present day have to pay the interest of the debts contracted at that time, and all debts contracted since. But it is the last feather that breaks the horse's back. Had the system begun an hundred years before, the amount of taxes at this time to pay the annual interest at four per cent. (could we suppose such a system of insanity could have continued) would be two hundred and twenty millions annually: for the capital of the debt would be 5486 millions, according to the ratio that ascertains the expense of the wars for the hundred years that are past. But long before it could have reached this period, the value of bank notes, from the immense quant.i.ty of them, (for it is in paper only that such a nominal revenue could be collected,) would have been as low or lower than continental paper has been in America, or a.s.signats in France; and as to the idea of exchanging them for gold and silver, it is too absurd to be contradicted.

Do we not see that nature, in all her operations, disowns the visionary basis upon which the funding system is built? She acts always by renewed successions, and never by acc.u.mulating additions perpetually progressing. Animals and vegetables, men and trees, have existed since the world began: but that existence has been carried on by succession of generations, and not by continuing the same men and the same trees in existence that existed first; and to make room for the new she removes the old. Every natural idiot can see this; it is the stock-jobbing idiot only that mistakes. He has conceived that art can do what nature cannot.

He is teaching her a new system--that there is no occasion for man to die--that the scheme of creation can be carried on upon the plan of the funding system--that it can proceed by continual additions of new beings, like new loans, and all live together in eternal youth. Go, count the graves, thou idiot, and learn the folly of thy arithmetic!

But besides these things, there is something visibly farcical in the whole operation of loaning. It is scarcely more than four years ago that such a rot of bankruptcy spread itself over London, that the whole commercial fabric tottered; trade and credit were at a stand; and such was the state of things that, to prevent or suspend a general bankruptcy, the government lent the merchants six millions in _government_ paper, and now the merchants lend the government twenty-two millions in _their_ paper; and two parties, Boyd and Morgan, men but little known, contend who shall be the lenders. What a farce is this!

It reduces the operation of loaning to accommodation paper, in which the compet.i.tors contend, not who shall lend, but who shall sign, because there is something to be got for signing.

Every English stock-jobber and minister boasts of the credit of England.

Its credit, say they, is greater than that of any country in Europe.

There is a good reason for this: for there is not another country in Europe that could be made the dupe of such a delusion. The English funding system will remain a monument of wonder, not so much on account of the extent to which it has been carried, as of the folly of believing in it.

Those who had formerly predicted that the funding system would break up when the debt should amount to one hundred or one hundred and fifty millions, erred only in not distinguishing between insolvency and actual bankruptcy; for the insolvency commenced as soon as the government became unable to pay the interest in cash, or to give cash for the bank notes in which the interest was paid, whether that inability was known or not, or whether it was suspected or not. Insolvency always takes place before bankruptcy; for bankruptcy is nothing more than the publication of that insolvency. In the affairs of an individual, it often happens that insolvency exists several years before bankruptcy, and that the insolvency is concealed and carried on till the individual is not able to pay one shilling in the pound. A government can ward off bankruptcy longer than an individual: but insolvency will inevitably produce bankruptcy, whether in an individual or in a government. If then the quant.i.ty of bank notes payable on demand, which the bank has issued, are greater than the bank can pay off, the bank is insolvent: and when that insolvency is declared, it is bankruptcy.(*)

* Among the delusions that have been imposed upon the nation by ministers to give a false colouring to its affairs, and by none more than by Mr. Pitt, is a motley, amphibious-charactered thing called the _balance of trade_.

This balance of trade, as it is called, is taken from the custom-house books, in which entries are made of all cargoes exported, and also of all cargoes imported, in each year; and when the value of the exports, according to the price set upon them by the exporter or by the custom-house, is greater than the value of the imports, estimated in the same manner, they say the balance of trade is much in their favour.

The custom-house books prove regularly enough that so many cargoes have been exported, and so many imported; but this is all that they prove, or were intended to prove. They have nothing to do with the balance of profit or loss; and it is ignorance to appeal to them upon that account: for the case is, that the greater the loss is in any one year, the higher will this thing called the balance of trade appear to be according to the custom-house books. For example, nearly the whole of the Mediterranean convoy has been taken by the French this year; consequently those cargoes will not appear as imports on the custom-house books, and therefore the balance of trade, by which they mean the profits of it, will appear to be so much the greater as the loss amounts to; and, on the other hand, had the loss not happened, the profits would have appeared to have been so much the less.

All the losses happening at sea to returning cargoes, by accidents, by the elements, or by capture, make the balance appear the higher on the side of the exports; and were they all lost at sea, it would appear to be all profit on the custom-house books. Also every cargo of exports that is lost that occasions another to be sent, adds in like manner to the side of the exports, and appears as profit. This year the balance of trade will appear high, because the losses have been great by capture and by storms. The ignorance of the British Parliament in listening to this hackneyed imposition of ministers about the balance of trade is astonishing. It shows how little they know of national affairs--and Mr. Grey may as well talk Greek to them, as to make motions about the state of the nation. They understand only fox-hunting and the game laws,--_Author_.

I come now to show the several ways by which bank notes get into circulation: I shall afterwards offer an estimate on the total quant.i.ty or amount of bank notes existing at this moment.

The bank acts in three capacities. As a bank of discount; as a bank of deposit; and as a banker for the government.

First, as a bank of discount. The bank discounts merchants' bills of exchange for two months. When a merchant has a bill that will become due at the end of two months, and wants payment before that time, the bank advances that payment to him, deducting therefrom at the rate of five per cent, per annum. The bill of exchange remains at the bank as a pledge or p.a.w.n, and at the end of two months it must be redeemed. This transaction is done altogether in paper; for the profits of the bank, as a bank of discount, arise entirely from its making use of paper as money. The bank gives bank notes to the merchant in discounting the bill of exchange, and the redeemer of the bill pays bank notes to the bank in redeeming it. It very seldom happens that any real money pa.s.ses between them.

If the profits of a bank be, for example, two hundred thousand pounds a year (a great sum to be made merely by exchanging one sort of paper for another, and which shows also that the merchants of that place are pressed for money for payments, instead of having money to spare to lend to government,) it proves that the bank discounts to the amount of four millions annually, or 666,666L. every two months; and as there never remain in the bank more than two months' pledges, of the value of 666,666L., at any one time, the amount of bank notes in circulation at any one time should not be more than to that amount. This is sufficient to show that the present immense quant.i.ty of bank notes, which are distributed through every city, town, village, and farm-house in England, cannot be accounted for on the score of discounting.

Secondly, as a bank of deposit. To deposit money at the bank means to lodge it there for the sake of convenience, and to be drawn out at any moment the depositor pleases, or to be paid away to his order. When the business of discounting is great, that of depositing is necessarily small. No man deposits and applies for discounts at the same time; for it would be like paying interest for lending money, instead of for borrowing it. The deposits that are now made at the bank are almost entirely in bank notes, and consequently they add nothing to the ability of the bank to pay off the bank notes that may be presented for payment; and besides this, the deposits are no more the property of the bank than the cash or bank notes in a merchant's counting-house are the property of his book-keeper. No great increase therefore of bank notes, beyond what the discounting business admits, can be accounted for on the score of deposits.

Thirdly, the bank acts as banker for the government. This is the connection that threatens to ruin every public bank. It is through this connection that the credit of a bank is forced far beyond what it ought to be, and still further beyond its ability to pay. It is through this connection, that such an immense redundant quant.i.ty of bank notes, have gotten into circulation; and which, instead of being issued because there was property in the bank, have been issued because there was none.

When the treasury is empty, which happens in almost every year of every war, its coffers at the bank are empty also. It is in this condition of emptiness that the minister has recourse to emissions of what are called exchequer and navy bills, which continually generates a new increase of bank notes, and which are sported upon the public, without there being property in the bank to pay them. These exchequer and navy bills (being, as I have said, emitted because the treasury and its coffers at the bank are empty, and cannot pay the demands that come in) are no other than an acknowledgment that the bearer is ent.i.tled to receive so much money.

They may be compared to the settlement of an account, in which the debtor acknowledges the balance he owes, and for which he gives a note of hand; or to a note of hand given to raise money upon it.

Sometimes the bank discounts those bills as it would discount merchants'

bills of exchange; sometimes it purchases them of the holders at the current price; and sometimes it agrees with the ministers to pay an interest upon them to the holders, and keep them in circulation. In every one of these cases an additional quant.i.ty of bank notes gets into circulation, and are sported, as I have said, upon the public, without there being property in the bank, as banker for the government, to pay them; and besides this, the bank has now no money of its own; for the money that was originally subscribed to begin the credit of the bank with, at its first establishment, has been lent to government and wasted long ago.

"The bank" (says Smith, book ii. chap. 2.) "acts not only as an ordinary bank, but as a great engine of State; it receives and pays a greater part of the annuities which are due to the creditors of the _public_."

(It is worth observing, that the _public_, or the _nation_, is always put for the government, in speaking of debts.) "It circulates" (says Smith) "exchequer bills, and it advances to government the annual amount of the land and malt taxes, which are frequently not paid till several years afterwards." (This advancement is also done in bank notes, for which there is not property in the bank.) "In those different operations" (says Smith) "_its duty to the public_ may sometimes have obliged it, without any fault of its directors, _to overstock the circulation with paper money_."--bank notes. How its _duty_ to _the public_ can induce it _to overstock that public_ with promissory bank notes which it _cannot pay_, and thereby expose the individuals of that public to ruin, is too paradoxical to be explained; for it is on the credit which individuals _give to the bank_, by receiving and circulating its notes, and not upon its _own_ credit or its _own_ property, for it has none, that the bank sports. If, however, it be the duty of the bank to expose the public to this hazard, it is at least equally the duty of the individuals of that public to get their money and take care of themselves; and leave it to placemen, pensioners, government contractors, Reeves' a.s.sociation, and the members of both houses of Parliament, who have voted away the money at the nod of the minister, to continue the credit if they can, and for which their estates individually and collectively ought to answer, as far as they will go.

There has always existed, and still exists, a mysterious, suspicious connection, between the minister and the directors of the bank, and which explains itself no otherways than by a continual increase in bank notes. Without, therefore, entering into any further details of the various contrivances by which bank notes are issued, and thrown upon the public, I proceed, as I before mentioned, to offer an estimate on the total quant.i.ty of bank notes in circulation.

However disposed governments may be to wring money by taxes from the people, there is a limit to the practice established by the nature of things. That limit is the proportion between the quant.i.ty of money in a nation, be that quant.i.ty what it may, and the greatest quant.i.ty of taxes that can be raised upon it. People have other uses for money besides paying taxes; and it is only a proportional part of the money they can spare for taxes, as it is only a proportional part they can spare for house-rent, for clothing, or for any other particular use. These proportions find out and establish themselves; and that with such exactness, that if any one part exceeds its proportion, all the other parts feel it.

Before the invention of paper money (bank notes,) there was no other money in the nation than gold and silver, and the greatest quant.i.ty of money that was ever raised in taxes during that period never exceeded a fourth part of the quant.i.ty of money in the nation. It was high taxing when it came to this point. The taxes in the time of William III. never reached to four millions before the invention of paper, and the quant.i.ty of money in the nation at that time was estimated to be about sixteen millions. The same proportions established themselves in France. There was no paper money in France before the present revolution, and the taxes were collected in gold and silver money. The highest quant.i.ty of taxes never exceeded twenty-two millions sterling; and the quant.i.ty of gold and silver money in the nation at the same time, as stated by M.

Neckar, from returns of coinage at the Mint, in his Treatise on the Administration of the Finances, was about ninety millions sterling. To go beyond this limit of a fourth part, in England, they were obliged to introduce paper money; and the attempt to go beyond it in France, where paper could not be introduced, broke up the government. This proportion, therefore, of a fourth part, is the limit which the thing establishes for itself, be the quant.i.ty of money in a nation more or less.

The amount of taxes in England at this time is full twenty millions; and therefore the quant.i.ty of gold and silver, and of bank notes, taken together, amounts to eighty millions. The quant.i.ty of gold and silver, as stated by Lord Hawkes-bury's Secretary, George Chalmers, as I have before shown, is twenty millions; and, therefore, the total amount of bank notes in circulation, all made payable on demand, is sixty millions. This enormous sum will astonish the most stupid stock-jobber, and overpower the credulity of the most thoughtless Englishman: but were it only a third part of that sum, the bank cannot pay half a crown in the pound.

There is something curious in the movements of this modern complicated machine, the funding system; and it is only now that it is beginning to unfold the full extent of its movements. In the first part of its movements it gives great powers into the hands of government, and in the last part it takes them completely away.

The funding system set out with raising revenues under the name of loans, by means of which government became both prodigal and powerful.

The loaners a.s.sumed the name of creditors, and though it was soon discovered that loaning was government-jobbing, those pretended loaners, or the persons who purchased into the funds afterwards, conceived themselves not only to be creditors, but to be the _only_ creditors.

But such has been the operation of this complicated machine, the funding system, that it has produced, unperceived, a second generation of creditors, more numerous and far more formidable and withal more real than the first generation; for every holder of a bank note is a creditor, and a real creditor, and the debt due to him is made payable on demand. The debt therefore which the government owes to individuals is composed of two parts; the one about four hundred millions bearing interest, the other about sixty millions payable on demand. The one is called the funded debt, the other is the debt due in bank notes.

The second debt (that contained in the bank notes) has, in a great measure, been incurred to pay the interest of the first debt; so that in fact little or no real interest has been paid by government. The whole has been delusion and fraud. Government first contracted a debt, in the form of loans, with one cla.s.s of people, and then run clandestinely into debt with another cla.s.s, by means of bank notes, to pay the interest.

Government acted of itself in contracting the first debt, and made a machine of the bank to contract the second. It is this second debt that changes the seat of power and the order of things; for it puts it in the power of even a small part of the holders of bank notes (had they no other motives than disgust at Pitt and Grenville's sedition bills,) to control any measure of government they found to be injurious to their interest; and that not by popular meetings, or popular societies, but by the simple and easy opera-tion of withholding their credit from that government; that is, by individually demanding payment at the bank for every bank note that comes into their hands. Why should Pitt and Grenville expect that the very men whom they insult and injure, should, at the same time, continue to support the measures of Pitt and Grenville, by giving credit to their promissory notes of payment? No new emissions of bank notes could go on while payment was demanding on the old, and the cash in the bank wasting daily away; nor any new advances be made to government, or to the emperor, to carry on the war; nor any new emission be made on exchequer bills.

"_The bank_" says Smith, (book ii. chap. 2) "_is a great engine of state_." And in the same paragraph he says, "_The stability of the bank is equal to that of the British government_;" which is the same as to say that the stability of the government is equal to that of the bank, and no more. If then the bank cannot pay, the _arch-treasurer_ of the holy Roman empire (S. R. I. A.*) is a bankrupt. When Folly invented t.i.tles, she did not attend to their application; forever since the government of England has been in the hands of _arch-treasurers_, it has been running into bankruptcy; and as to the arch-treasurer _apparent_, he has been a bankrupt long ago. What a miserable prospect has England before its eyes!

* Put of the inscription on an English guinea.--_Author_.

Before the war of 1755 there were no bank notes lower than twenty pounds. During that war, bank notes of fifteen pounds and of ten pounds were coined; and now, since the commencement of the present war, they are coined as low as five pounds. These five-pound notes will circulate chiefly among little shop-keepers, butchers, bakers, market-people, renters of small houses, lodgers, &c. All the high departments of commerce and the affluent stations of life were already _overstocked_, as Smith expresses it, with the bank notes. No place remained open wherein to crowd an additional quant.i.ty of bank notes but among the cla.s.s of people I have just mentioned, and the means of doing this could be best effected by coining five-pound notes. This conduct has the appearance of that of an unprincipled insolvent, who, when on the verge of bankruptcy to the amount of many thousands, will borrow as low as five pounds of the servants in his house, and break the next day.

But whatever momentary relief or aid the minister and his bank might expect from this low contrivance of five-pound notes, it will increase the inability of the bank to pay the higher notes, and hasten the destruction of all; for even the small taxes that used to be paid in money will now be paid in those notes, and the bank will soon find itself with scarcely any other money than what the hair-powder guinea-tax brings in.

The bank notes make the most serious part of the business of finance: what is called the national funded debt is but a trifle when put in comparison with it; yet the case of the bank notes has never been touched upon. But it certainly ought to be known upon what authority, whether that of the minister or of the directors, and upon what foundation, such immense quant.i.ties are issued. I have stated the amount of them at sixty millions; I have produced data for that estimation; and besides this, the apparent quant.i.ty of them, far beyond that of gold and silver in the nation, corroborates the statement. But were there but a third part of sixty millions, the bank cannot pay half a crown in the pound; for no new supply of money, as before said, can arrive at the bank, as all the taxes will be paid in paper.

When the funding system began, it was not doubted that the loans that had been borrowed would be repaid. Government not only propagated that belief, but it began paying them off. In time this profession came to be abandoned: and it is not difficult to see that bank notes will march the same way; for the amount of them is only another debt under another name; and the probability is that Mr. Pitt will at last propose funding them. In that case bank notes will not be so valuable as French a.s.signats. The a.s.signats have a solid property in reserve, in the national domains; bank notes have none; and, besides this, the English revenue must then sink down to what the amount of it was before the funding system began--between three and four millions; one of which the _arch-treasurer_ would require for himself, and the arch-treasurer _apparent_ would require three-quarters of a million more to pay his debts. "_In France_," says Sterne, "_they order these things better_."

I have now exposed the English system of finance to the eyes of all nations; for this work will be published in all languages. In doing this, I have done an act of justice to those numerous citizens of neutral nations who have been imposed upon by that fraudulent system, and who have property at stake upon the event.

As an individual citizen of America, and as far as an individual can go, I have revenged (if I may use the expression without any immoral meaning) the piratical depredations committed on the American commerce by the English government. I have retaliated for France on the subject of finance: and I conclude with retorting on Mr. Pitt the expression he used against France, and say, that the English system of finance "is on the verge, nay even in the

GULPH OF BANKRUPTCY."

Thomas Paine.

PARIS, 19th Germinal. 4th year of the Republic, April 8, 1796.

XXVII. FORGETFULNESS.(1)

1 This undated composition, of much biographical interest, was shown by Paine to Henry Redhead Yorke, who visited him in Paris (1802), and was allowed to copy the only portions now preserved. In the last of Yorke's Letters from France (Lond., 1814), thirty-three pages are given to Paine. Under the name "Little Corner of the World," Lady Smyth wrote cheering letters to Paine in his prison, and he replied to his then unknown correspondent under the name of "The Castle in die Air." After his release he discovered in his correspondent a lady who had appealed to him for a.s.sistance, no doubt for her husband. With Sir Robert (an English banker in Paris) and Lady Smyth, Paine formed a fast friendship which continued through life. Sir Robert was born in 1744, and married (1776) a Miss Blake of Hanover Square, London.

He died in 1802 of illness brought on by his imprisonment under Napoleon. Several of Paine's poems were addressed to Lady Smyth.--_Editor._