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Full text of "English public finance from the revolution of 1688. With chapters on the Bank of England"

/lERKELKY 

LIBRARY 

UNIVERSITY Of 
CALIFORhtU 



BUR. OF INT. 
REIJVTIONS 



UWIV. OF 

WITK 




THE LIBRARY 

OF 

THE UNIVERSITY 

OF CALIFORNIA 

RIVERSIDE 



ENGLISH PUBLIC FINANCE 



Digitized by tine Internet Arciiive 

in 2008 witii funding from 

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(0 <^ 1^1 n^iu 

ENGLISH 
PUBLIC FINANCE 

FROM THE REVOLUTION OF 1688 



WITH CHAPTERS ON THE 
BANK OF ENGLAND 



BY 

HARVEY E. FISK 

OF THE STAFF OF THE BANKERS TRUST COMPANY 
NEW YORK 




LONDON 
SIR ISAAC PITMAN & SONS, LTD. 
PARKER STREET, KINGSWAY, W.C.2 

BATH, MELBOURNE, TORONTO, NEW YORK 
1921 



Hr/oii 
F^8 



DUrJ. OF INT. 
RELATIONS 



This book was originally issued by the 
Bankers Trust Company of New York for 
private circulation, and it is through the 
courtesy of, and by arrangement with this 
corporation, that this edition is published. 



Copyright in U.S.A. by Bankers Trust Company, New York. 



PREFACE 



fillK. JF 
NT. RELi 



" States, like individuals, who observe their 
engagements are respected and trusted." 

— Alexander Hamilton. 

This book is intended to give in form for ready reference 
the salient facts in regard to the finances of the United 
Kingdom. 

The earher chapters tell the financial story of the critical 
period of the war from the fateful 4th August, 1914, when war 
was declared, to the budget speech of Chancellor Chamberlain 
on 19th April, 1920, which so ably dealt with the financial 
problems of the reconstruction period. The later chapters 
discuss the revenue, expenditure and debt prior to 1914 and 
England's methods of financing from the time of Wilham the 
Conqueror. Present day financial methods are traced back 
to their origins in these early days. 

The activities of the Bank of England are so closely 
interwoven with the operations of the Treasury that to 
apprehend clearly Great Britain's pubhc finance one should 
have knowledge of the history, the functions, and the opera- 
tions of the Bank ; therefore several chapters have been 
devoted to these matters. 

Almost without exception the statements of fact contained 
in this book, especially those having to do with its main 
purpose — ^pubhc finance — ^are based upon a study of official 
documents. Where necessary to depend upon secondary 
sources care has been taken to refer only to those admittedly 
authoritative. 

We are hopeful that this book may contribute to a better 
understanding of Great Britain's present financial problems 
and how they are being solved, and that it may prove to be a 
useful work of reference for our friends. 

Bankers Trust Company, 

New York, June. 1920, 




CONTENTS 



Preface .... 

I. " 1920 " 

II. "1914" 

III. War Costs and How They 

Were Met 

IV. The War Debt 

V. How the Banks Helped 

Finance the War 
VI. The War Credit Structure 
VII. Crown Finance 
VIII. Revenues of the Anglo-saxon 
Kings. .... 
IX. The King's Prerogative 
X. Crown Revenues Subsequent 

TO Norman Period 

XI. Crown Debts .... 

XII. Constitutional Government 

Developed by Control of 

THE Purse .... 

XIII. England After the Revolu- 

tion OF 1688 

XIV. War and Debt 

XV. Early Forms of Unfunded 

Debt ..... 

XVI. Early Forms of Funded Debt 

XVII. State Lotteries and Lottery 

Loans ..... 

XVIII. The Sinking Funds 

XIX. Early Refunding Operations 

XX. Financing the Great French 

War 

XXI. Revenue and Expenditure . 
XXII. Peace and Social Betterment 





PAGB 




V 




1 




4 


(1914-1920) 


11 


(1914-1920) 


19 


(1914-1920) 


33 


(1914-1920) 


39 


(1066-1688) 


47 




49 


(1066-1688) 


53 


(1154-1688) 


55 


(1216-1688) 


62 


(1066-1688) 


66 


(1688-1920) 


74 


(1688-1817) 


79 


(1688-1707) 


83 


(1688-1727) 


87 


(1694-1826) 


93 


(1717-1920) 


101 


(1739-1817) 


105 


(1793-1817) 


108 


(1688-1817) 


118 


(1817-1914) 


122 



VIU 



CONTENTS 



XXIII. The Ancient Exchequer 

XXIV. The Modern Fiscal System 

XXV. Concluding Thought and Deductions 



PAGB 

130 
134 
142 



THE BANK OF ENGLAND. 

I. A Banking Evolution 

II. The Genesis of Banking . 

III. The Early History of the Bank 

IV, The Bank and the Great French War 
V. The Joint-Stock Banks . 

VI. The Bank Charter Act of 1844 
VII. The Government of the Bank 
VIII. The Scotch and Irish Banks . 

(The Bank in the Great World War. For 
part taken see Chapter V, page 33, and 
Chapter VI, page 39.) 

Tables — 

National Debt Statement, 31st March, 1920 
Quotations : Consols and Bank of England Stock 

1697-1919. British Funds : 1910-1919 
Money Rates . 
Treasury Bills — Discount Rates 
England's Sovereigns 
Authorities 

Index and Glossary 



147 
150 

157 
161 
166 
169 

174 
179 



181 

188 
193 
193 
194 
195 

199 



Statistical statements in the text and tables as a rule are 
given in round figures. 



ENGLISH PUBLIC FINANCE 



CHAPTER I 

" 1920 " 

The great world war of 1914-1919, terminated by the 
acceptance by H.M. King George V, on 31st July, 1919, 
of the Peace of Versailles, signed 28th June, 1919, cost 
Great Britain over ^^lO.OOO million sterling. If we add to this 
sum the war expenditures of the British self-governing 
Dominions: Canada, £407 million ; Australia, £379 million ; 
New Zealand about £76 million ; Union of South Africa, 
£60 million, and little Newfoundland about £3 million ; 
together with the war expenses of the Crown Colonies, and 
India's war expenditure of £20 million and contribution of 
£100 million, we arrive at a grand total for the British 
Empire of over £11,000 million. This was an expenditure 
made necessaxy by the war in excess of what would have 
been the expenditiire for the period on the basis of the 
pre-war budget. 

An analysis of the total expenditure of the United Kingdom 
from 1688 to 1920 discloses the amazing fact that for the 
six fiscal years, beginning 31st March, 1914, and ending 
31st March, 1920, the expenditure of the Government actually 
exceeded the total expenditure for the^ two and a quarter 
centuries preceding 1914. The exact figures are : for the 
226 years, £10.944 million ; for the six years, £11,268 million. 

* In making this comparison, however, we should not lose sight of 
the fact that the purchasing power of the £ sterling has fluctuated 
greatly during this period, and that frequently, particularly in the 
early years, a given sum would procure much more in services and 
in commodities than would be the case to-day. This fact should be 
borne in mind all through these pages wherever similar money 
comparisons are made. 

1 

1— (1823) 



2 ENGLISH PUBLIC FINANCE 

The people of Great Britain paid into the coffers of the 
Government in taxes and other revenue collections over 
36 per cent, of this vast sum of more than eleven thousand 
million sterling. The other 64 per cent, was borrowed. 

The war borrowings of Great Britain at their maximum, 
31st December, 1919, amounted at par value of securities 
issued to £7,368 million, £6,011 million fmnished by her own 
people, £1,027 million borrowed in and from the United 
States, and £330 million borrowed from other foreign nations 
and from the Dominions. On the other hand, Great Britain 
had then loaned to the Dominions £186 million and to her 
allies £1,666 million, so that the amount loaned abroad 
exceeded by £495 million the amount borrowed abroad. 

Thus we find that the 46 million people of the British 
Isles raised entirely from their own resources a net amount 
of £9,911 million, over £215 for each one of their number. 

For the active war period covering the five fiscal years 
ending 31st March, 1919, from 22^ per cent, to 34| per cent, 
of the expenditure was raised from taxation, other revenue 
collections, and war contributions. In the fiscal year ended 
31st March, 1920, taxes and other revenue produced about 
65 per cent, of the aggregate budget of £1,662 million, while 
receipts from war contributions, sales of war property, and 
income from trading undertakings yielded about 16 per cent., 
leaving less than 20 per cent, to be provided from loans. 
Indications now are that in the current fiscal year (1920- 
1921) the budget will balance not only without any addition 
to the debt but, if the present plans of the Government 
materialize, with a substantial surplus for the reduction of 
debt. 

The national wealth of Great Britain, or, as some econo- 
mists prefer to say, the national capital, at the beginning 
of the war is estimated to have been £14,500 million. There 
has probably been no actual addition during the war. On 
the contrary, doubtless, there has been some depletion therein. 
However, measured by the paper pound sterling of to-day 
we may quite conservatively take £24,000 million as the 



" 1920 " 3 

figure with which to compare the £8,078 million to which 
the debt grew from the pre-war figure of £711 miUion ; giving 
us a ratio of, say, 33^ per cent, of debt to wealth. The 
debt charge for interest and management is now about £360 
million, comparing with £24 million before the war. The 
present-day charge is about 10 per cent, of the national 
income estimated to be £3,600^ million. 

Having in mind these statistics, so vast as to be almost 
beyond comprehension, it will be of interest to know the 
conditions under which they developed and the means used 
to handle the problems of war finance. 

^ This was the estimate made by Sir Leo G. Chiozza-Money before 
the Income Tax Commission in September, 1919, which he thought 
too low " if the nation were in lor a trade boom " (answer to question 
11,137). The League of Nations has since estimated the British 
national income at ;^112 10s. a head on the population of 46J million, 
or, say, ;(5,200 million. By some authorities this estimate is thought 
to be a better one than that of Sir Leo. 



CHAPTER II 

" 1914" 

It was the turn of the business year. The cloud of pessimism 
which had overhung the international finance markets since 
the outbreak of the Balkan wars in 1912 seemed about to 
disappear. 

The half-yearly settlements had passed over smoothly in 
the chief money centres of Europe. The Bank of England 
and all the great central banks on the Continent were in 
strong credit condition. Some of these banks had accumu- 
lated reserves beyond anything hitherto known. In fact, the 
accumulations of gold were becoming so great as to indicate 
that a great revival in trade might be expected. Deposits 
in the banks of the United Kingdom were heavier than at 
any time in their history, amounting to about /^1,150 million, 
an increase in the fifteen years since the beginning of the 
Boer War of over ^^300 million. 

The open market rate of discount in London had averaged 
in the previous six months £2 10s. per cent. ; lower than for 
any year since 1908, when the average rate for the year was 
£2 5s. 7d. per cent. ; and with that exception lower than at 
any period since 1898. This condition was in great contrast to 
that which had characterized the money markets in 1912 and 
1913, when the discount rates had been high — averaging £3 
lis. 6d. per cent, in the former year, and £4 6s. lOd. per cent, 
in the latter year. These high rates in large part had been 
due to the heavy demands made upon the capital of the world 
for the expenses of the Balkan wars and the dislocation of 
trade through Southern Europe because of these wars and for 
the subsequent rehabilitation of the war-torn territory. 
Commodity prices in these years had been high and investment 
seciu^ity prices low. 

With 1914 had come a change in this situation and events 
appeared to be favouring a revival in the securities markets 

4 



"1914" 5 

with less active commodities markets. England had enjoyed 
one of the best six months business on record in her foreign 
trade, even though it had been conducted on a somewhat 
lower price level than in the previous year. At the moment 
trade was quiet. It was estimated that during the half year 
England had invested over £100 miUion abroad. Her total 
investments abroad were estimated to be not less than ;f4,000 
milHon, while her annual income from these investments, from 
freights paid for carrying foreign goods in British ships, and 
from banking charges, was estimated at £350 milUon. 

As we have already seen, her national debt was only £711 
milhon, less than five per cent, of her estimated national 
wealth of £14,500 million. 

Therefore, from every point of view, England in July, 
1914, was in a strong financial condition. Her people were 
prosperous. The welfare of even the humblest classes had 
been made the subject of important governmental action, 
while the Chancellor of the Exchequer, David Lloyd George, 
had given notice of his intention to bring forward a great pro- 
gramme of land reform. Relations with her Overseas Empire 
were never closer or more cordial. Earnest efforts were being 
made to work out some plan for representation of the great 
Dominions in an Imperial Parhament or for some equivalent 
arrangement. The only serious pohtical situation was the 
perennial one of Ireland, where preparations for armed 
resistance by the Ulsterites to Mr. Asquith's proposed Home 
Rule plans gave the Government considerable anxiety. 

War Breaks — Emergency Measures 

On the 23rd July came the news of Austria's peremptory 
ultimatum to Serbia, on the 25th Serbia's reply, and on 
the 28th the starthng advices that Austria-Hungary had 
declared war on Serbia. Money began to tighten ; the stock 
markets became weak. On the 1st August, Germany and 
Russia were at war. The foreign bourses were in a state of 
panic. I^ndon and New York were the only important open 
markets. They were flooded with international securities. 



6 ENGLISH PUBLIC FINANCE 

Between 20th July and 30th July Consols fell six points, India 
3^'s four, French Rentes five, home rails from five to fifteen 
points. American rails broke heavily. Canadian Pacific sold 
off 25J points. South Americans dropped from four to 
twenty-four points. Still England was not involved. On the 
following day the Stock Exchange closed. The newspapers of 
the day reported that " paralysis, not panic," was the word 
which defined conditions. On 1st August France ordered a 
general mobilization following a peremptory note from 
Germany on 31st July demanding that she define her attitude 
within twelve hours. On this same day German troops 
occupied Luxemburg, and on the 4th Germany had started her 
troops across Belgium. At 11 p.m. of the 4th Great Britain 
entered the lists in defence of Belgian neutrality in accordance 
with her treaty obhgations. 

Fortunately for the financial world these events were 
taking place at the time of the London Bank Hohday, which 
fell on Monday, the 3rd August. One of the first steps taken 
was to extend the holiday to the 7th. This gave time in which 
to take remedial measures. On 31st July the Bank rate had 
been raised to 8 per cent. On the following day it was 
raised to 10 per cent. Naturally, on the eve of the holiday 
many people had required money for their week-end payments 
and holiday expenses. This caused a demand on the banks 
for gold, for it will be remembered Bank of England notes 
are not issued in denominations of less than five pounds. 
The joint-stock banks declined to pay out gold, telling their 
patrons to go to the Bank of England. This unprecedented 
action very naturally frightened the public and stimulated 
their desire for gold, leading to heavy denaands being made 
upon the Bank. 

During the extended holiday important steps were taken 
to insure the stability of the financial structure. 

The Currency Notes 

Provision was made to issue Government notes in denom- 
inations of £1 and of 10 shillings. They were issued by the 



1914 



Bank of England as agent. The plan was to lend a supply of 
such notes to each bank up to 20 per cent, of its deposits. 
For this advance the banks were to be taxed at the rate of 
5 per cent, per annum upon the par value of the notes borrowed. 
The banks were thus provided with funds for over the counter 
payments. 

The Moratorium 

The next step was, on 5th August, to declare a hmited 
moratorium — ^that is, a limited period during which creditors 
could not demand payment from those indebted to them. 
This was at first for one month, afterwards extended to three 
months. 

Protecting the Acceptance Market 

The most important action at this time was the provision 
made on 12th August, that the Bank of England, under 
Government guarantee against loss to itself for so doing, should 
discount pre-moratorium bills, whether drawn by enemy aliens 
or by others, without recourse to the holder, " giving the 
acceptor the opportunity until further notice of postponing 
payment, interest being payable in the meantime at 2 per 
cent, over bank rate." This offer applied not only to such 
bills of exchange as were customarily discounted by the 
Bank but also to other good trade bills and foreign and 
colonial acceptances. 

A moment's reflection will show how all important this 
action was and also the importance of the subsequent arrange- 
ments for securing a free market for bills of exchange. For 
years London had been the banker for the world. The system 
of acceptances had helped to bring this about. If a coffee 
grower in South America sold coffee to New York or to Berlin ; 
if a sugar producer in Cuba or in Java sold sugar in Constan- 
tinople or in Paris ; if an Indian merchant sold articles of 
luxury ; the Chinaman, tea ; the American or the Egyptian, 
cotton ; the settlements were almost invariably made through 
London. The Chinaman might sell his tea in New York, but 
he would arrange for payment through London. The New 



8 ENGLISH PUBLIC FINANCE 

York tea buyer through his bank in New York would engage a 
London Acceptance House or Bank to pay the Chinese 
merchant by accepting a draft which that merchant would 
draw on the New York buyer through London. To meet his 
obhgation the New Yorker would perhaps buy a bill which a 
wheat -grower in Minnesota was drawing on London to pay for 
wheat which had gone to France. 

These bills coming in from all parts of the world were 
mutually cancelling each other, while during the period they 
had to run they were considered the choicest, the most hquid 
asset, next to actual cash, which a bank could hold. If a bank 
required money to meet an unexpected demand it need only 
offer a block of bills in the market and thus could immediately 
obtain the funds required. 

When war, involving so many of the great mercantile 
nations, was unexpectedly declared, the banks suddenly found 
their assets " frozen " — entirely unavailable. Worse than 
this, there were bills in transit which they and the acceptance 
houses were obligated to accept upon arrival and there were 
miUions in value coming due day by day which they were 
obligated on behalf of clients to pay. Manifestly this was the 
great financial problem requiring instant attention. This 
situation was met first of all as already stated, by providing a 
market with the Bank of England for the pre -moratorium 
bills. A few weeks later, on 5th September, this was followed 
by a further provision whereby acceptors who were unable 
to meet the pre-moratorium bills at maturity received the 
necessary funds from the Bank of England at 2 per cent, 
over bank rate. By this process endorsers on the bill were 
released. The loans made to the accepting houses were, for 
the most part, to constitute a second and not a first claim 
upon their assets. This greatly increased the negotiability 
of post -moratorium biUs accepted by the same houses. 

Treasury Bills Issued 

On 19th August tenders were asked for £15 million Treasury 
Bills to provide for the immediate needs of the Government 



" 1914 " 9 

in connection with these operEdions. These bills, dated 
22nd August, represented the first pubhc issue of securities for 
financing the war. 

To obviate the risk of transporting gold across the ocean 
it was allowed to accumulate for accovmt of the Bank of 
England in America at Ottawa, in South Africa at Cape Town, 
in Australia and in India. Credits were granted by the Bank 
against such deposits. 

The Stock Exchange Loans 

These matters having been arranged it was necessary to 
protect the Stock Exchange situation. On 31st October, 
Government measures of assistance were announced. These 
provided for the extension of bank loans to members of the 
Stock Exchange, until a year after the war, and with no 
increase in margin. Other lending institutions not able to give 
such long credits were permitted to obtain advances from the 
Bank of England on Stock Exchange securities up to 60 per 
cent, of their value on 27th July. Such loans also were to 
run until a year after the war. 

Advances to Export Merchants 

On 4th November, a very interesting arrangement waS 
made between the Government, the Banks, and the Association 
of Chambers of Commerce of the United Kingdom to promote 
the export trade. To solvent traders were to be advanced 
funds equivalent to 50 per cent, of moneys owing to them 
by debtors resident abroad, these advances to be used by the 
traders to continue their business and pay their commercial 
debts to other traders and manufacturers. It was under- 
stood that the moneys provided were not to be taken by 
the banks to reduce loans or overdrafts or to pay bank 
acceptances, but were to be solely a new credit free for meeting 
the purely trade obligations of the borrower and in pushing 
his business as rapidly as possible. Any loss was to be borne, 
75 per cent, by the Government and 25 per cent, by the 
accepting banks. 



10 ENGLISH PUBLIC FINANCE 

Similarly, the cotton trade was encouraged. On 14th 
November the Government arranged a fund to be used to 
enable borrowers to meet market differences. The payment of 
the advances was guaranteed as to 50 per cent, by the Govern- 
ment, 25 per cent, by the Liverpool Cotton Association, 
and 25 per cent, by the lending bank. 

Success Attending These Efforts 

Such were the principal emergency measures taken during 
1914 to insure as nearly as possible an uninterrupted progress 
of the banking and mercantile community. Although the 
moratorium was not formally declared ended until 4th 
November, we have the word of Sir Edward Holden as 
authority that actually, as far as the banks were concerned, 
" they came from under it " in September. The year closed 
with a heavy increase in deposits and with a large increase in 
the gold reserve of the Bank of England, which after dropping 
from ;^40 million on 15th July to £11 million on 8th August, 
became £69 million on 30th December. So that the proportion 
of reserve to liabilities, after dropping from 52J per cent, in 
July to \A\ per cent, in August, increased to 33| per cent, 
on 30th December. At the close of the year money was a 
drug on the market — ^three months bills being quoted at 
2| per cent. 

At the close of 1914 it was estimated that some £84 million 
of special loans of various kinds were being carried for the 
Government by the Bank. This total included pre- 
moratorium bills, advances to traders and others after the 
expiration of the moratorium, sums lent on Stock Exchange 
securities, and so on. In addition were the amounts being 
carried by the joint-stock banks. 



CHAPTER III 

WAR COSTS AND HOW THEY WERE MET 

(1914-1920) 

Having reviewed the financial measures adopted at the 
beginning of the war to save the general business situation, 
and especially to protect the banks, we now turn to a considera- 
tion of the direct financing of the requirements of the 
Government itself. The immense figures involved are a 
matter of coramon knowledge. They are summarized as to 
the classes of expenditures and as to sources of receipts in 
the tabular statements printed on page 14. These will be 
found to repay careful study. 

We may now consider the financial methods used. 

Inflation Methods Used 

It must be frankly admitted that the expenses of the war 
were financed by inflation methods. Not, however, the same 
kind of inflation practiced by all the Continental nations of 
immense issues of bank notes. England did issue non-interest 
bearing circulating notes — ^the Currency (Treasury) Notes 
already mentioned — but the aggregate of ;£356 million out- 
standing at the close of 1919 looks very modest alongside of 
the billions of notes issued, for example, by the Bank of 
France. The inflation was of a more subtle kind but perhaps 
even more potent. It was inflation by the use of bank deposit 
credit. 

Treasury Bills 

Our friend the Treasury Bill — successor to the Exchequer 
Bill of former times — ^and advances from the Bank of England 
on the credit of Ways and Means were the principal agencies 
used by the Government to transmute bank deposit credit 

11 



12 ENGLISH PUBLIC FINANCE 

into ships, aeroplanes, tanks, ordnance, munitions, food 
and clothing for the soldiers, separation allowances for their 
famihes and finally into a crushing defeat of the enemy. 

Taxation 

But the entire dependence has not by any means been 
placed upon this modern Aladdin's lamp. Taxes have steadily 
increased. Where in the first year of the war they amounted 
to less than £200 million, they have since then mounted 
year by year until in the fiscal year ended 31st March, 1920, 
they yielded nearly ;f 1,000 milnon ! The principle upon 
which taxation has been based has been that the revenue 
receipts should at least provide for the ordinary peace budget 
and in addition for the interest upon the debt and for an 
annual sum to be apphed to its reduction. This ideal has 
been fully reahzed and a good surplus in addition to apply 
toward the payment of the mihtary and other special expenses 
caused by the war. The provision of a sinking fund, while 
the debt was a growing one, may be criticized as chimerical, 
but doubtless it served a useful purpose as a fund to regulate 
the market for the war bonds ; also the fact that, at the time 
of incurring the debt, provision was made for its ultimate 
payment probably had a real value in estabhshing confidence 
in the obligations of the nation. During the six years under 
review the income from taxation and from non-tax revenue, 
other than that from borrowings, provided approximately for 
35 per cent, of the first year's disbursements, 22 per cent, 
of the second year's, over a quarter of the third and 
fourth year's disbursements, over a third of those of the 
fifth year, and for more than 80 per cent, of last fiscal year's 
expenses. 

Expenditure of War Period 

The total expenditure for the six years of the war period — • 
that is, for the fiscal period beginning 31st March, 1914, and 
ending 31st March, 1920, aggregated ;^1 1,268 million. Of this 
war-time expenditure ;^3,605 million was met from normal 



WAR COSTS AND HOW THEY WERE MET 13 

revenue receipts ; £466 million from war contributions, 
receipts from sales of war property and receipts from trading 
undertakings ; while ;f7,196 million came from borrowing, or 
in the proportions of 36-13 per cent, from revenue of all kinds 
and 63*87 per cent, from borrowing. Truly stupendous 
figures and a creditable result, and one which gives great 
confidence to the investor in the nation's bonds. All classes 
of taxation have been made to contribute to this result, but 
the great dependence of the Exchequer has been placed 
upon the property and income tax and its modern running 
mate, the excess profits duty. Englishmen and their news- 
paper editors dehght in heckling and finding fault with 
the Administration, as we would say ; the Government, as 
they say. But to the observer 3,000 miles away, quietly 
studjnng the figures without any other object than to get at 
the facts, the results achieved seem little short of marvellous. 
They could only be obtained in a country where patriotism 
runs so high that the people demand to be taxed and taxed 
heavily, as we are assured was the case in England during the 
course of the war. The comparative tables on page 14 
showing income and expenditure for the six fiscal years 1914 
to 1920, inclusive, summarize these data. 

Six V. 226 Years' Expenditure 

To grasp the full significance of these figures we may 
advantageously compare them with the cost of government for 
a previous period. In endeavouring to make such a com- 
parison we have brought out the startUng fact to which 
reference has already been made that the expenditure of the six 
years of the war exceeded the aggregate expenditure of the 
preceding two and a quarter centuries. The table following 
visuaHzes this statement. In looking at the figures bear in 
mind that during the long period of 226 years there were eight 
major wars, fought at great expense — expense so great that 
the thinking people of the times were appalled thereby. 
Besides these major wars there were many costly military 
expeditions, the growing cost of civil government, and the 



14 



ENGLISH PUBLIC FINANCE 



GOVERNMENT INCOME— WORLD WAR PERIOD 

31sT March, 1914, to 31st March, 1920 

In Millions Sterling 



Years Ended 
31st March. 1915. 


1916. 


1917. 


1918. 


1919. 


1920. 


Total. 


Aver- 
age. 


Per 
Cent. 
Total 
Rev- 
enue. 


Exchequer balance . 10 


83 


26 


26 


21 


13 


10 






Tax Revenue — 
Customs 
Excise 

Estate duties 
Stamps 

Land, house, etc. 
Property and income, 
including super-tax . 
Excess profits 


39 

42 

28 

8 

3 

69 


60 
61 
31 

7 
3 

128 


71 

56 

31 

8 

3 

205 
140 


71 

39 

32 

8 

3 

240 
220 


103 

60 

30 

12 

3 

291 
285 


149 
133 
41 
23 
4 

359 
290 


493 

392 

193 

66 

18 

1,292 
935 


82 
65 
32 
11 
3 

215 
156 


12-06 
9-59 
4-72 
1-63 
•45 

31-72 
23-01 


Total Tax 
Post Office 
Sundryi 


189 
29 
8 


290 
34 
13 


514 1 613 
34 35 
25 59 


784 
40 
65 


999 

44 

296 


3,389 
216 
466 


565 8318 
36 5-31 
77 11-51 


Total Revenue 
Borrowing net 


226 1 337! 673 
410 ! 1,167 , 1,629 


7C7 
1.985 


889 
1682 


1,339 
323 


4,071 
7,196 


678 ! 10000 
1.199! 


Total net Receipts 

Total Resources . 

Revenue — 

% Receipts 
Borrowing — 

% Receipts 


636 

646 

35-53 
64-47 


1,604 
1,587 

22-40 
77-59 


2,202 

2,228 

26-02 
73-98 


2,692 

2,718 

26-26 
73-74 


2,671 

2,592 

34-58 
65-42 


1,662 

1,675 

80-56 
19-44 


11,267 

11,277 

36-13 
63-87 


1,878 





•* £140,000. 

* Including war contributions from India, and other overseas colonies and dependencies 
also receipts from sales of war property and from trading vmdertakings, etc. 

GOVERNMENT EXPENDITURE— PERIOD OF THE 
WORLD WAR 

31st March, 1914, to 31st March, 1920 

In Millions Sterling 



Years Ended 
31st March. 


1915. 


1916. 


1917. 1918. 


1919. 


1920.1 


Grand 
Total. 


Aver- 
age. 


Per 
Cent. 

of 
Total. 


Debt — Interest and Man- 
agement 

Mihtary and other special 
war expense 

Civil Government . 

Post Office . 


22 

437 
78 
26 


60 

1,399 
75 
27 


127 190 

1,974 2 403 
75 ' 78 
26 26 


270 

2,198 
85 
26 


332 

1,146 
140 
48 


1,001 

9,557 
531 
179 


166 

1,593 
88 
30 


8-89 

84-81 
4-70 
1-60 


Total Expenditure 
Exchequer balance 


663 

83 


1,661 

26 


2,202 2,697 2,679 

26 j 21 1 13 


1,666 

9 


11,268 


1,878 


100-00 


To be accounted for 


646 


1,587 2,228 2,718 2,592 


1,675 


11,277 





' Division of expenses partly estimated. 



WAR COSTS AND HOW THEY WERE MET 



15 



ever present burden of the public debt. Here are the 
figures — 

GOVERNMENT EXPENDITURE 
In Millions Sterling 





Civil 
Govt. 


Mili- 
tary. 


Debt 
Charge. 


Total. 


2\ Centuries (1688-1914) 
6 Years (1915-1920) 


2,873 
710 


4,524 
9,557 


3,547 
1,001 


10.944 
11,268 


Total (1688-1920) . 


3,583 


14,081 


4,548 


22,212 




1 




' ' 



This is the burden which German lust for power and 
territory placed on one only of the antagonists. Fortunately 
England has the abihty to cope even with such a burden, but 
it will require the co-operative work and savings of more than 
one generation to liquidate the £7,367 miUion of increased 
debt which the war has left as its aftermath. 



The Budget, 1 920-1 921 

On 19th April, 1920, Mr, Austen Chamberlain, Chancellor 
of the Exchequer, presented to Parliament the budget for the 
cuirent year to end 31st March, 1921. In this connection Mr 
Chamberlain said : " It is recognized on all hands that the 
present financial year is of great importance in the history of 
Europe, and not least for those nations who emerged victorious. 
Eighteen months have elapsed since the prehminaries 
of peace were signed. Though peace follows on limping 
footsteps the time must come when each of us should set his 
house in order, and, not content merely with facing present 
necessities, lay broad and deep the foundations of future 
credit and prosperity. This budget is, therefore, a critical one. 
The paper in the hands of members gives details of the result 
of the past financial year." 

The paper referred to by Mr. Chamberlain is the financial 
statement always laid before the House by the Chancellor of 
the Exchequer when opening the budget. The budget system 



16 ENGLISH PUBLIC FINANCE 

of Great Britain is described in a subsequent chapter. As 
we have already surveyed the finances for the past year we 
may proceed at once to consider the estimates for the current 
year to end 31st March, 1921. 

These contemplate a total expenditure of £1,184 million 
and receipts of £1,418 milUon. The budget provides for 
expenses of £481 miUion less than the actual expenses of last 
year and for an estimated increase in revenue from all sources 
except borrowing of about £79 million, or an improved status 
of the finances as compared with the past year of £560 miUion. 
Therefore, while the financing of the past year resulted 
in a deficit of £326 million, most of which had to be made up 
by new borrowing, it is expected that in the current year 
there will be a surplus of £234 milhon which can be applied 
to the reduction of indebtedness. 

In order to accompUsh this result Mr. Chamberlain an- 
nounced that it would be necessary not only to continue the 
unpopular Excess Profits Tax of 40 per cent., but to increase 
this tax to 60 per cent. In this connection Mr. Chamberlain 
said : " I base my justification for the proposal on the con- 
tinued prevalence of temporary conditions occasioned by the 
war and arising out of the war creating a condition of scarcity 
hardly distinguishable, in effect, from a monopoly, thus giving 
to capital engaged in industry wholly abnormal and often 
extravagant profits." Mr. Chamberlain then made the fol- 
lowing significant reference to the proposed levy on war 
capital. He said : " The quahfication to which the increase is 
subject is this : The House is aware that a Select Committee 
of this House is now enquiring into the practicability of a 
levy on war increases of wealth. If, when they have com 
pleted their deliberations, ParUament should decide later 
on to impose such a levy, the fund thus available would relieve 
the pressure of the financial situation, enabling us to reverse 
the decision to increase the rate of Excess Profits Duty to 
60 per cent. I should therefore propose to submit to Parlia- 
ment a bill later in the year to make a levy on increases of war 
wealth to cancel this increase in the rate of Excess Profits 



WAR COSTS AND HOW THEY WERE MET 17 

Duty and to collect Excess Profits Duty for the year at the 
existing rate of 40 per cent." 

" The increased revenue to be derived from this source in 
the current year on the assumption that the rate is 60 per cent, 
will be only £10 million, raising the estimate of the total 
revenue from this source from £210 million to £220 million. 
More important than the additional £10 milhon actually 
received will be the further sums accruing but not collected 
during the present year, amounting to £65 milhon next year and 
to a yet further sum of £25 milhon receivable thereafter. In 
other words, the addition to the tax will produce £100 million 
in ah." 

The other proposed changes in taxation were unimportant 
compared with the one above referred to. They comprised 
increased rates on postage and for telegrams and possibly for 
telephone service, a new tax on motor vehicles instead of the 
existing taxation, and heavy increases in taxation on spirits, 
wines, beer and cigars. Increased taxes on transfers of stocks 
are also proposed, while adjustments in the income tax are 
expected to result in a reduction by £18 milhon. A new 
corporation tax is also proposed. In concluding his speech, 
Mr, Chamberlain said : " These changes (in taxation) wiU 
produce in the full year £198,230,000, £9,500,000 to be drawn 
from the Post Office and £189 milhon derived as foUows — • 
from direct taxation £125 milhon, from indirect taxation £64 
miUion, For the current year they wiU give me a net addi- 
tional revenue of £76,650,000, making a total revenue for the 
current year of £1,418,300,000. At the close of the year we 
shall have outstanding assets of the following amounts : loans 
to the Dominions, £119,500,000, loans to allies and for relief, 
£1,767 miUion, or taking them as in former years at half that 
figure, £883,500,000 ; the remaining liability of India for five 
per cent, war loan, £21 million ; vote of credit assets of which 
a portion may still be required to meet extraordinary charges, 
£300 milhon ; Excess Profits Duty payable after the close of 
the current fiscal year, £400 miUion. In all, assets of £1,724 
milhon." 

2— (1823) 



18 ENGLISH PUBLIC FINANCE 

" In addition there are reparation payments from our late 
enemies, the amount and times of which cannot yet be fixed. 
Whatever and whenever they are received they will afford an 
additional sum for the reduction of debt. Against expendi- 
ture, inclusive of sinking fund, of £1,184 million I provide a 
revenue of £1,418 milhon. This gives me approximately 
£234 million for the redemption of debt this year — a sinking 
fund equal to three per cent, of the total debt. Of this £234 
million over £70 milhon would be available for the reduction 
of the floating debt. As the result of these changes there is 
every prospect that next year there will be available for the 
reduction of debt the sum of £300 milhon, of which one-half at 
any rate should be free for the floating debt. With the 
advent of a normal year when temporary and extraordinary 
receipts and charges have both terminated and on the assump- 
tion that the Excess Profits Tax has also been brought to 
an end, there should be available for the sinking fund a 
balance of not less than £180 million. 

" After such a war as that in which we have been engaged 
and after gigantic financial sacrifices, this is a position of 
unexampled and unequalled strength. It is true that to 
attain it we are obliged to impose fresh taxation and to call 
for further sacrifices. That may not bring popularity to 
the Government or to the Minister. I am proud to say that 
we have not sought it. Our object has been to rise to the 
level of our great responsibilities, so that when we surrender 
the seals of office we may leave to our successors an ample 
revenue and to our country a national credit second to none." 

During the course of the debate which followed the 
presentation of the budget one of the members made the 
statement that two such budgets would destroy the Empire, 
to which Mr. Chamberlain replied, " I will not stop to retort 
that twenty such budgets would redeem the whole of our 
debt." 



CHAPTER IV 

THE WAR DEBT 
(1914-1920) 

To return to the subject of the debt. The method pursued 
was, in the first instance, to secure advances from the Bank 
of England by book credits — called " Ways and Means 
Advances " — or to sell Treasury Bills. The sales of Treasury 
Bills have far exceeded the advances. They have been sold 
to mature at various periods ranging from three months 
to a year. At first the Government asked for tenders, then 
it put them on sale over the counter. "When tenders were 
asked, the bidder stated the rates of interest he was willing to 
accept. As a rule it has apparently been found more satis- 
factory to offer the bills at a fixed rate of discount. This 
discount rate has varied with the market rates for money. 
The rates offered from time to time may be found by 
consulting the table printed on page 181. 

The First War Loans 

The second step in the process of debt financing was to 
make, at convenient intervals, issues of long dated bonds 
from the proceeds of which the Treasury Bills outstanding 
were reduced or retired, new issues being made again as fimds 
were needed. 

It would be tedious to burden our pages with a detailed 
description of each series of bonds issued. The issues now 
outstanding will be found described in the National Debt 
Statement to be found on page 181. However, it will be quite 
worth while and of interest to note how the more important 
loans were taken by the pubHc. The first of these loans was 
for ;^350 milhon in 3| per cents. It was offered in November, 
1914, at 95 and was subscribed by nearly 100,000 applicants. 
The next loan was offered as 4| per cents, at par in June 

19 



20 ENGLISH PUBLIC FINANCE 

and July, 1915, and £570 million were taken by over 550,000 
subscribers asking for an average of about £1,000 each, while 
1,330,000 subscribers bid through the post offices for 
£35,600,000 bonds, an average of £26 6s. each. Then there 
was the Anglo-French 5 per cent, loan placed in the United 
States in October, 1915, of which England's share was £51 
million. 

The Foreign Securities Mobilization 

Then came, in December, 1915, the scheme for the mobiliza- 
tion of the foreign investment holdings of the British people 
and their use to stabihze the American exchanges and to 
create credits in America against which purchases of munitions 
and other necessary supplies could be financed. The holders 
of such securities were asked to sell them or lend them to the 
Treasury for sale in America or for use as collateral behind 
issues of dollar bonds to be sold in the United States. The 
owners of the securities used as collateral received a certificate 
entithng them to the interest which the loaned securities 
5nelded plus a payment at the rate of one-half per cent, per 
annum. The Government reserved the right of purchase, 
in which event the owner was to receive a fair market rate 
for his bonds or stocks. The response to this request was 
spontaneous and resulted by the end of 1916 in the acquisi- 
tion by the Treasury of American stocks and bonds of a par 
value in sterhng of £465 million, £118 milhon by purchase 
and £347 miUion on deposit. The entrance of the United 
States into the field in April, 1917, as an active participant in 
the conflict put an end to the necessity for further important 
financing of this kind. The result of the operations of the 
British Treasury was to maintain New York exchange at 
practically a uniform rate of $4.76xV from January, 1916, 
until 21st March, 1919, when the control was removed. 
Similar operations were carried out for the stabiUzation of the 
Dutch and Scandinavian exchanges. For the entire period 
the total securities purchased amounted to £241 milhon, of 
which amount £46,600,000 were purchased by the Bank of 
England during 1915, prior to the inauguration of the 



THE WAR DEBT 21 

mobilization scheme. The deposits on loan amounted to £41A 
million. The latter item included a special deposit of £8 
million by the Canadian Pacific. Thus the total amount of 
securities dealt with was £655 million. 

The War Loans in 1917 

In January and February, 1917, the 4 per cent, and 5 per 
cent. War Loan met with an enthusiastic reception, about 
£1,000 million being sold for cash. This time apphcants 
through the Bank, numbering 1,089,000, took over £819 
milhon bonds ; about one milHon applicants through the 
post office took nearly £31 miUion, while it is estimated that 
over four miUion members of war savings clubs participated in 
purchases by such clubs of around £20 milhon bonds. Holders 
of about £131 million Treasury Bills exchanged them for these 
bonds. 

War Savings Associations 

The War Savings Associations were one of the finest achieve- 
ments of the war finance. The general idea was adopted in 
our own country after we came into the war in the form of 
our W.S.S. with which we are all famihar. In England there 
were many group purchasers, neighbourhood groups, servant 
groups, tradesmen groups and the like. Sometimes they 
pooled their purchases and offered prizes of various kinds. 
Then when a permanent war loan came out these groups used 
their organizations to promote the sales of bonds among their 
numbers. 

It is of interest to note that the National War Savings 
Committee was inaugurated by the British Treasury in 
February, 1916, on the advice of a Committee presided over 
by Lord Montagu of Beaulieu. Its immediate functions were : 

(1) To educate the pubUc as to the necessity for saving 
and for the reduction of unnecessary consumption by all 
classes, and (2) to provide facilities for the small investor to 
invest in State securities. 



22 ENGLISH PUBLIC FINANCE 

War Savings Certificates were immediately issued, and the 
National Committee proceeded to set up " War Savings 
Associations." Decentralization being found essential to the 
scheme, Local Savings Committees were organized throughout 
Great Britain, a democratic basis therefore being imparted 
to the scheme from the outset. 

By the date of the armistice in November, 1918, there 
were some 1,800 local committees, 14,000 ofi&cial agents and 
branches, and 40,000 associations numbering not less than 
5 miUion members. More than 250 million of War Savings 
Certificates had been sold, and the sum of nearly ;^201 million 
had been invested in the certificates by the public. 

From that date to January, 1920, nearly ;^95| million 
sterling had been subscribed in savings certificates. The 
average number of certificates sold monthly had been 9 
million, while the withdrawals were approximately only 10 
per cent, of the total issue. The amount outstanding on 
1st January, 1920, was i2<ol million. 

At a great gathering in London on 15th January, 1920, Mr. 
Austen Chamberlain, the Chancellor of the Exchequer, stated 
that notwithstanding the success in popularizing the new 
forms of investment, the old forms had risen to higher figures 
than they ever attained before. He said that before the war, 
the deposits in the Post Of&ce and the Trustee Savings Banks 
were something under £300 million, while by the end of 
October, 1919, they had risen to nearly £800^ million. 

Sir Robert Kindersley, director of the Bank of England, 

to whom, as Chairman of the National Savings Committee, so 

much of the success of the whole movement is due, told at this 

same meeting how the army of voluntary workers for national 

savings enhsted by the Government from 1916 onwards had 

captured the imagination of the great mass of the people. He 

dwelt upon that innate " spirit of adventure " which has 

made the British Empire what it is to-day, and which promised 

to make the movement as big a success in peace as in war 

^ This item includes deposits, the value of securities held by stock- 
holders in the Post Office and Trustee Savings Banks and the amount 
of War Savings Certificates outstanding. 



THE WAR DEBT 23 

time ; and emphasized the fact that, out of nearly 400 million 
War Savings Certificates sold since the inauguration of the 
movement, 124 million had been disposed of since the armistice. 

As far back as the middle of 1917, the Commissioners of the 
British Treasury appointed a committee to consider facilities 
to be given to the small investor after the war and, in view of 
the genuine success which the movement had achieved, this 
committee recommended the permanent continuance of the 
War Savings Certificate, having regard to the main fact that 
the habit of saving had been formed by " numerous persons of 
all classes who had not previously acquired it," 

In November, 1918, the Committee on Financial Facilities 
reported that it was enormously impressed by the great 
increase in the number of small investors, and that the policy 
which had proved so successful during the war must be 
continued at all costs. It was decided to extend the "hfe" 
of a certificate from five years to ten, and that it could be 
cashed at any time during that period. 

Particular attention has been paid, too, to the educational 
value of the movement. Largely owing to the good work of 
the educational authorities and of thousands of the teachers 
themselves, some 12,500 School Associations were set up 
during the war. 

In October, 1919, the Board of Education circularized all 
the local education authorities, urging upon them the continu- 
ance of the war savings movement in schools. To this appeal 
an absolutely unanimous affirmative was given, and the 
National Union of Teachers was requested to render support 
to the National Savings Committee. This the teachers are 
accordingly doing with all the means at their disposal, and 
with absolutely unconquerable optimism. 

As Sir Robert Kindersley summed it up : 

" First of all we had the impetus of the war, the desire on 
the part of everybody to try and help to win the war — ^that 
was the first advantage that we had. But we should have 
absolutely failed in this movement if we had simply set out as 
a pure collecting agency of money for the State. We had to 



24 ENGLISH PUBLIC FINANCE 

have behind us a gospel. In fine, it was from the outset a 
gigantic effort in unselfishness on the part of an entire com- 
munity, which has seldom, if ever, been equalled in the history 
of humankind." 

National War Bonds — Continuous Offering 

In the latter part of 1917 and during 1918 and 1919 the 
Treasury tried the interesting experiment of abandoning 
spectacular periodical offerings and, instead, of putting 
on continuous sale over the country the National War Bonds. 
The idea was to feed the bonds out from day to day and 
thus to have a steady flow of money into the Treasury of, 
say, £25 million a week. The bonds were issued as fives 
subject to taxation, or as fours " income tax compounded." 
While the expected goal was not fully reached, yet the sales 
were very substantial. The amount of the issue outstanding at 
the close of 1919 was one and a half thousand million sterling. 

Victory Loan of 1919 

In June and July, 1919, the Treasury offered what was 
called the " Victory Loan " at 85, and in conjunction there- 
with the " Funding Loan " at 80. These loans bore 4 per 
cent, interest. Some £776 million bonds were sold. 

Summary 

The funded and unfunded debt as on 31st December, 1919, 
when the debt had reached its maximum, was £8,078 million 
held by over 17,000,000 investors. This compared with a debt 
of £711 million on 1st August, 1914, held by about 345,000 
investors. At the close of the fiscal year, 31st March, 1920, 
the debt stood at £7,825 million, a beginning having at last 
been made toward its reduction. 

In the following table the debt is summarized according 
to dates of maturity. It will be noted that about one-fifth 
(if the debt matures within one year and about 28 per cent, 
in addition within five years ; making nearly 50 per cent. 
maturing within five years. 



THE WAR DEBT 



25 



NATIONAL DEBT. 
Funded and Unfunded as on 31st December, 1919. 





Milhon 
i 


Due Within One Year — 


Ways and Means Advances 


243,2 


Treasury Bills 


1,106,6 


Exchequer Bonds 


160,3 


Anglo-French Loan . 


51,4 


Victory Bonds 


5,0 


Due Within One to Five Years — 




Exchequer Bonds 


146,4 


Victory Bonds 


20,1 


National War Bonds 


619,0 


Annuities .... 


8,2 


War Savings Certificates . 


267,3 


Debt in United States 


48,5 


Debt Due to United States Governme 


nt 867.4 


Other debt due to war — due Foreigi 


1 


Nations and to Dominions 


329,8 


Due Within Five to Seventy Years 





Exchequer Bonds 


16,6 


Victory Bonds 


334.4 


National War Bonds 


889,8 


War Loans .... 


2,122,6 


Debt in United States 
Funding Loan 


60.0 


409,1 


Perpetual — 




Annuities for life and term of years 


11.8 


Consols ..... 


301,4 


Debts due to Bank of England . 


11,0 


Debts due to Bank of Ireland 


2,6 



Miscellaneous — 

Other Capital Liabilities 

Total 



Total. 



Per 

Cent, of 

Total. 



1.566,5 19-39 



2,306,7 28-56 



3,832,5 



326.8 



47-44 



4-04 



46.2 



•57 



8,078,7 100-00 



The outstanding Treasury Notes, amounting on SlstDecember, 
1919, to £356 million, must not be overlooked in considering 
the debt. However, as to the extent of £32,500,000 they 
are covered by gold and Bank of England notes and for 



26 ENGLISH PUBLIC FINANCE 

the rest by Government interest -bearing securities which are 
included in the debt statement, they need not be added to 
the above total of £8,078 million in order to determine the 
aggregate debt. 

Proposed Debt Reduction 

The British Government are fully alive to the necessity 
for reducing the debt as promptly as possible and particularly 
for making provision for the debt having early maturities. 
We have akeady noted in connection with the discussion of 
the budget for the current fiscal year that during this year the 
Government purpose to reduce the indebtedness by the sum 
of £234 million. The London Joint City and Midland Bank in 
their monthly review for April, 1920. comment as follows 
on this matter — 

"If expenditure and revenue for the current year fulfil 
budget estimates the surplus will be about £234 million. Out 
of this surplus the Chancellor estimates that about £160 
millions will be required for the Victory Loan Sinking Fund, 
for cancellation of debt through revenue payments in scrip, for 
the Depreciation Fund on the 1917 War Loans and for 
provision to meet old debt (mainly external) maturing in 
1920-1921. The balance of £74 milUon is to be applied to 
reduction of floating debt. In arriving at this figure the 
Chancellor has apparently not taken into consideration repay- 
ments of £36| million on account of Civil Contingencies due 
before 30th September, 1920, or the proceeds of sales of 
Savings Certificates during the financial year . We show in the 
appended statement that if receipts on account of Civil 
Contingencies and Savings Certificates are included, there may 
be a balance of £115 million available for the repayment of 
Treasury Bills and Ways and Means Advances, after making 
provision for the repayment of £25 million of Exchequer 
Bonds in December next. 

" If the following estimates prove to be correct the amount 
of debt outstanding on 31st March, 1921, will be about 
£7,565 million." 



THE WAR DEBT 



27 



ESTIMATED CHANGES IN DEBT, 1920-21 



(000 omitted). 



Cr 



Budget Surplus, 1920-21, 
on 1919-20 basis of 
taxation . . ^^157,548 

Add estimated revenue 
in 1920-21 from new 
taxes 

Civil Contingencies 
Fund — Repayments 
due before 30th Sep- 
tember, 1920 . 

Sales of Savings Certifi- 
cates, based upon net 
proceeds 3 months to 
31st March. 1920 



76,650 



36,490 



29,840 



;^300,528 



Dr 



Victory Loan Sinking 

Fund 
Cancellations through 

Death Duty Payments : 



;^3,840 



Victory Loan 


10,000 


Other War Loans . 


5,000 


Cancellations through 




Excess Profits Duty 




payments 


60,000 


4% and 5% War Loan 




Depreciation Fund 


31,920 


Repayment of Old Debt 




(mainly external ^) 


49,240 




160,000 


5% Exchequer Bonds 




due 1st Dec ,1920 . 


25378 



Available for repayment 
of Treasury Bills 
and/or Ways and 
Means Advances 



185,378 



115,150 

/300,528 



^ Presumably the Anglo-French Loan. H. E. F. 



Refunding Operations 

The Chancellor of the Exchequer announced on 28th April 
his intention to place on sale, as on 3rd May, a new series of 
Treasury Bonds with the avowed object of reducing the 
floating debt of early maturity. The amount of bonds to be 
issued is unlimited and they will be on sale at the Bank of 
England until further notice. The principal and interest of 
the bonds are chargeable on the Consohdated Fund. The 
bonds will be repayable on 1st May, 1935, or on 1st May 
in any one of the years 1925 to 1934, inclusive, at the option 
of the Government or of holders of the bonds, on notice 
having been given by the Treasury or the holders during 
the month of April in the year preceding that in which such 
repayment is to take place. 



28 ENGLISH PUBLIC FINANCE 

A novel plan is proposed in regard to payment of interest. 
We quote from the official circular — 

" The bonds will carry interest at the rate of 5 per cent, 
per annum payable half-yearly on 1st May and 1st November 
and, subject to the conditions stated below, will carry addi- 
tional interest payable during the period ending 1st May, 
1925, as follows : If and when during any half-year ended 1st 
May or 1st November, the Treasury Bills issued to the public 
were sold to them at an average rate of discount (as certified by 
the Bank of England) exceeding 5 J per cent, and under 6^ per 
cent, per annum, additional interest will be payable on the 
interest date next succeeding such 1st May or 1st November at 
the rate of 1 per cent, per annum. If and when such average 
rate of discount was 6^ per cent, per annum or over additional 
interest will be payable at the rate of 2 per cent, per annum. 

" The first interest payment, payable 1st November, 1920, 
will represent in the case of each bond interest to that date 
from the date on which the application was lodged and 
pa5niient made for the bond, and will include additional 
interest at the rate of 2 per cent, per annum. 

" An announcement will be published in the London Gazette 
on or about the 2nd November, 1920, and thereafter half- 
yearly until the 2nd November, 1924, of the rate at which 
Additional Interest (if any) will be payable on the next 
succeeding interest date." 

In the opinion of the Chancellor, the novel feature in regard 
to the payment of interest will probably protect holders 
against depreciation in market values when short-term money 
rates are high and also prevent the new issue of bonds from 
causing further depreciation of market values of the older 
issues. The maximum possible average yield from the new 
bonds if held until 1935 would be £5 17s. 4d. per cent. At the 
time of issue 3| per cent. War Loan was selhng to yield 
£7 3s. 7d. per cent. ; A\ per cent. War Loan £6 7s. 6d. per cent. 
and 5 per cent. War Loan, £6 5s. Id. per cent., therefore the 
success of the new issue was considered problematical. How- 
ever, the Government is so fully alive to the importance of 



THE WAR DEBT 



29 



liquidating or funding the floating debt and the debt of early 
maturity that any modification of present plans necessary 
to insure this result may confidently be expected. 

Credits to Debt Account 

The debt on 31st March, 1920, of about £7,973 milHon 
was offset by advances of £1,851 million ; say, to the Domin- 
ions of £120 million and to allied governments of £1,731 
million. 

The following itemized statement is taken from the financial 
statement already referred to laid before the House upon 
the opening of the budget — 

LOANS TO DOMINIONS AND ALLIES. 
31sT March, 1920. 
(00,000 omitted.) 
Obligations of Dominions — 



Australia ..... 


. ;^51.6 




New Zealand .... 


29,6 




Canada ..... 


19.4 




South Africa .... 


15,8 




Other Dominions and Colonies 


3,1 


£119,5 






BLIGATIONS OF ALLIES 






Russia ..... 


. ;^568,0 




France ..... 


514,8 




Italy 


. 455,5 




Belgium (a) War 


92,0 




{b) Reconstruction 


5,3 




Serbia ..... 


20,9 




Portugal, Roumania, Greece and other 


AlHes 66,6 




Relief Loans .... 


8,0 


;^1.731,1 










;^1,850,6 



Further advances of £36 miUion provided for in the estimates 
1920-21 will raise this total by 31st March, 1921, to 
approximately £1,886 million. 

Mr. Chamberlain in his budget speech estimated the 



30 ENGLISH PUBLIC FINANCE 

advances to the allies as probably realizable at about 50 per 
cent, of their face value. This would afford an offset of about 
£1,000 million against the gross debt. 

It is understood that no interest has been charged on the 
pre-armistice debt of Belgium, Serbia and Montenegro. It is 
understood that in the case of Belgium, the French, American 
and British Governments have agreed to accept German 
bonds for the amount of Belgian indebtedness. In other 
cases interest is calculated either at 5 per cent, or at bank 
rate and is added to the principal of the loans outstanding, so 
that no payments of interest on pre-armistice debt have been 
received by the Exchequer except in respect of a single trans- 
action where special arrangements were made. Negotiations 
as to the future treatment of the debts of the allied and 
associated governments are proceeding and the Government 
have expressed their wiUingness to extend to their debtors 
similar treatment to that which may be arranged in respect 
of their own debt. 

The Comparative Burden of the Debt 

Assuming, then, about £1,000 million to be reahzable 
from debtor nations and the Dominions, the net indebted- 
ness of the nation on 31st March, 1920, may be placed at 
£7,000 milhon as against national wealth estimated at perhaps 
£24,000 million ; a ratio of about 30 per cent, net debt to 
national wealth. The debt charge of, say, £360 milhon 
compares with estimated national income of about £3,600 
million. Therefore the debt of to-day bears about the same 
relation to wealth that the debt at the close of the Napoleonic 
wars bore to the estimated wealth at that time. The interest 
charge now, at 10 per cent, of the income, compares with 
8 per cent, in 1817. 

In the table printed on the opposite page further interesting 
comparisons are made with conditions at the conclusion of 
the Boer War and on 1st August, 1914, just before the recent 
war began. 





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32 ENGLISH PUBLIC FINANCE 

The great progress in the past century in science and in 
its application to the arts enabled Great Britain to expand 
her business and increase her capital at such a rate as to 
reduce steadily the burden of the debt in comparison with 
national income and resources. 

It is impossible now to determine just what the future may 
have in store to mitigate the present day burden. The won- 
derful developments in air navigation during the war and the 
great importance which the chemical industries assumed 
during that period may afford a hint of surprises in store which 
will assist in lightening to-day's burden. Potent factors in 
assisting Great Britain to create new assets to balance her 
war liabilities will be the closer knitting together of the 
Empire, the further colonial development in Mesopotamia 
and in Africa, and redoubled efforts to extend her commerce, 
especially in Russia and the Far East. Lessons in efficiency 
taught by the war, and a larger use of machinery, doubtless will 
also play an important part in the developments of the future. 



CHAPTER V 

HOW THE BANKS HELPED FINANCE THE WAR 
(1914-1920) 

For the benefit of those who are not familiar with banking 
operations in England and the United States it may be 
explained that, as a usual thing, every loan made by a bank 
results in an increase in the deposits of the bank or of some 
other bank. If a merchant or manufacturer or other business 
man borrows at his bank he usually has the amount of the 
loan credited to his account . The result is that an increase in 
bank loans is nearly always accompanied by an increase in 
bank deposits. Therefore, an increase in the deposits of a 
bank is not necessarily, as is often thought, an index of the 
increasing wealth of a community, but often merely of in- 
creasing business activity, or simply of credit expansion. If 
the increase in loans and consequent increase in deposits is 
brought about by unproductive borrowing, this gain in deposits 
may be a sign of financial weakness rather than an indication 
of growing wealth. 

The war financing in England and in America was effected 
by the use on a large scale of this familiar process of every- 
day banking. Each loan issued by the nation increased the 
loans as well as the deposits of the banks. This was due in 
large part to the fact that in many instances the purchasers 
of government obligations borrowed from their banks in order 
to obtain the funds with which to pay the Government. 
These loans created deposits against which cheques were 
drawn to the order of the Government — ^that is, in England, to 
the order of the Bank of England. The actual payment 
might have been to the order of one of the joint -stock banks, 
but ultimately the money would reach the Exchequer through 
the Bank of England. The Government would then draw 
upon this deposit to pay its expenses for mimitions, for food 

33 

3— (1823) 



34 ENGLISH PUBLIC FINANCE 

and clothing for the enlisted men, and for the hundred and 
one other needs of a nation in a time of war. 

Bank Reserves v. Credits 

The extent to which a bank can extend credits to its 
customers is determined by its reserves, in England often 
called cash balances. As a result of long experience bankers 
have found that on the average only a certain percentage of 
their deposits is drawn upon ; the balance remains more or 
less as a fixed deposit. This balance can be safely loaned to 
the business community, but a reserve in the form of actual 
money or its equivalent must always be held, out of which the 
cheques of depositors can be promptly met. 

Such a fund is a prime essential of solvency. In England 
the banks have established the custom, instead of holding all 
of this reserve in actual money, of keeping the greater part 
in the form of a deposit with the Bank of England. In the 
United States the member banks of the Federal Reserve 
System, which comprise all the National Banks and most of 
the large State banks, are required to carry their legal reserve 
with the Federal Reserve Banks. The experience of banks as 
to the amount of reserve which must be held varies with their 
location, the nature of the business done by their clients, the 
season of the year and other conditions. In general, it is found 
that for commercial banks (other than central banks of issue) 
a reserve of from 10 to 20 per cent, of deposits is ample 
in normal times. That is, if the English banks have on hand 
in gold. Bank of England notes, and/or deposits with the 
Bank of England, say, ;^100 million, they can safely maintain 
their credits — ^that is, their deposits, which result chiefly from 
loans, at from £500 to £1,000 million. 

How the Government War Loans Were Financed 

If this point has been made clear we are now in a position 
to understand how banking methods were applied to the war 
financing. 



HOW THE BANKS HELPED FINANCE THE WAR 35 

In the case of the large loans, it was customary to divide 
the payments into several instalments spread over a period 
of weeks. The reason for this arrangement will be apparent 
when the process of settlement is considered. 

The amount which the banks could conveniently handle 
in one payment was determined by their reserve, which 
consisted chiefly of their deposits with the Bank of England. 

The process of payment was likened by the late Chairman 
of the London Joint City and Midland Bank, Sir Edward H. 
Holden, to the revolutions of a wheel. 

" The banks place in the wheel the payments they make 
for those customers who have subscribed for the loans ; the 
wheel carries these payments to the credit of the Government 
with the Bank of England, and the subscribers receive their 
securities ; the Government then places in the wheel cheques, 
in payment of commodities received and services rendered, 
for conveyance to their creditors, and the creditors then use 
the wheel to carry these cheques to the credit of their accounts 
with their banks, which re-estabHshes the banks' reserves 
and prepares them for another instalment." In the case 
of Treasury bills, and other securities sold from week to 
week in relatively small amounts, the revolution of the wheel 
was rapid enough to keep pace with the new borrowing, but in 
the case of the large loans it was found advisable to break up 
the payments into instalments, so that each instalment 
might have time to get through the Bank of England, through 
the business firms, and back into the banks before another 
instalment was required. 

One method by which the banks developed an ability to 
finance the stupendous needs of the Government was through 
a utihzation of the credit facilities of the Bank of England. 
To increase their clients' ability and their own ability to 
invest in Government issues they would borrow of the Bank 
of England. These loans would increase their deposits with 
the Bank of England, which as reserves would increase their 
ability to grant to their own chents loans equivalent to, say, 
five times such deposits. 



36 ENGLISH PUBLIC FINANCE 

Ways and Means Advances 

Another and most important way in which the banks were 
used to finance the war was through the creation of direct 
credits by the Bank of England in favour of the Government. 
These credits are known as " Ways and Means " advances 
How the Government benefited by these advances and how 
they operated to create credits with other banks we will allow 
Lord Cunhffe's " Committee on Currency and Foreign 
Exchanges after the War " to tell us. 

In their final report, laid before Parhament in December, 
1919, the Committee draw attention " to the extensive use 
made during the war of the system of Ways and Means Ad- 
vances from the Bank of England " and then go on to say : 
" The powers given to the Government by Parhament to 
borrow from the Bank of England in the form of an overdraft 
on the credit of Ways and Means were, as the name implies, 
intended to enable the Government to anticipate receipts 
from revenue or permanent borrowings for a brief period only. 
Indeed, Parhament, by expressly providing that all such 
advances should be repaid in the quarter following that in 
which they were obtained, showed that it had no intention of 
bestowing upon the Government the power of securing an 
overdraft of indefinite duration and amount. Under the 
exigencies of war finance the Government found it necessary to 
reborrow in each quarter on the credit of Ways and Means the 
amount needed to enable them to comply with the statutory 
requirement that the previous quarter's Ways and Means 
Advances should be repaid, with the result that the total 
outstanding advances remained for a long time at a high 
figure. We are glad to see that efforts are now being made to 
reduce this overdraft to more moderate dimensions. 

" We therefore hope, now that the conditions are less 
abnormal, that the Government will confine its use of Ways 
and Means Advances from the Bank of England to providing 
for purely temporary necessities. Such advances afford a 
legitimate method of tiding over a few weeks' shortage, but 



HOW THE BANKS HELPED FINANCE THE WAR 37 

are entirely unsuitable for borrowings over a longer 
period," 

In their interim report, submitted in August, 1918, the 
Committee explain how these advances operated to swell 
bank deposits and loans : " This process has had results of 
such far-reaching importance that it may be useful to set out 
in detail the manner in which it operates. Suppose, for 
example, that in a given week the Government require 
;^10 milhon over and above the receipts from taxation and 
loans from the pubHc. They apply for an advance from the 
Bank of England, which by a book entry places the amount 
required to the credit of Public Deposits in the same way as 
any other banker credits the account of a customer when he 
grants him temporary accommodation. The amount is then 
paid out to contractors and other Government creditors, and 
passes, when the cheques are cleared, to the credit of their 
bankers in the books of the Bank of England — in other words, 
is transferred from " Pubhc " to " Other " deposits, the 
effect of the whole transaction thus being to increase by 
£10 million the purchasing power in the hands of the public in 
the form of deposits in the joint -stock banks and the bankers' 
cash at the Bank of England by the same amount. The 
bankers' HabiUties to depositors having thus increased by 
;^10 million and their cash reserves by an equal amount, their 
proportion of cash to habilities (which was normally before the 
war something under 20 per cent.) is improved, with the result 
that they are in a position to make advances to their customers 
to an amount equal to four or five times the sum added to their 
cash reserves, or, in the absence of demand for such accommo- 
dation, to increase their investments by the difference between 
the cash received and the proportion they require to hold 
against the increase of their deposit habilities. Since the 
outbreak of war it is the second procedure which has in the 
main been followed, the surplus cash having been used to 
subscribe for Treasury Bills and other Government securities. 
The money so subscribed has again been spent by the Govern- 
ment and returned in the manner above described to the 



38 ENGLISH PUBLIC FINANCE 

bankers' cash balances, the process being repeated again and 
again, until each ;^10 million originally advanced by the 
Bank of England has created new deposits representing new 
purchasing power to several times that amount." 

How this process actually worked out is described in the 
next chapter. 



CHAPTER VI 

THE WAR CREDIT STRUCTURE 

(1914-1920) 

The Credit Structure tables to which the attention of the 
reader is now called are based upon the pubhshed returns 
of the Government and of the banks made nearest to the end 
of the calendar years 1913 to 1919 inclusive. The purpose 
is to compare the total liabilities of the nation on account 
of the debt with the assets of the banks and to compare the 
currency and the bank deposits with the gold coin and bullion 
impounded in the coffers of the joint -stock banks and of the 
Bank of England. The statistical data used are taken from 
the weekly reports of the Bank of England, from the Cunhffe 
Committee's reports, from a paper on the Statistical Aspects 
of Inflation, by Professor J. Shield Nicholson, read before 
the Royal Statistical Society in June, 1917, from the Banker's 
Magazine (London), and from the columns of The Economist 
and of The Statist. 

The National Debt and Bank Assets 

Table I compares the year to year changes in the national 
debt with the corresponding changes in bank assets. It is 
somewhat of a surprise that the Bank of England's holdings 
of Government securities do not more fully reflect the changes 
in the Ways and Means advances. However, taking the 
entire debt fluctuations into consideration it is apparent that 
the assets of the banks have fluctuated with the changes in the 
debt, and that bank assets have grown as the national debt 
has grown. It is not possible to make close comparisons 
because call loans are reported together with cash in hand and 
at the Bank of England. It is probable that some of the 
banks treat Treasury bills as equivalent to cash, while others 
treat them as investments or as discounted paper. It is 
interesting to note that most of the debt of the Government 

39 



THE WAR CREDIT STRUCTURE 41 

must be held outside of the banks as the entire increase in 
the assets of the banks, outside of plant, from the close of 
1913 to the close of 1919 amounting to around £1,200 million, 
was only about one -sixth the increase of the debt. If then 
we make the unlikely assumption that the entire increase in 
the assets of the banks is represented by holdings of National 
debt or loans thereon it is evident that over £6,000 million 
of debt has found permanent lodgment with private and 
corporate investors other than the banks, and that they are 
not borrowing against such holdings. ^ The probabihty is 
that a much larger amount is so held, as the increased assets 
of the banks must represent, in addition to Government 
obligations, large increased holdings of business paper. 

Note and Deposit Currency v. the Gold Reserves 

Tables II and III permit of a year to year study of the 
growth of the note and deposit habilities of the banks, which 
may be said to represent the credit facilities of the nation, 
and a comparison of this credit structure with the specie 
reserves. (See pages 42 and 44.) 

The interesting conclusion at which we arrive is that in 
the case of the Treasury Notes, Bank of England Notes in 
circulation and bank deposits, the percentage of reserve in 
each instance has fallen. This is especially noticeable in 
connection with deposits where the estimated effective gold 
reserve held against all deposits on 31st December, 1919, was 
only 2-3 per cent. While the entire credit structure increased 
from £1,227 million in December, 1913, to £3,002 million in 
December, 1919, an increase of 144-7 per cent., the specie 
reserves held increased only from £85 milhon to £160 milHon, 
a decrease from 6-9 per cent, of the HabiUties to 5-3 per cent. 

It is evident that in the diminishing gold reserve and the 

increasing liabilities we have a serious situation. 

^ This is particularly true in view of the fact that, included in this 
;^6,000 million of debt, would, of course, be the indebtedness to the 
Government of the United States and to other foreign governments, 
as well as that to the British Government itself, under guise of the 
Currency Note Redemption Account, the Savings Banks Account and 
other public funds which hold Government securities. 





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S.S 



THE WAR CREDIT STRUCTURE 43 

High Prices and Bank Credits 

Present high prices are easily explainable when it is 
considered that the actual volume of commodities re- 
quired to support the people of Great Britain is probably 
no more to-day, and possibly is less, than it was before 
the war. 

It is doubtful, too, whether the physical volume of trade 
has increased during the war period. Estimates made for 
the United States by Professor E. W. Kemmerer of Princeton 
University show that the physical volume of trade for our 
country increased from 1913 to 1919 only 9-6 per cent. There 
is no similar computation available for England, but Professor 
Kemmerer beUeves it to be unlikely that the actual increase 
there in the physical volume of trade during the same years 
has been as great as in the United States, He thinks that 
it has been less. If this is true, then it is easy to under- 
stand why prices have advanced in the marked manner 
shown by The Economist Index Number of commodity prices 
printed below. If the adjustment between the currency and 
the credit structure and the physical volume of trade is 
properly made the normal variation in the rise and fall of 
general prices will not be great. There will be seasonal 
declines when new crops come in and advances as the bins 
become empty, but, as a rule, there will be no marked deviation 
from a general average. 

But if the credit structure is dislocated, or if there is an 
unusual harvest or an unusual demand such as is caused by 
war, then the price level will reflect these conditions. Let 
us see what happened between 1913 and 1920. Taking the 
price index of 31st December, 1913, as 100 we find that in 
1915 prices rose 38 per cent, above the base. During the 
height of the war, in 1916, 1917 and 1918, they averaged over 
twice the base price, but with the war over they kept soaring 
and by the close of 1919 they were nearly three times the 
pre-war prices. 



THE WAR CREDIT STRUCTURE 



45 



Here are the figures- 



ECONOMIST " PRICE INDEX. 









Increase 






Increase 


per cent. 


)ec. 31. 


Index No. 


over 1913. 


over 1913 


1913 . 


2623 


Base 


100-0 


1914 . 


2800 


177 


106-7 


1915 . 


3634 


1011 


138-5 


1916 . 


4908 


2285 


187-1 


1917 . 


5845 


3222 


222-8 


1918 . 


6094 


3471 


232-3 


1919 . 


7364 


4741 


280-7 



As one measure of inflation we may profitably study the 
comparative volumes of imported goods and their values at 
the custom house. There is no common denominator of 
quantities. Some things are measured by tons, others by 
pounds, and others still by numbers. Although we cannot 
add together all of the commodities imported and largely 
consumed at home, we can select certain of the more important 
commodities and take their testimony. This we have done 
in the following table — 



ONE EVIDENCE OF INFLATION. 

Quantities and Values of Imports Compared. 

( In Millions.) 





1913. 


191 


8. 


1919. 


Calendar Year. 


Quanti- 
ties. 


Value. 


Quanti- 
ties. 


Value. 


Quanti- 
ties. 


Value. 


Wheat, cwt. 


105 


;^44 


58 


£53 


71 


;^68 


Beef, cwt. 


9 


16 


7 


36 


6 


30 


Sugar, lb. 


o9 


23 


26 


34 


32 


54 


Tea, lb. 


365 


14 


463 


29 


510 


34 


Cotton, cwt. 


22 


70 


15 


150 


19 


190 


V^ool, lb. 


800 


34 


413 


36 


1,042 


97 



Thus we see that the quantities of wheat, beef, sugar, 
cotton and wool imported in 1918 were materially less than 
the quantities imported in 1913 and yet the money values 
were greatly higher. While in 1918 and 1919 the imports 
of tea, and in 1919 the imports of both tea and wool, exceeded 



46 ENGLISH PUBLIC FINANCE 

in quantity the imports of 1913, yet in every case the relative 
money values of the imports is materially greater than the 
values of 1913. Could there be a better illustration of the 
manner in which a disproportionate increase in the credit 
structure leads to increases in prices ? 

The imperative need for a firm handling of the credit 
situation is apparent. Not only in England, but in all other 
countries, the world over, must there be practised drastic 
economies in government expenditures and every effort put 
forth to meet expenses from taxation. Government borrow- 
ing, except for refunding purposes, should cease. At the 
same time the people must settle down to productive work. 
Meanwhile it is the obvious duty of the banks to hold specula- 
tion in check and gently but firnily to reverse the process 
of inflation which the war made necessary. 

The tables bring out in bold relief the manner in which 
bank credits were used to win the war. They also show the 
dizzy heights from which the business of the world must 
cautiously descend before normal conditions, nationally or 
internationally, can be resumed. 

We may now profitably retrace our steps and consider the 
history of English public finance from its genesis in Norman 
days. 



CHAPTER VII 

CROWN FINANCE 

(1066-1688) 
The foundations of England's present-day financial structure 
were laid broad and deep centuries ago. The Exchequer 
and the Treasury can trace their lineage directly to Norman 
times, possibly even to the times of the great Alfred himself. 
There have been a Chancellor of the Exchequer and a Treasurer 
since the days of Henry II — that is, since the middle of the 
twelfth century. 

Books of account, or rather Rolls of account (for the 
accounts were written on parchment which was made up in 
long strips which were rolled up when not in use) are extant 
from the reign of this king. 

The early kings had extensive demesnes from which they 
derived a large part of their revenue. Aside from this source 
of income, the receipts of the Exchequer during all of these 
ages have come from three principal sources — from internal 
taxation, from customs and from borrowing. 

The history of the revenues of England's kings is inseparably 
bound up with the history of the development of her civil 
rights. The fight for the control of the purse, first formulated 
in the terms of Magna Charta, wrung by the barons from 
the tyrant John in 1215, was only won after four and a 
half centmies of conflict between sovereign and people. 
The word " people " is used here and elsewhere in these 
chapters as a generic term referring to those members of 
the body politic who from time to time were capable of taking 
part in public affairs. In the time of the Norman Kings 
probably not over a fifth of the inhabitants could be so 
classified. The growth of general intelligence which has at 
last, in a sense, fitted the greater part of the people to exercise 
the rights and duties of citizenship only came into full flower 
within the past century. 

47 



48 ENGLISH PUBLIC FINANCE 

The effort on the part of the sovereign was to secure an 
income from other sources than from taxation. The people, 
on the other hand, found that the only way to insure just 
treatment by the sovereign was to keep him poor, so that he 
needs must come to them for an " aid " or a " grant." On 
such occasions they could insist on a redress of grievances or 
on a surrender of some part of the royal prerogative before the 
grant was voted. Thus, little by little, one by one, were 
secured the liberties which old England and oiuselves now 
enjoy. " No taxation without representation " was not a 
new formula in 1776. The principle had its beginnings 
centuries before. 

We are to study English public finance since the Revolution 
of 1688, but in order that we may do so intelligently, we 
must first consider the developments of the six centuries 
which elapsed between the advent of William the Conqueror 
in 1066 and of that other William who came over from 
Holland in 1688, at the request of a little band of patriots, 
to help them rear a constitutional government on the founda- 
tion which had been laid by their forefathers and upon which 
the Stuart Kings had tried in vain to build for autocracy. 

This later William had expected to receive the usual life 
grant from the customs which the kings and queens from 
time inunemorial had enjoyed. The Commons declined to 
make this grant for a longer period than four years. Thence- 
forward the power of the King steadily declined and the 
rights of the people steadily increased until we have in the 
England of to-day one of the greatest democracies of the 
world and of any time ; a democracy the government of which 
is more sensitive, perhaps, to the will of the people than is the 
case even in our own United States. 

Let us now turn oui attention to the eleventh century and 
trace the coiuse of public finance to our own day. 

We will be able to deal only with the facts of greatest 
importance. 



CHAPTER VIII 

REVENUES OF THE ANGLO-SAXON KINGS 

When William the Conqueror arrived from Normandy, what 
revenue system did he find and what new ideas did he bring 
with him from his Norman home ? 

The King's Demesne 

First of all he found that Alfred and his successors down 
to the time of Edward (called "the Confessor ") had enjoyed 
great landed possessions, and flocks and herds. They had 
possessed rude castles, jewels and richly embroidered robes of 
state. They had had a royal hoard kept in the King's castle 
where there were leather bags filled with the roughly minted 
silver coins of the time. 

The germ of the feudal system was there also. 

Trinoda Necessitas 

The revenues of the Anglo-Saxon kings were derived from 
their estates, from fines imposed as penalties for the infraction 
of the rude laws of the times, and from certain taxes to which 
every landowner was subject. These taxes, known as the 
trinoda necessitas, were at first exacted in kind ; every free- 
man when legally called upon was obliged to appear in person 
for the purpose of repelling the enemy, here-geld ; or when a 
city, town or castle or a fortress for the public defence was to 
be built or repaired, burg-bote ; or when bridges necessary for 
the internal commerce of the country were to be built or 
repaired, brig-bote. In time it came about as a matter of 
convenience that for payments in personal services or 
materials a money equivalent was given. 

Dane-geld 

These taxes, intended to meet the ordinary contingencies 
of day-to-day life, did not sufiice to repel the attacks of the 

49 

4— (1823) 



50 ENGLISH PUBLIC FINANCE 

Danes. These were not infrequent, and were marked with 
every species of devastation and horror. Therefore, in the 
latter part of the tenth century it became the custom to bribe 
the Danes to stay in their own country. As usually happens 
in cases of bribery and blackmail, the Danes continually 
demanded renewed and larger payments. The tax which was 
laid to obtain this money was known as Dane-geld, or Dane- 
money, and was raised by a levy upon lands. Ultimately 
this tax became a regular source of income to the Crown. 
Laid ostensibly for the defence of the country against the 
Danes, actually it was used for any purpose to which it might 
be applied by the King. This tax was very odious to the 
people, but persisted, except during the reign of Edward and 
Harold, until long after the Norman Conquest. It is the 
first instance in British history of a tax laid upon lands. It 
was imposed at so much a hide, a measure which may be 
roughly taken to have been about one hundred acres. 

Other Anglo-Saxon taxes which endiired to later times 
were the hearth tax, a payment to the King for every hearth 
in all homes, except those of the very poor, and ship-geld, 
money raised to build and equip a ship or ships for use in 
repelling invasion. This latter tax was levied, as a rule, only 
on the coast towns. 

Purveyance 

Under a system known as purveyance, it was customary 
for the reeves, or sheriffs, to make a levy of goods to be used 
for the maintenance of the royal household. The King was 
entitled also to a share of the produce of the folk land — ^that 
is, land held in common by the residents of different neigh- 
bourhoods. 

Customs 

Probably the Anglo-Saxon kings had some revenue from 
home and foreign trade. We find smiths and carpenters, 
fishermen and millers, weavers and architects mentioned in 
old chronicles as belonging to various convents. We also 



REVENUES OF THE ANGLO-SAXON KINGS 51 

find the merchant asserting the dignity of his calling. " I am 
useful," he says, " to the King and his nobles, to rich men and 
to common folk. I enter my ship with my merchandise, 
and sail across the seas and sell my wares, and buy dear 
things which are not produced in this land, and bring them 
with great danger for your good." And then he tells what 
he brings — " skin, wine, oil, costly gems and gold, various 
garments, pigments, brass, copper, tin, glass," and so on. 
This whole question of foreign commerce from these early 
days until now is of intense interest, and is as much bound up 
in the story of England's business life as the question of 
public finance is inseparable from a study of the development 
of England's liberties. 

Licences 

In Anglo-Saxon and Anglo-Norman times, fairs took the 
place of shops. In the beginning they had a distinctively 
religious character which they gradually lost. The people 
were in the habit of coming together to perform their devotions 
in the churches at night-time with candles burning. They 
would gather in the church porches and yards for social 
intercourse, and finally " fell to lechery and songs, dancing, 
harping, piping and also to gluttony and sin." Thus was laid 
the foundation for those periodical fairs which are held even 
to the present day. It was natural that where the people 
were gathered together the merchants should bring their 
wares for sale. This was also a great convenience to the 
people when the means of travelling were bad, and oppor- 
tunities to supply their needs were scant. At these fairs they 
could barter their sheepskins and agricultiual produce, or any 
of their rough local manufactures, for the wares of the mer- 
chants. In time these fairs became markets which were held 
at regular places at regular intervals, probably very much as 
is still the custom in Russia where the annual fairs play such 
an important part in the commercial life of the people. It 
need scarcely be pointed out that the thrifty Anglo-Saxon 
and Anglo-Norman kings turned this custom to good account 



52 ENGLISH PUBLIC FINANCE 

as a means of revenue, charging fines, or, as we would say, 
licence fees, for the right to hold the fairs. 

The Exchequer 

There was in use, too, in all probability, a system for 
collecting and caring for the King's revenues very similar to 
the system which William had in use in Normandy — a system 
which persisted in part at least until the times of Queen 
Victoria, and in the names of certain officials has lasted even to 
this year of grace 1920. This system and the modern treasury 
department are described in a subsequent chapter on the 
Exchequer. 



CHAPTER IX 

THE king's prerogative 

William took possession of all the royal properties and 
sources of revenue and grafted on to these the Norman feudal 
system of land tenure. 

As King, William claimed the royal demesne, the royal 

forests and the perquisites of royalty, previously described, 
enjoyed by his Anglo-Saxon predecessors. 

The Royal Demesne 

This was of vast extent. There were three divisions : — 
the forests which formed the King's hunting grounds and 
were secured against intruders by a savage code of special 
regulations known as the forest laws, the land held by the 
King's rural tenants, and thirdly the holdings of urban tenants. 
This last-named division included most of the cities, boroughs 
and towns of the Kingdom which originally had been founded 
on the folklands. The rents of these towns were collected 
by the sheriffs. 

All of the tenants of the royal demesne were liable to 
assist the King on any occasion of special expense — even to 
the tenth part of their goods. 

Feudal Aids 

As feudal lord he claimed the so-called feudal aids, namely, 
the right to levy a tax for his ransom should he be taken 
prisoner by an enemy ; the right to receive a generous 
contribution from his people when his son was invested 
with the privileges of knighthood ; and of a corresponding 
contribution upon the marriage of his eldest daughter, to 
provide her with a dowry. Under the feudal system the 
King, in addition to these special aids, which were never 
surrendered until six centuries later, was entitled in time of 
war to the personal services of his knights, who must attend 
him with a complement of men, equipped for service. 

53 



54 ENGLISH PUBLIC FINANCE 

Purveyance 

Under the name of purveyance, the King was entitled to 
impress horses and vehicles to transport him and his entourage 
from one part of the country to another. He was entitled 
to appropriate any food or other articles which he required, 
paying for them such prices as he saw fit ; this was called 
" preemption," but in process of time was merged with 
the Anglo-Saxon idea of purveyance already noticed ; the 
two rights going under the name of purveyance. This con- 
stituted a most obnoxious form of imposition which persisted 
for several centuries. 

Fines — Bona Vacantia 

Another source of income was from fines for trespassing 
upon the King's domains, especially for taking wild animals 
or even wood from his forests or fish from the streams therein. 
As the fountain head of justice, the King was entitled to a 
share of the fines levied upon criminals of high or low degree. 
All treasure trove, i.e. money, plate, or bullion found hidden 
in the earth ; waifs, or goods stolen and waived ; stray 
cattle, wrecks, or large fish belonged to the King. These 
were known as bona vacantia. The custody of the property 
of idiots and any profit accruing after providing for their 
support ; also estates to which no claim could be made by 
rightful heirs fell under this head. 

If all of these sources of income were not sufficient, the 
King might debase the coinage ; he might ask his people for 
presents — sometimes called contributions, and subsequently, 
by the Tudors, benevolences ; or he might simply extort or 
exact gifts or call for loans which he might or might not pay 
as the spirit moved him. It may be noted here that based on 
the so-called voluntaiy offerings to the King an additional 
10 per cent, was levied for the personal use of his Queen — ■ 
this contribution was known as Queen's gold. 

Having seen what were the sources of the King's income at 
the time of the Conquest and during the reign of the Norman 
Kings, we may now consider the subsequent developments. 



CHAPTER X 

CROWN REVENUES SUBSEQUENT TO THE NORMAN 
PERIOD 

(1154-1688) 

The constant effort of the people from very early times, 
perhaps not at first a very definite intention, was to keep 
the King poor, so that he would need to come to them for 
suppHes. Then, by withholding money grants until their 
grievances were remedied, little by little they developed the 
constitutional rights now enjoyed. 

The principal sources of revenue of the early EngUsh kings 
and queens, other than the revenues derived from their 
demesnes and prerogative as already described, were the 
customs duties, internal taxation, borrowing and extortion 
in various forms. 

The first two may be described as legitimate, or constitu- 
tional, sources ; the last as a method of evading constitutional 
processes. Borrowing was strictly the personal act and 
privilege of the sovereign. It was used as a legitimate means 
of bridging over gaps in the receipt of revenue. Frequently, 
also, it was used as a means of avoiding the necessity of asking 
Parhament for a grant. It was often only a disguised form 
of extortion. 

It may be of interest briefly to consider each of the sources 
of income. 

The Customs 

The King's right to exact tolls on goods going out of or 
entering the kingdom is supposed to have grown out of the 
idea of purveyance. Certain it is that the right to prisage — 
that is, to take goods or chattels in kind — and to the collection 
of tolls or duties on wool and other exported goods was 
exercised from an early date and was prized by all the kings 

55 



56 ENGLISH PUBLIC FINANCE 

reigning down to the Revolution as one of the choicest of 
their hereditary privileges. It came to be understood that 
without parliamentary grant the King could collect what 
are called in Magna Charta " the ancient and equitable 
duties." These consisted of an export duty which was 
collected on wool, wool-fells (that is, skins with the wool 
attached) and upon leather. The King, as one of his preroga- 
tives, was entitled to two casks of wine out of every cargo. 
This right was afterwards reduced to a definite tariff on wine 
and was known as the " New Customs." In the time of 
Edward I, toward the end of the thirteenth century, the 
custom arose of granting the King, for life, duties known as 
" tunnage " and " poundage." These duties were levied 
upon every tun of wine and upon every pound of merchandise 
imported ; also at times upon exports. They were levied in 
addition to the old and new customs duties. 

In addition to the hereditary duties and the life grant of 
tunnage and poundage the King received customs subsidies, 
as they were called. The subsidy was a parliamentary grant 
in excess of those already described. These grants were 
made from time to time as called for by the exigencies of the 
King's affairs. In times of war they were greater than in 
times of peace. They were always granted for short periods. 

The customs revenues were especially prized by the earlier 
kings of England even down to the time of the Revolution, 
because there were so many ways in which they could be 
utilized to maintain a position independent of parliamentary 
control. Some of the kings formed the practice of dealing 
directly with the merchants in connection with customs 
matters and thus obtained an informal revenue in addition 
to that levied by law. 

From early times the right to levy customs duties was 
used both by King and Parliament to promote home manu- 
factures. This use of the tariff to regulate commerce and to 
develop home industries was continued until well into the 
reign of Queen Victoria, when the free trade regime 
began. 



CROWN REVENUES SUBSEQUENT TO NORMAN PERIOD 57 

Internal Taxation 

The medieval forms of taxation forecast most of the 
methods now in use. There were poll taxes, a species of 
house tax called " hearth-money," land taxes, taxes on 
personal property and taxes upon income. There were also 
special taxes upon the Jews and upon aliens residing in the 
country. 

The land tax may be traced back to feudal times. In the 
very early days it was directly assessed by the King upon 
the landed proprietors. However, because of the abuse of 
this right, it was provided in Magna Charta that no scutage 
or aid (the name under which the form of land tax then levied 
was known) should be imposed unless with the consent of the 
Common Council of the realm, excepting for ransoming the 
King's person, making his eldest son a knight, or marrying 
his eldest daughter ; and even then only a reasonable aid was 
to be demanded. In the course of time the land tax came 
to be included under the general name of subsidies. 

A subsidy was properly neither a tax upon personal nor 
landed property, but upon income. Every description of 
persons, in proportion to their reputed estates, paid after 
the nominal rate of four shillings in the pound for lands and 
2s. 6d. for goods, while aliens paid in a double proportion. 

One of the earliest forms of taxation dating from the reign 
of Edward III, say, from 1334, and in use until the time of 
James I (1603-1625), was a tax on personal property known 
as " tenths and fifteenths." The tenth was a grant laid upon 
the movables or personal property of residents of cities and 
towns within the demesne, and the fifteenth was a grant 
from the counties outside the demesne. The amount for each 
district was established in 1334 and thereafter was never 
changed. Thus each district knew exactly how much it was 
expected to provide. Parliament in making grants would 
specify that one or more tenths were to be granted, or if only 
a small sum were needed half of a quota might be granted. 

During the regime of the Long Parliament (1640-1653) a 



58 ENGLISH PUBLIC FINANCE 

form of taxation was introduced calling for monthly pay- 
ments. These taxes were assessed on both personal and 
landed property. They were found to be so superior to the 
former mode of subsidies that under the name of land tax 
they became a regular method of taxation in use for many 
years thereafter and superseded the old assessments of 
subsidies and tenths and fifteenths. 

Indirect taxation, except as exemplified in the customs, 
was unknown in England until the middle of the seventeenth 
century when, in 1643, the Long Parliament adopted from 
Holland a system of excise taxes. This method of disguised 
taxation from that time became increasingly popular Avith the 
Exchequer Department because thus it was possible to keep 
down the taxation upon the rich landed classes and to obtain 
what amounted to a very heavy tax from the consumers of 
various articles — chiefly beer and spirits, but, later on, of tea, 
cocoa and other articles — without their realizing that they 
were paying taxes. As time went on, this form of taxation 
was used on occasion to regulate the sale of spirits when the 
Government felt that their use was endangering the moral 
status of the nation. Again, the finance ministers directly 
encouraged the consumption of spirits in order that the 
revenue from the excise might be increased. To-day this 
form of taxation provides a very important portion of the 
revenue of the State. 

The Post Office dates from the time of the Long Parliament, 
but as the charge for its services usually provides very little 
revenue to the State, the receipts of this department can 
hardly be considered a form of taxation. 

Taxes of To-day and Their Origin 

It is of interest to run over the heads of taxation as given 
in to-day's official Finance Accounts, and to note how the 
most important of these taxes had their origin prior to the 
time of the Revolution. For instance, we have, in order, the 
Customs dating back to the earliest times ; the Excise dating 
back to the Long Parliament ; Stamps — first introduced in 



CROWN REVENUES SUBSEQUENT TO NORMAN PERIOD 59 

1671 — imposed by a statute entitled " An Act for laying 
impositions on proceedings at law." The Land Tax persists 
but now affords a very slight part of the revenue, although for 
hundreds of years it was of great importance. The House 
Duty may be said to be the modern form of hearth tax, which 
under the name of " fumage " dates back to Anglo-Saxon 
times. Property and Income tax — ^the first levy of a tax 
of this kind — dates back to the reign of Richard I in the latter 
part of the twelfth century. It will be remembered that 
upon his return from his memorable crusade to the Holy 
I^nd, Richard was captured by the Emperor of Germany and, 
in order to effect his release, was compelled to pay a very 
heavy ransom. It was to help raise the money for the pay- 
ment of this ransom that the first tax in the nature of an 
income tax was laid. This tax was both an income tax and 
a personal property tax and called for one-quarter of the 
revenue or goods of every person in the realm. The Excess 
Profits Duty is a modern form of the income tax. Land 
Value Duties are another form of the land tax. The Post 
Office, we have already seen, dates from the time of the Pro- 
tectorate. Crown Lands, a prehistoric source of income, 
still figure in the statement and actually yield to-day more 
than the land tax. Thus with the possible exception of Estate 
Duties only, the p-esent main forms of taxation all had their 
origin in medieval times, or at least date from a time prior 
to the period of the Revolution of 1688. Even in the last 
case we have an ancient parallel in the fact, as stated on 
page 54, that estates to which no claim could be made by 
rightful heirs reverted to the King. 

The Church 

A large portion of the revenues of the medieval kings was 
drawn from the Church, which is stated to have held in the 
fifteenth century a fourth of the landed property of the King- 
dom. Taxation was supplemented by extortion and finally 
in the reign of Henry VIII by the wholesale confiscation of 
Church properties. 



60 ENGLISH PUBLIC FINANCE 

Extortions 

We have now reviewed the regular sources of Crown 
income. The pre-Revolution sovereigns were perpetually 
living beyond their income and frequently were at swords' 
points with Parliament. Therefore they exercised their 
ingenuity to discover means of meeting their expenses without 
going to Parliament. To this end they pushed their preroga- 
tive rights to great extremes. By collusion with the judges 
they punished infractions of the laws with severe fines. As 
stated above, they made levies on the religious orders and upon 
the Church, and Henry VIII confiscated Church properties. 
They made forced loans from their subjects of high and low 
degree which they forgot to pay. They created new orders of 
nobility for initiation into which they made heavy charges. 
They went around among their subjects almost hat in hand 
asking for gifts — " benevolences," they were called. They 
granted licences for various acts. They engaged in business 
enterprises and had part interests in privateering expeditions. 
Then there was the loot and the spoil of the wars in which 
most of them engaged. One favourite method of supplying 
national requirements and of filling his private purse was for 
the King to grant the right to monopolize certain lines of 
manufacture or of business and finally, if all else failed, the 
coinage might be debased and the seigniorage realized. 

Coinage 

The first debasement of the coinage recorded is in the 
reign of Edward I when, in the year 1300, the penny was 
reduced one-half grain in weight, so that 243 pennies, instead 
of 240 as before, were struck from a pound of silver. In 1344 
and again in 1346 the standard was further lowered, raising 
the number of pennies in the pound to 270. In the reign of 
Edward IV, in 1464 and 1465, the number of pennies to the 
pound was raised to 450. Henry VIII and Edward VI 
debased the coins several times, so that in the latter's reign 
the silver coins contained only one-seventh of the pure metal 
that went to the same coins of 25 years before. 



CROWN REVENUES SUBSEQUENT TO NORALA.N PERIOD 61 

One of the notable events of Elizabeth's reign was the 
restoration of the coinage. This she arranged before she 
had been two years on the throne. It is said to have been 
necessary for her to borrow two hundred thousand pounds 
from the city of Antwerp in order to carry through this 
reform. Even Elizabeth, with all her inherent love for 
financial honesty, was prevailed upon to have a base coinage 
struck for use in Ireland, while in the forty-third year of her 
reign she was persuaded to have sixty-two instead of sixty 
shillings minted from the pound of silver. Since the reign 
of Elizabeth no sovereign has ever attempted to debase the 
coin of the realm. However, through sweating and clipping, 
the coinage had become so debased at the time of the Revolu- 
tion that in 1696 William HI was compelled to take steps 
for its restoration. 



CHAPTER XI 

CROWN DEBTS 

(1216-1688) 
Henry HI (1216-1272) is the first king of England whose 
debts are recorded in history. In the 16th year of his reign 
they had become so great that Parliament was obliged to 
grant an " aid " — that is, a tax — to assist him in paying them 
off. He is said to have pawned the jewels of the crown, 
his robes of state and other royal ornaments, and even the 
shrine of St. Edward. Matthew Paris, the chronicler of this 
period, states that he owed so much to so many different 
people, for the very necessities of life, that " he durst hardly 
appear in public for the clamour of his creditors." Henry 
borrowed from the Italian merchants, from the Jews, from 
his own brother — in fact, when and where he could. 

Interest Payments Forbidden 

The sentiment of the time was strongly against the pay- 
ment of interest, or " usury," as it was called ; in fact, such 
payments were interdict by the Church. However, in case 
of the non-payment of a loan when due, a charge could be 
made for the inconvenience to which the lender had been 
subjected by such delay. Such charges sometimes ran as 
high as 10 per cent, a month. 

Thereafter scarcely a reign passed without borrowing to a 
larger or smaller extent. If these debts were not liquidated 
within the reign they were usually honoured by the succeeding 
monarch. Fortunately for the lenders there was a supersti- 
tion that until the debts of the deceased were paid his soul 
would remain in purgatory. Therefore it was a filial duty 
for a son to provide for his father's obligations. 

Security Given 

These loans were sometimes raised upon the security of 
the customs. Sometimes the customs were " fa^^med " or 

62 



CROWN DEBTS 63 

sold to foreign money lenders for a lump sum or for an agreed 
periodical payment. The farmer, as his profit, retained any 
amount collected above the agreed payment. 

Towards the end of the reign of the fifth Henry, we find a 
new precedent being established in regard to Crown debts. 
This occurred in 1421, upon the return of the King from a 
successful campaign against the French. The King had 
incurred heavy debts for the payment of which Parliament 
authorized security to be given in the form of letters patent 
to the lenders that they would be paid out of the first produce 
of a subsidy, a new tax of the nature of an income tax, which 
was granted at the same time and which we have already 
described. The fact that this tax did not prove to be suffi.- 
cient for the purpose and that in the end the King was com- 
pelled to pledge the royal crown and jewels to make up the 
deficiency does not alter the significance of this action. 

Repudiation of Debts by Henry VIII 

Henry VIII, among other infractions of the laws of God 
and the rights of his subjects with which he was justly charge- 
able, was also guilty of repudiating his debts. The Parliament 
of 1525 which impeached Wolsey passed an extraordinary 
statute wherein " they do, for themselves and all the whole 
body of the realm which they represent, freely, liberally 
and absolutely, give and grant unto the King's highness, 
by authority of this present Parliament, all and every sum 
and sums of money which to them and every of them, is, 
ought or might be due, by reason of any money or of any 
other thing, to his grace at any time heretofore advanced 
or paid by way of trust or loan, either upon any letter or 
letters under the King's privy seal, general or particular, 
letter, missive, promise, bond, or obligation of repayment 
or by any taxation or other assessing, by virtue of any com- 
mission or commissions, or by any other mean or means, 
whatever it be, heretofore passed for that purpose." This 
action naturally excited much resentment and worked hard- 
ship to many, as it converted loans into taxes because the 



EXGUSH FCVUC FTXAXVIZ 




Ac TTftaxnat of ^lAicii mas refosed. \ 
OLiuiteil fcoB Ae kados^ exactlj^ a 
taken m tbe farm of taxes. On tbe otbcr 
ihut vcre nsuny vibo mere pleased to see Wofenr's 
far tkey mere tke |a aw i|Ml cxcdUcKS^ amexcedp aad tke 
Kii^s debts iiiiiiiiifcflni i1 Ibe finem^ of tke pcofie mere 
^ad that a Mode of sa|iistv so daageroos to pohic Hbcrty 
be d b ued Uc d. Uns bad pneced ea l mas fiiliiwiri 
a 1544. lAea a sinibr act mas passed rdeasiae tke 
Sjb^ fraaa al moory bcsramed aoce 15^ and. la e w e i. 
reqnaig tkose adu had leie i ied any payments oa atecmat 
of sack kaas to rcfand tke WMmef to lAe Treasmy . 



\"in 



VI and of Hoy k 
aas on tke Cootinfm. 

- -T^. A? bSc?! as 14 OCT ceat. 



Hamboif:, Ookene and 
'- ^om 10 percent, to 



:v of 



CRO\^'N DEBTS 65 

Finally, by frugality and good management, she procured the 
money at home to liquidate entirely her foreign debt. 

Stop of the Exchequer 

The Stuarts were also hea\y borrowers, while to the discredit 
of Charles II is the fact that in 1672 he stopped the repa^-ment 
of loans made by the Goldsmiths to the Exchequer. He 
thus tied up their resources and ruined many of them and, 
in turn, their clients whose bankers they were. This debt 
was finally compromised late in the reign of William III 
at ten shillings on the pound. This is the famous " Stop of 
the Exchequer." 

All in all, the hist on,- of Crown borrowing is not a very 
creditable one. It should be borne in mind that in these 
early days there \^-as no such thing as a national debt. The 
lenders dealt with the King very much as they would with a 
private indi\iduaL As, for a large part of this period, the 
pa^Tnent of interest was regarded as an irreligious act, many 
subterfuges were resoned to in order that the lender might 
be compensated for his risk and the use of his capital. One 
arrangement was that a charge might be made for delayed 
pa\Tnent5 ; therefore it was customary to allow a loan to 
mature and then to run along for a longer or shorter period 
thereafter. The money lenders sometimes received a per- 
centage on the taxes collected b}- acting as farmers of the 
revenue as already explained. Sometimes the lenders were 
rewarded with gifts of titles, or lands or jewels. 



5— (182S) 



CHAPTER XII 

CONSTITUTIONAL GOVERNMENT DEVELOPED BY CONTROL 
OF PURSE 

(1066-1688) 

England's present democratic form of government has 
been developed from the autocracy of the Middle Ages by 
a gradual process of evolution. 

The Plantagenets 

Magna Charta extorted by the barons from King John in 
1215 remedied certain feudal abuses in the matters of pur- 
veyance, relief, wardship and marriage and in particular 
admitted the right of the nation to ordain taxation and defined 
the way in which its consent was to be given. 

Before 1295 when arranging for grants it was customary 
for the King to deal separately with the clergy and the barons. 
In this year, in the reign of Edward I, a transition which had 
been gradually taking place since 1282 took fixed form and 
the Commons were admitted to a share of the taxing power. 
The three estates acted separately and made grants of varying 
amounts, but they took action simultaneously at a common 
place of meeting. The year 1303 is memorable in commercial 
as well as constitutional history. It was in this year that 
the Charta Mercatoria was granted. This has been called 
the Magna Charta of Commerce. By its terms the ports, 
cities and towns of England were opened for wholesale traffic 
to foreign merchants. 

The codification of the laws under this King and the 
revision of the charters all tended to strengthen the position 
of the people. 

The necessities of Edward III and the weakness of Richard 
II still more strengthened the position of the people, so 
that they did not hesitate to depose Richard in favour of a 
king who it was thought would reign more equitably, but 

66 



CONSTITUTIONAL GOVERNMENT 67 

while conditions then were not dissimilar to those subse- 
quently, at the time when James II was deposed, the people 
were not yet ready to take advantage of the progress they 
had made. The King was still an autocrat and would be 
for several centuries, but the right of the taxpayer to be heard 
before he backed up the King's projects with his aid was 
coming to be fully recognized, although the King constantly 
endeavoured to evade that condition, only to be brought to 
book again when some critical situation, such as a foreign war, 
requiring large contributions, should arise. But it took 
several centuries more of experience before the people were 
prepared for self-government. 

Lancaster and York 

The six reigns of the Lancastrian and Yorkist kings covering 
the greater part of the fifteenth century (1399 to 1485) were 
years of foreign wars and domestic strife. During the reigns 
of the Lancastrian Henrys, constitutional forms were well 
observed. This period of about sixty years was one of 
poverty on the part of the Crown when large dependence 
must be placed upon parliamentary grants. On this account 
Parliament became much bolder than in previous reigns. 
It did not hesitate to interfere with the management of the 
King's household, by urging economy in household expendi- 
tures and limiting the purposes for which such expenditures 
might be made. 

It was during the reign of Henry IV that the right of the 
Commons to initiate money legislation was brought to the 
fore and the precedent in that respect more firmly established. 

The Tudors 

The Tudor period (1485-1603) was one of reaction. The 
people to a great extent lost control of the Crown. For 
the most part parliamentary forms were observed and the 
checks to royal authority which had been gradually developed 
from the time of Norman William were not directly 
contravened but more than once they were evaded. 



68 ENGLISH PUBLIC FINANCE 

The customary grants of revenue by votes of Parliament 
were made at irregular periods and it is known that the 
revenue from such sources was relatively unimportant in 
comparison with that derived from the customs, from the 
King's prerogative and from compulsive and voluntary loans, 
and during the reigns of Henry VIII and Edward VI from the 
debasement of the coinage and the sales of the confiscated 
church lands. In other words, the sovereigns of this period 
found ways and means to get along with small parliamentary 
grants and therefore could be as autocratic as their fellow 
monarchs across seas while yet keeping up the appearance of 
subserviency to old constitutional forms. 

The Stuarts 

The period of English history lying between the reign of 
Elizabeth and the Revolution (1603-1688) is distinctive as 
the one in which the powers of sovereignty are finally trans- 
ferred from the Crown to Parliament. After the close of the 
seventeenth century we no longer speak of Crown finance 
but of national finance. While all other peoples, with the 
exception only of the Swiss, were giving up all rights of 
citizenship to autocrats of the most absolute type, England 
was evolving a system of government which combined 
" freedom with efficiency, and local rights with national 
union." 

These changes did not take place hastily — in fact, English 
life in all departments of activity was essentially the same, 
so far as surface indications went, in the times of the first 
Scotch kings, as it was during Elizabethan times. Political 
events of great importance were gradually shaping men's 
minds for the radical changes of the latter part of the period — 
from 1640 on. 

The Stuarts had all the Tudor love of power and belief 
in the inherent rights of monarchs to rule, without the Tudor 
ability to manage their subjects. 

James I did not know anything, either in the spirit or in 
the letter, about the laws and liberties peculiar to England. 



CONSTITUTIONAL GOVERNMENT 69 

Constitutional custom and parliamentary privilege meant 
nothing to him until late in life and then he looked upon them 
solely as an impediment to a benevolent government. Eliza- 
beth by her economies had put the finances of the nation on 
a sound basis and had left the Treasury in a flourishing 
condition. However, James spent money so freely that he 
was in constant need and thus was continually in opposition to 
Parliament. Early in his reign he revived the feudal rights 
of the King to collect revenue independent of parliamentary 
grants. A vigorous controversy arose over these efforts of 
the King. A compromise was proposed in the form of a 
contract to be entered into by the Crown with ParHament, 
whereby in consideration of a grant for life of ^^200,000 a 
year the King would surrender all sources of revenue due to 
his prerogative. The consummation of this plan was pre- 
vented by religious controversies which led to the dissolution 
of Parliament in February, 1611. 

From this time until January, 1621, a period of ten years, 
the King reigned without parliamentary co-operation except 
for a two months meeting of the " Addled Parliament " in 
1614. Court intrigue dominated public affairs for this decade. 

Finally, the approach of war abroad made it necessary in 
1621 to call a Parliament, and for a few years the parliamentary 
side was temporarily in the ascendency, 

Charles I succeeded to the throne in 1625 and for eleven 
years conducted the affairs of the nation without the aid or 
interference of Parliament. Then the pent-up forces of 
democracy broke loose, assuring to England and the English- 
speaking world the ascendency of the principles of 
representative government. 

Commonwealth and Protectorate 

The period from the death of Charles I to the accession 
of Charles II (1649-1660) is called by some historians the 
period of the Republic. Nothing could be further from the 
modern conception of a republican form of government — 
that is of a government founded upon representation. The 



70 ENGLISH PUBLIC FINANCE 

government of Cromwell was dependent for its power 
upon his army and he dare not appeal to the voters except 
in a partial and negative way. As Trevelyan says : " When 
the roundheads in the name of the people had seized power 
they found not only the active champions of democracy 
but the people itself — whatever definition be given to that 
term — bitterly hostile to their rule." 

Nevertheless the period was one of active training of the 
people for self-rule. The naval supremacy of Great Britain 
was then firmly established and the path of Empire blazed 
and its foundation laid. 

Public discussion which under James had been frowned 
upon and under Charles actively repressed was free and 
open after the war broke out between King and Parliament. 
The period was one which compelled men to think hard 
and to take definite positions, for which they must be prepared 
to give their reasons and to stake their lives and fortunes. 

Under the Commonwealth and the Protectorate the cost 
of government was the highest which the country had ever 
known. However, this increased cost was part of the disci- 
pline which the country needed to prepare it eventually for 
self-government. Still this does not change the fact that 
the Protectorate was thereby brought to its end and the 
restoration of the monarchy made popular. 

The pressure of taxes, the general depression of trade, 
the poverty and suffering of the working classes and the bad 
state of credit all combined to make the people ready for a 
change. So, when the guiding hand of the great Cromwell 
was removed by death, his government easily disintegrated 
and once more a king took his place at the head of affairs. 

Charles II 

The restoration of the monarchy seemed to be necessary 
to prevent civil war. It was the only form of government 
upon which all parties could agree. The country was to 
endure for almost a generation the rule of the profligate 
Charles II and the bigoted James II. During this period the 



CONSTITUTIONAL GOVERNMENT 71 

forces making for constitutional government were still further 
developing to come to their fruition in 1688 through a final 
revolution. 

Now that government had resumed its normal course the 
traditional policy of the nation against the maintenance of a 
standing army led, as a first step, to the disbandment of the 
army. As the pay of the soldiers was much in arrears it was 
necessary to raise at once for this purpose the sum of around 
£400,000. This was accomplished by the imposition of a 
graduated poll-tax, said to have been up to that time " the 
greatest poll-tax, and most particular, that had been known." 
No one was overlooked, from the nobility to the humblest 
citizen. The charges ranged from £100 for a duke to sixpence 
for " every person not rated, nor receiving alms, above 
sixteen years of age." By reading this Act one may cause 
to pass in review representatives of every class in the social 
life of the time — dukes, marquises, earls, viscounts, barons, 
baronets, knights, sergeants-at-law, esquires, parsons, vicars, 
doctors of the civil or canon law, doctors of physic ; mayors, 
sheriffs, aldermen, town clerks ; masters and other officers 
of the livery companies ; dyers, brewers, leather-followers, 
girdlers, apothecaries, tallow-chandlers and others. Then 
there were the barber-surgeons, the white-bakers, the brown- 
bakers, butchers, carpenters and other tradesmen. Then a 
long list of those in mechanical pursuits and the building 
trades. The courts' officers and clerks and the officers and 
clerks of the other departments of the Government all had to 
pay, and finally, to sweep in any who might have been over- 
looked, " everyone that could spend, in land, lease, moneys or 
stock, £100 per annum, 40 shillings, and so on for a greater 
or ^ess estate." The produce of this tax is not reported, but 
it is recorded that the much dreaded army merged with the 
rest of the population and was quickly a thing of the past. 
The King retained about 5,000 men under arms, thus laying 
the foundation for a moderate standing army such as England 
has since then maintained. Pending the collection of this 
tax and of a special assessment on lands and movables. 



72 ENGLISH PUBLIC FINANCE 

arrangements were made with the city of London for a loan. 
Charles was successful in inducing Parliament to settle a 
permanent revenue upon him of £1,200,000 a year. This 
was something many times before attempted but now for the 
first time arranged. The King was to surrender all revenues 
from his prerogative, such as wardships, marriages, purvey- 
ance, pre-emption and the like, from which a considerable 
portion of the Crown income had previously been obtained. 
On the other hand. Parliament made the new appropriation a 
special charge upon an excise tax upon Hquors, including not 
only beer, ale, cyder, strong-water, but also vinegar and even 
coffee, chocolate, sherbet and tea. The income from this 
source not proving to be sufficient to produce the amount 
appropriated, it was later found necessary to supplement it by 
other taxes. 

The remainder of this reign was marked by continued 
clashes between King and Parliament. Large supplies were 
required for the conduct of wars with the Dutch. 

For the expenses of the first war Parliament readily voted 
the requisite amount. Two notable departures were made 
from former usage. The old method of raising money by 
subsidies of tenths and fifteenths was abandoned for ever 
and the mode of monthly assessments introduced during 
the Civil War adopted instead. The clergy who used to 
tax themselves in convocation now consented to be taxed by 
Parliament in the same manner as the laity. In return they 
obtained the right of voting at elections. 

This war with its disgraceful ending, the fire of London 
and the plague, all combined to make the people restive under 
the necessarily heavy taxation while their incomes were 
seriously curtailed. 

So, when Charles in 1672 secretly began another war 
against HoUand, without the consent of Parliament, he 
obtained the cash resources required by confiscating the 
balances of the merchants loaned to the Exchequer. This vas 
the " Stop of the Exchequer " already considered. This is 
the last instance in English history of such a proceeding, just 



CONSTITUTIONAL GOVERNMENT 73 

as the Stuarts were the last of the autocratic sovereigns. 
Parliament finally forced peace in 1674 by refusing to give 
further supplies. Just as it seemed as if Parliament had the 
King in a position where he must abandon his autocratic 
methods he succeeded in obtaining a loan from Louis of 
France and Parliament did not meet again during the last 
four years of his reign which ended in February, 1685, 

James II 

Upon his accession James II was apparently one of the 
most autocratic of rulers. The people were subservient and 
Parliament voted him large supplies for life. He had a large 
army, although it was not well disciplined and was not in 
sympathy with his religious views. However, while the 
nation was much divided on the subject of religion and one 
Protestant sect was cruelly treating all the others, they were 
a unit in opposing his desire for Catholic supremacy. Thus 
the nation was prepared to take the stand against James 
which was involved in asking William the Hollander to head 
an armed expedition to England. And so with the flight of 
James to France ended the Stuart dynasty and autocracy. 



CHAPTER XIII 

ENGLAND AFTER THE REVOLUTION OF 1688 

(1688-1920) 

The Revolution of 1688 drew a sharp line between old 
England and an England in which new conditions were to 
prevail. In politics, in its economic status, in its outlook 
upon the rest of the world and its relations therewith, the 
nation was to experience changes of the greatest importance 
to the welfare of its people. 

The history of this new England naturally divides into 
three epochal periods. First we have a century and a third 
in which the keynote is war — war in a military sense ; war in 
an economic sense. England for the English and England 
against the world, including her own colonies and her sister 
island of Ireland. 

The dominating note of the next century is peace, accom- 
panied by great political, industrial, economic and social 
changes. 

Then we have the brief climateric period of the recent 
war — a period when England nobly and voluntarily supported 
by all her Dominions and Dependencies ; joined hands 
with France, Italy, America and other allies, to save from 
destruction their common civilization. 

Origin of the National Debt 

The great financial engines which provided the power to 
make this victory possible had their genesis during the closing 
years of the seventeenth century. The ideas which gave 
them birth were probably of Dutch origin, brought with him 
from Holland by William III. These were public borrowing 
and banking. Prior to 1688 there had been no such thing 
in England as a national debt. The sovereigns had frequently 
borrowed money but these loans were transactions with 
special groups of moneyed men and in no sense borrowings 

74 



ENGLAND AFTER THE REVOLUTION OF 1688 75 

of a national character, raised on a systematic basis. As 
an alien, King William hesitated to burden the people too 
heavily with taxation and therefore to meet the expense of 
his wars resorted to borrowing on a large scale. 

The Bank of England 

In 1694 the Bank of England was incorporated. 

This was the first incorporated banking institution in 
England. Its charter, which was granted 24th July, 1694, 
provided that in exchange for a loan to the Exchequer of 
£1,200,000 the incorporators might deal in bullion and bills 
of exchange, issue notes and make advances on merchandise. 
It was a private undertaking and so remains to the present day. 
On the other hand, it performs important public functions, 
such as the management of the public debt and finances. 
Its history, privileges and responsibilities are discussed in 
detail in subsequent pages. 

The Exchequer, or Treasury, Bill 

The first Exchequer bills were issued in 1696. As originally 
issued they were a form of Government currency. 

Their subsequent use has been to bridge over the period 
between expenditure and the receipt of income from taxation 
or from long time loans. They have served as the shuttle 
which wove into the fabric of Government resources the 
floating capital of the realm. Since 1877 Treasury Bills 
which perform the same functions have taken their place. 
The principal difference between these two classes of bills 
is that the Exchequer bills were paid with accrued interest 
while Treasury bills are issued at a discount and paid off at 
par. 

The Income Tax 

Another mighty engine of public finance, the income tax 
in its modern form, was not provided until late in the next 
century. This tax was first levied in 1799 at the instance of 
William Pitt, the younger, as an aid in the financing of the 



76 ENGLISH PUBLIC FINANCE 

first part of the Great French War. It was levied at the rate 
of 10 per cent, on all incomes of two hundred pounds and 
above. In the first full year of its operation it provided about 
four and a half million. Compare this, even after making 
liberal allowance for the greater purchasing power of the £ 
sterling in Pitt's time, with the return of the last fiscal year 
(1919-1920) of nearly three hundred and sixty million, or, 
with excess profits tax added, some six hundred and fifty 
million. Its prototype, first levied in the reign of Richard I, 
may have yielded forty thousand pounds — exact figures are 
not available. 

Joint-Stock Banking 

Then, in this survey, we must not overlook the importance 
of the introduction of joint-stock banking in England in 1826, 
and the extension of the privileges of such banks to the City 
of London in 1833. The marshalling of the credit resources 
of the world through the agency of these banks and of the 
great acceptance houses made England the financial clearing 
house for the world's trade. Thus there were concentrated 
in London great reservoirs of credit which made it possible 
for England to carry so heavy a part of the financial burden 
of the recent war. The combined financial resources of 
England and America mobilized through their private cor- 
porate banks and their respective semi-state banks, and Bank 
of England and the Federal Reserve System, provided the 
credit resources without the use of which the war could not 
have been fought to its successful climax. 

Public Expenditure 

We may now turn to a consideration of the uses to which 
moneys were put which were made available by this financial 
machinery of taxation, borrowing and banking. We find in 
the requirements of war the greatest cause of the creation 
and growth of public debt. War, the preparation for war, 
the aftermath of war in the form of pensions and the interest 
upon the public debt, accounts for over 85 per cent, of the 



ENGLAND AFTER THE REVOLUTION OF 1688 77 

total expenditure of the nation from the Revolution until 
the present time. In this connection the tables of expenditure 
and of income from 1688-1920 printed with Chapter XXV 
will be found worthy of special study. 

The Tariff 

Finally, we may consider the use of the taxing power for 
other purposes than to produce income. Until 1842 England 
possessed a highly protective tariff, designed to promote the 
interests of the land owners and the manufacturers. Up to 
that time the customs tariffs were devised both with a view 
to giving this protection and to obtaining revenue. This 
was also true of some internal taxation. In 1846, largely as a 
sequence to the Irish famine of 1845, the corn laws were 
repealed. Thereafter the other protective duties were 
gradually removed, so that, since 1866, England has enjoyed 
absolute free trade. 

England in 1914 

At the time of the outbreak of the recent war England 
was the richest of the nations, so far as developed resources 
were concerned. Her commerce was world-wide, her manu- 
factures went everywhere, carried for the most part by her 
own ships. These also carried a large percentage of the 
goods of other nations, especially foodstuffs for home con- 
sumption and the raw materials of manufacture for which 
England is dependent upon the rest of the world. England 
in 1914 was the world's banker and her capital was invested 
in the promotion of industry and transportation not only at 
home and in her own colonial possessions, but in many other 
countries, especially in the Americas. 

The Future ? 

The recent war has brought about important changes in 
all of these relations. It is too soon as yet to determine to 
what these changes will lead. Much depends upon the 
Enghsh working-man and working-woman. By the progress 



78 ENGLISH PUBLIC FINANCE 

of events he and she have now largely devolved upon them 
the decision as to what shall be the future history of the 
nation. For good or ill over the centuries, slowly, almost 
imperceptibly at first, but finally with great rapidity within 
the last fifty years, this power has come to them. 



i 



CHAPTER XIV 

WAR AND DEBT 
(1688-1817) 

The period of English history extending from the accession 
of William III to the close of the Napoleonic wars was one 
marked by a succession of wars and a steady growth of debt. 

In 1688 the only debt of the nation consisted of some 
£384,000 of temporary obligations for arrears due to the 
army and for other demands arising from the Revolution. 
There was also in litigation the claim of the Goldsmiths for 
reimbursement of the amounts seized from them by Charles II 
at the time of the " Stop of the Exchequer " in 1672. This 
claim was later adjudicated at ^^664,263. So the entire 
debt as of 1688 was a little over one million pounds. 

In the century and a third lying between this date and 
1817, when the expenses of the Great French War were 
finally determined, the bulk of the public debt of England 
as it stood prior to the recent world war was created. The 
wars of William III were the cause of £18 million of debt 
and the wars of Anne of £33 million more. The Spanish 
Right of Search War and the War of the Austrian Succession 
piled on another £31 million. The Seven Years' War added 
£57 million, the American War £116 million, and the Great 
French Wars £612 million. The total debt at the end of the 
period, allowing for some reductions during the intervals of 
peace lying between the different wars, was £850 million. 

The table on page 81 summarizes these data. It also 
affords comparisons not only of one period with another, 
but also with the national wealth. It is interesting to note 
how the growth in population and in wealth kept pace to a 
measurable extent with the growth of the debt. This was 
especially the case during the last 50 years of the period. 
A table giving similar comparisons of the debt charge for 

79 



80 ENGLISH PUBLIC FINANCE 

the same periods with the national income may be found 
on page 116. 

Public Finance in the Reign of William III 

The reign of William III was marked by active warfare 
at home and abroad. At home there was the cruel war for 
the reduction of Ireland. Abroad there was constant warfare 
with France, which had espoused the cause of the deposed 
King, James II, and also was at war with England's ally, 
HoUand. 

The expenditures during the reign of James, which had 
been called "crushing," had averaged ^^2, 168,000 a year. 
They mounted to an average of nearly £5 million in William's 
reign. This state of affairs constituted a serious menace to 
the stability of the new government, not altogether removed 
by the final victory. To cope with such a difficulty William 
had the advantage of the experience of the Dutch in financial 
matters. In the Bank of Amsterdam, established in 1609, 
the Dutch possessed one of the three important banks of the 
time. England was rich and had come to understand and 
to engage actively in company promotion and in stock specula- 
tion. Domestic business was active, much capital having 
been invested during the war in the manufacture of goods 
of a class formerly imported from France. There had also 
been an active development of mining ventures, water supply 
companies, munitions factories and other undertakings. 

As the war progressed, French commerce was driven off 
the seas. England was rapidly becoming the greatest 
commercial country in Europe. 

The Bank of England Founded 

The requirements of the State and of business both called 
for better banking facilities than were offered by the Gold- 
smiths. The time was ripe for the introduction of corporate 
banking. Therefore, when a plan was brought forward for 
organizing a bank which would make an immediate large 
advance of capital to the State and which would stand ready 



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82 ENGLISH PUBLIC FINANCE 

to finance the growing requirements of the Government, and 
also of the commercial classes, it found a ready response, 
and in 1694 the Bank of England was organized. 

The National Debt Inaugurated 

Another idea which William brought with him from Hol- 
land was that of national borrowing. The new Government 
hesitated to place upon the people too heavy a burden of 
taxation. It was also thought to be a good policy to have 
the moneyed classes tied to the Government by direct 
investment in the public funds. 

It is an interesting fact that the methods of public borrowing 
introduced during the reign of William III comprised prac- 
tically every method since adopted. This indicates at once 
the resourcefulness of William's finance ministers and the 
conservatism of the English people. Then, as now, the 
debt assumed two principal forms — funded and unfunded. 
According to English Finance Accounts, the funded debt con- 
sists only of the perpetual debt, such as the debts due to the 
Bank of England and the Bank of Ireland and the Consols. 
The unfunded debt is debt of a temporary nature and debt 
repayable at the end of fixed terms. As some of the obliga- 
tions under this latter head are not repayable for many years 
the division based on established usage has become somewhat 
illogical. 

We will now consider the early forms of unfunded and 
funded debt. 



CHAPTER XV 

EARLY FORMS OF THE UNFUNDED DEBT 

(1688-1707) 

The unfunded debt of this period consisted of Tallies, Navy 
bills and Exchequer bills. In temporary advances by the 
Bank — as for convenience we will hereafter designate the Bank 
of England — we have the precursor of the "Ways and Means 
Advances " of present-day Treasury statements. 

Tallies 

Prior to the Revolution the form which the obligations 
of the Crown usually took was that of loans upon " tallies " — 
a form of wooden stick given as a receipt for money payments. 
The tally will be found described in the chapter on the 
Exchequer. 

The Exchequer would at times find it inconvenient to meet 
its payments in cash. It would then give to the creditor 
tallies or receipts issued in anticipation of revenue. These 
were known as " Tallies of Assignment," because a definite 
source of revenue was set aside for their payment. They 
were always accompanied by an Exchequer order entitling 
the holder to the payment of the amount at a set date in 
the future. 

These Exchequer orders were issued in negotiable form, 
being transferable by endorsement. They sometimes bore 
interest. 

Again, tallies with assignable orders of repayment were 
given in acknowledgment of money loans. These tallies were 
called "Tallies of Loan." The Exchequer order of repayment 
was the really valuable document. It was written on parch- 
ment and signed by the high Exchequer and Treasury officials. 

These orders and the tallies accompanying them came in 
time to be known indifferently as "tallies," and the operation 

83 



84 ENGLISH PUBLIC FINANCE 

was spoken of as borrowing on tallies. The following is a 
copy of such a document of the time of Charles II. 

EXCHEQUER ORDER. 

Reign of Charles II. 

Order is taken by us, this. . . . day of by virtue of an 

Act intituled, " An Act for granting a Supply to His Majesty of Two 
hundred and six thousand, foure hundred sixty-two pounds, seaventeene 
shilUngs and three pence, for paying off and disbanding the Forces 
raised since the Nine and twentyeth of September, One thousand six 
hundred seaventy and seaven," that you deliver and pay of such of 
His Majestye's treasure as remains in your charge of the summe of 
Two hundred and six thousand fower hundred sixty-two pounds, 
seaventeene sliillings, and three pence, arising by virtue of the said Act 

unto or his assignes, the summe of in repayment of 

soe much money lent by him unto hi? Majestic upon the credit of the 
said summe of Two hundred six thousand fower hundred sixtie-two 
pounds, seaventeene shillings, and three pence, and paid into the 

receipt of his majestie's Exchequer, the said day of 

as by a tally leavied at the receipt of the Exchequer, bearing date the 
same day, appears, together with the interest thereof, at the rate of 
eight pounds per centum per annum, at the end of every three months, 
until the repayment of the principall ; and these, together with his 
or her acquittance, or the acquittance of his or her assignee or assignees, 
shall be your discharge herein. 

The first loans of William III were raised in the usual way 
by tallies of loan charged on and in anticipation of various 
duties. The amounts required were so large that they 
accumulated more rapidly than the revenues allocated to 
them could be collected. Then the Treasury frequently was 
not in funds with which to meet a given series of tallies 
because the collections were smaller than the charges. Thus 
the tallies were discredited and fell to a heavy discount. 
At the close of the war in 1696 the total deficiency in the 
funds upon which the tallies outstanding were charged was 
£5,160,000. To remedy this defect in the system Parliament 
swept all of the receipts into one fund, making all outstanding 
tallies a first general mortgage thereon. 

The debt upon tallies of loan was a very dangerous form 
of unfunded debt. As these loans were usually made only 
for short periods, the Treasury was under the necessity of 
making frequent renewals. These renewals were apt to come 
at inconvenient times. 



EARLY FORMS OF THE UNFUNDED DEBT 85 

Navy and Army Supply Bills 

The records show, especially in the case of tallies of antici- 
pation, that the Army and Navy paymasters frequently had 
to submit to a heavy discount. As high a loss as 25 per cent. 
is known to have been suffered during the financial distress of 
1687. In the following year the Treasury was authorized by 
Parliament to issue these tallies at 10 per cent, discount to 
those who would receive them in payment for naval Sf rvices. 
In fact it was especially in connection with naval services that 
such depreciation chiefly occurred. 

The navy and army supply bills, as these obligations came 
to be known later on, were put on a sound basis in 1784 
during the Treasury administration of the younger Pitt, 

The Exchequer Bill 

The introduction of the Exchequer bill in 1696 was a first 
step toward remedying this abuse, although it was not until 
1751 that they entirely supplanted the tallies. They were 
issued in the first instance to supply a temporary need for 
a circulating medium while the coinage was in process of 
revision. Bank of England notes were not issued at that 
time in smaller denominations than twenty pounds. The 
Exchequer bills then issued amounted to only £159,169, but 
in the next year £1,500,000 were issued and in the following 
year £1,200,000 more. They were issued in even denomina- 
tions of five and ten pounds and to such public creditors as 
chose to receive them. There was no compulsion. They 
were negotiable, passing by endorsement. They bore interest. 
They were receivable by the Government in payment for all 
taxes, except the land tax, and when received could be 
reissued. Interest lapsed during the time they were in the 
Treasury. When the bills were covered with endorsements 
they were held in the Treasury and other bills issued in their 
stead. 

In 1707 an issue of Exchequer bills was authorized receiv- 
able for taxes, or payable at the Exchequer for any obligation 



86 ENGLISH PUBLIC FINANCE 

due by the Government, and exchangeable for ready money 
on demand at the Bank of England. An allowance of 4 J per 
cent, per annum was made to the Bank for circulating the 
bills. These bills bore no interest when issued from the 
Exchequer, the amount of interest to be paid thereon being 
left to the discretion of the Bank. The Bank was then in a 
position to guide the Exchequer as to the amount of bills 
which could be safely placed in circulation. The amount 
outstanding from time to time varied with the exigencies of 
the Exchequer. The use of the bills as an active circulat- 
ing medium was regulated by raising or lowering the 
denominations in which they were issued. 
The Exchequer bills first issued were worded as follows : 

EXCHEQUER BILL. 
Reign of William III. 
No. 188. Exchequer, 

26th April, 1697. 
By virtue of an Act of Parliament passed in the viii year of his 
Maties Reign, This Bill entitles the bearer to Five Pounds, to pass in 
all payments to Receiv" or Collectors of any Ayds Taxes or Supplys 
for the service of the War for the year 1697 (except ye III ShiUing 
Ayd), to be reed and satisfied by y* said Receive or Collect" under 
ye Penalties in ye Act contained. 

R. Howard. A farthing a day (LS.) 

interest. 

When the issues of Exchequer bills became excessive they 
were funded into other forms of debt. Thus they afforded 
a flexible credit instrument which could be increased or 
decreased as required by the necessities of the Government. 



CHAPTER XVI 

EARLY FORMS OF THE FUNDED DEBT 

(1688-1727) 

The early forms of funded debt were annuities and the 
perpetual loans from the Bank and the East India Company 
and later from the South Sea Company given in exchange 
for their charter privileges. 

Annuities 

The annuity loans were made on the same theory as that 
upon which annuities are sold to-day by insurance companies. 

The seller of an annuity agrees, in consideration of the 
receipt of a given sum of money, to make the purchaser 
annually or otherwise, during his lifetime, or for a specified 
period, a definite payment. This payment is larger than the 
interest would be upon the principal sum because upon the 
death of the purchaser, or upon the expiration of the annuity 
period the sum which he originally paid, or what may remain 
of it becomes the absolute property of the seller. That is, 
in the case of a pure life annuity, the seller and the purchaser 
speculate upon the probable life of the purchaser, the latter 
to increase his income, the former with a view to profit. 
Present-day tables based upon a study by insurance actuaries 
of the expectancy of life are remarkably accurate in indicating 
the average expectancy of life at a given age. The whole 
principle of insurance is based on this theory of averages. 

The tontine policy was invented by an Italian of the name 
of Tonti. He devised a plan by which a group of individuals 
would agree with the seller of an annuity and with each other 
that, as members of the group died, the survivors should have 
divided among them the amounts to which the decedents 
would have been entitled until eventually the entire annuity, 

87 



88 ENGLISH PUBLIC FINANCE 

or an agreed proportion thereof, would go to the final 
survivor. 

The loan of 1692 for £1 million was offered on this basis, 
the benefit of survivorship to last until the group was reduced 
to seven. The idea was new in England and not understood, 
so the loan was a failure, only ;fl08,000 being raised. At 
subsequent periods several tontine annuity loans were 
placed. 

In 1695 long annuities having 90 years certain duration 
were introduced. 

The annuity principle for funded loans was the one chiefly 
used during the eighteenth century. It was often used in 
combination with other schemes. One of these which came 
to be increasingly in vogue until the close of the American 
War in 1783 was the lottery loan which will be found described 
in Chapter XVII. 

The " Fund of Credit " Idea 

There was a theory prevalent in the latter part of the 
seventeenth century and the early part of the eighteenth 
century known to economists as the " fund of credit " idea. 
It was in pursuance of this idea that the Bank of England 
was organized. The entire original capital of the Bank as 
well as part of the deposits were loaned to the nation. This 
left the Bank as a basis for conducting its business a " fund 
of credit " founded upon its loan to the Government. Similar 
was the policy of Parliament in forcing the East India Com- 
pany to pass on to the Government in exchange for its 
obligations the proceeds of its sales of stock. A bank known 
as the Million Bank was organized in 1695 on the same basis 
and for a while conducted a moderately successful business. 
Pushed to its logical conclusion, such an idea could be 
developed indefinitely. Its prevalence was not confined to 
England. The idea was at the basis of the organization 
of the South Sea Company which was chartered in 1711, 
and of John Law's Mississippi Company which had such a 
meteoric career a few years later in France. 



EARLY FORMS OF THE FUNDED DEBT 89 

The East India Company 

The original East India Company was chartered by Queen 
EUzabeth in the year 1600. To it was given the exclusive 
privilege of trade for fifteen years. This period was subse- 
quently extended from time to time, to Asia, Africa, and to 
America and intervening islands from the Cape of Good Hope 
to the Straits of Magellan. 

The company opened up trade with India and became a 
rich and powerful corporation. The success of the company 
led to efforts at competition and finally to the organization 
in 1698, under parliamentary act, of a dangerous rival. The 
consideration for the charter of the new company was that 
it should make a loan to the State of £2 million. When 
the stock was offered, the old company subscribed £315,000 
and became the dominant factor in the new body. Finally, 
in 1702 in the reign of Queen Anne, the companies were 
merged and given exclusive privileges in consideration of a 
further loan of £1,200,000. 

The story of the East India Company is one of the 
romances of commerce. It was through its efforts that the 
great Empire of India was won for Great Britain. Its 
famous " East Indiamen " held unquestioned pre-eminence 
among the merchant vessels of the world down to the middle 
of the nineteenth century. Some of the most stirring chapters 
in England's commercial history are written around the 
voyages of these ships and the stories of Clive and Hastings 
will ever be memorable in England's military history. 

India has been the great imperial training school for a 
long line of illustrious British soldiers and administrators. 
The government was taken over by the Crown in 1858, after 
the mutiny. 

The South Sea Company 

The most spectacular operation based upon the fund of 
credit idea was that with the South Sea Company. This 
company was at its inception to all intents a government 



90 ENGLISH PUBLIC FINANCE 

undertaking, although incorporated (in September, 1711) as 
a private company. It received a charter giving it exclusive 
trading rights to the east coast of South America with certain 
limited exceptions and a monopoly of trading in the Pacific 
Ocean, including the entire American Pacific Coast. In 
consideration of these trading rights, which were expected 
to have great value, the company was to offer to exchange 
its stock for the outstanding unfunded government debt 
and in addition was to pay the Government £500,000. The 
Government was to pay the company interest at the rate 
of 6 per cent, per annum upon all stock which it should 
thus acquire and in addition £8,000 a year for management. 
This offer was accepted, up to the close of 1711, by the 
holders of upwards of £9 million of government obligations. 
Fmther exchanges and adjustments, in 1714, made the 
capital and the debt balance at an even £10 million. A 
further small operation took place in 1719 when the sum 
of £1,746,844 was converted. At this time those in control 
of the company and their associates in the Government 
determined upon an operation of no less importance than 
that of the conversion of the entire balance of the debt into 
the company's stock. If this scheme could have been car- 
ried out the company would have had a capital of around 
£50 million and would have practically monopolized the 
banking and trading business of the kingdom. However, 
the Bank and the East India Company would not come into 
the arrangement. It was then decided to go ahead without 
them. By wholesale bribery of the members of Parliament 
and of government officials, and by collusion with no less a 
person than the Chancellor of the Exchequer, the necessary 
legislation was obtained and the plan successfully launched. 
This was not accomplished without active competition from 
the Bank. The competitive bidding of the Bank led the 
company finally to offer the Government very attractive 
terms. Provided all of the holders of government obliga- 
tions, except the Bank and the East India Company, converted 
their holdings the company was to pay the Government 



EARLY FORMS OF THE FUNDED DEBT 91 

£7,567,500 and was to surrender its trading rights, but with 
a tacit understanding with Aislabie, the Chancellor of the 
Exchequer, that they would be restored later on. The 
Government in turn was to pay interest at 5 per cent, per 
annum upon its obligations acquired by the company. It 
was agreed that after 1727 the interest rate should be reduced 
to 4 per cent. The advantage to the nation lay in this 
saving of 1 per cent, in interest and in the receipt of the 
cash payment of £1\ million. Manifestly, even if trading 
rights were restored, which was part of the programme, there 
was no legitimate basis for such a payment by the company. 

The Outcome of South Sea Scheme 

The profit to the promoters was to come from stock market 
operations on a huge scale and they little cared what hap- 
pened afterward to their new stockholders, the present holders 
of government debt. By spreading tales of the great profits 
to be derived from their trading rights — for they took good 
care not to let it be known that these had been surrendered 
— and by the rankest kind of stock market manipulation 
they forced the quotations of their stock up to 200, then to 
300, then to 800 and finally to 1,050. As the stock advanced 
they offered the holders of government debt the privilege 
of exchanges at three to one, then at four to one. As their 
terms with the Government were for even exchanges they 
thus accumulated a large amount of treasury stock, some of 
which they were able to sell at the advanced prices and thus 
to accumulate a temporary dividend fund and one for use in 
manipulating the market. If the plan could have been 
carried out in its entirety the profits realized upon the private 
holdings of the " insiders " would have been immense. The 
magnitude of the operation and the rapidity of the advance 
proved to be their undoing. Other promoters came into the 
market with their schemes and a wild orgy of speculation 
took place. As usually happens in such a market, the col- 
lapse, when it came, was sudden and severe. The exchange 
of public securities for the company's stock had been achieved, 



95^ ENGLISH PUBLIC FINANCE 

but the speculators were most of them ruined and the public 
robbed. Strange as it may seem, the company remained 
solvent. Its new stockholders, most of them the former 
holders of government obligations, held the stock at varying 
prices. The Government had to surrender its right to the 
£1\ million, and to make the company a temporary loan 
of a million pounds in the form of Exchequer bills. It carried 
out its contract to pay the 5 per cent, per annum until 1727, 
and then 4 per cent., which yielded a corresponding return 
upon the company's stock. The conspirators were severely 
punished by loss of office, imprisonment and loss of property. 
The worst sufferers were those among the public who were 
tempted to speculate in this and the various schemes which 
were promoted during the period of the craze. For a long 
time afterward stock speculation was much in disfavour and 
" Change Alley " neglected. 

The subsequent history of the company can be quickly 
told. It existed until 1854 purely as an investment cor- 
poration holding government debt, receiving the interest 
thereon and disbursing it to its stockholders. Finally, in 
1854, the last of the debt was paid and the company liquidated. 



CHAPTER XVII 

STATE LOTTERIES AND LOTTERY LOANS 

(1694-1826) 

The first lottery loan was raised in 1694. The lottery 
principle had long been known and used on the Continent 
and was not entirely new to England. 

The First English Lotteries 

The first English lottery of which there is any record was 
one projected in the reign of Elizabeth and issued under her 
patronage in the year 1569. The bill announcing it states 
that " the same Lotterie is erected by her majestie's orders to 
the intent that such commoditie as may chaunce to arise 
thereof, after the charges borne, may be converted towardes 
the reparation of the havens and Strength of the Realme, and 
towards such other publique good workes," We have no 
record as to the amount which it yielded. 

A loan by lottery was raised in the time of James I, the 
proceeds being used to defray the expenses attending the 
establishment of the colonies in America. - 

The first lottery loan of King William III was for £1 million. 
It was offered in shares of £10. Annuities of £14 per cent, 
for 16 years were variously apportioned, £14 per cent, on 
every share and a larger proportion for the holders of 2,500 
fortunate tickets. The principal prize was £1,000. The 
annuity of £140,000 was made a charge upon the salt duties. 
The operation was called the Million Lottery and the annuities 
the Salt Lottery Annuities. 

There were seven lottery loans from 1711 to 1714 in 
the reign of Queen Anne which yielded to the Government 
£9 minion, but the bonuses paid to the holders of fortunate 
lottery tickets amounted to £2,734,000. 

93 



94 ENGLISH PUBLIC FINANCE 

The use of State lotteries in connection with the Spanish- 
Austrian War financing, 1743-1748, gave a guise of respecta- 
bihty to this method of raising money. It is not surprising, 
therefore, to find that bridges were built over the Thames, 
and the British Museum founded with funds derived from 
lotteries. 

Lottery Loans in the American War 

It was in connection with the financing of the American 
War (1775-1783) that the lottery loan had its greatest vogue. 

The loans offered were all on the lottery basis. They were 
sold at a progressively heavy discount. In 1776 for £2 million 

the Treasury offered for every £100 subscribed — 

i s. d. 
3 per cent, stock . . . . . . 77 10 - 

And three lottery tickets (in all 60,000) valued at 
;^10 each ; the prizes being funded, the holders 
of the fortunate lottery tickets received at par 
3 per cent, stock . . . . . . 30 - - 

Or in all for ;^100 cash .... ;^107 10 - 



The next loan was in 4 per cent, stock at par with a 10s. 
short annuity ; the two following were in 3 per cent, stock 
at par with more liberal annuities. Then came another at 
4 per cent, at par with an annuity. Finally with the growing 
necessities of the Government and increasing depreciation 
of government stock it was necessary in 1781 to offer, for 
£12 million in cash, £18 million 3 per cents and £3 million fours. 
Again, in 1782, for £13| million cash, the Treasury gave the 
same amount in threes, 50 per cent, additional in fours and 
a liberal annuity. The loans of 1783 and 1784 were placed 
on substantially the same basis, although it was found 
necessary in 1783 to give only 25 per cent, in fours, but in 
1784 it was necessary to give 50 per cent, again, but a smaller 
annuity was given. 

Every one of these loans carried the privilege of pur- 
chasing, at £10 each, a certain percentage of lottery tickets. 
For instance, in connection with the £6 million loan of 1778 



STATE LOTTERIES AND LOTTERY LOANS 95 

there were 48,000 lottery tickets. Each subscriber of £1,000 
received an equivalent amount of 3 per cent, stock and an 
annuity for 30 years of £2 10s. on each £100, practically 
5 J per cent, for 30 years, with the privilege of purchasing 
eight lottery tickets for an additional payment of £80. In 
the case of the loan of 1782 a subscriber of £1,000 received 
£1,000 in 3 per cent, stock, £500 in 4 per cent, stock and 
a long annuity of 17s. 6d. on each £100. He also might 
subscribe for three lottery tickets. 

The prizes, which amounted to the total sum paid for the 
tickets, were not funded as they had been at other times, but 
were paid in cash to the holders of the fortunate tickets in the 
Spring of the following year. It would thus appear that the 
Government made no direct gain from the lottery itself, 
acting merely, as it were, as an agent or stake holder, being 
benefited by the incentive given to the public to take the 
loan. 

How the Loans Were Placed 

An intelligent contemporary writer has given us a record 
as to how the Chancellor of the Exchequer was accustomed 
to place loans during this period. He tells us that it was 
usual for the minister to confer in private with a few moneyed 
men as to the terms of the loan and thus to determine a basis 
which would be acceptable to the market. 

We are not advised whether at this time the bankers 
" underwrote " the sale of the loan, but we knov/ that at a 
later date it became customary for them to purchase the loan 
in bulk and then to distribute it to their patrons at a moderate 
advance. When a new loan was contracted prior to the 
payment of the last instalment of a preceding loan, it was 
usual to give the preference to the contractors for the preceding 
loan. 

As it was illegal for a private individual to pay or receive 
over 5 per cent, interest for money, it was apparently deemed 
improper for the State to offer a higher rate. Therefore in 
order to draw capital to the Exchequer it was deemed necessary 



96 ENGLISH PUBLIC FINANCE 

to make the offering attractive in other ways than by directly 
giving a higher rate of interest. The Treasury oflficials seem 
to have thought chiefly about the addition which the debt 
charge would make to the budget. They were not much 
concerned about the nominal par value of the debt. On the 
other hand, the bankers naturally desired terms which would 
make the loan attractive to the public and thus readily 
negotiable. At the same time they very naturally wanted 
such terms as would afford opportunities for a handsome 
profit on their part, if not at the time, at any rate in the subse- 
quent dealings in the market. Hence it became customary 
during Lord North's incumbency of the Exchequer, as already 
stated, for every £1,000 in money to give 3 per cent, and 
4 per cent, stock, either or both, equivalent in market value 
to the money to be advanced, with an annuity in addition, 
in some cases, and, in every instance, with the privilege of 
purchasing a certain percentage of lottery tickets. The 
subscription was still further " sweetened " by making the 
money payable in instalments over a period of months, 
the purchaser being entitled to all interest accrued from the 
date of the loan. This last privilege amounted in some 
cases to as much as two-fifths of a year's interest. 

For the payment against each class of obligation issued 
receipts were given. These receipts were called " scrip." 
When handled together they were spoken of as the "omnium." 
Transactions during the period before the loan was paid up 
in full might be either in the several classes of " scrip " or 
in the " omnium." The subscriber had the privilege of 
paying in full, which privilege if exercised entitled him to a 
cash discount. 

The way in which the dealers and investors in government 
loans estimated the market value of the " omnium " was 
this : The lottery tickets always had an independent market. 
Experience showed that an immediate sale could be made of 
these tickets at a profit of from 2s. to 3s. each, depending 
upon the total amount of tickets in the lottery. The value of 
the 3 per cent, or 4 per cent, stock received was determined by 



STATE LOTTERIES AND LOTTERY LOANS 97 

current Stock Exchange quotations. For example, in 1782, 
when the Exchequer offered ^^20,250,000 par value for 
£13,500,000 in money the account worked out something as 
follows — 

For £100 the subscriber received 

i s. d. 
1st ;^100 3% stock having a market value 

of, say . . . . . . 60 - - 

2nd ;^50 4% stock having a market value of, 

say . . . . . . 40 - - 

3rd A long annuity for 17s. 6d., whose 

capitalized value would be about . 17 13 

4th Three-tenths of a lottery ticket by which 

he would have a profit of, say . . 11- 

5th Discount, due to the fact that the stock 

when issued carried about two-fifths of 

a year's accrued interest for which the 

subscriber was not required to pay . 2 - - 



Total ;^120 2 3 



It does not necessarily follow that these prices were realized 
by the lenders. For instance, the price of 3 per cent, stock 
fluctuated in 1782 between 61 and 53f. However, the 
terms of the loans at this period were liberal and the 
opportunities for profit were good. 

The different classes of scrip were actively dealt in in 
'Change Alley, as a large speculative account could be carried 
with a very small amount of cash capital. The subscription 
receipts paid in full were called in the Alley " heavy horse," 
while the part -paid certificates were known as " light horse." 
The " light horse " was the popular variety for speculative 
purposes and therefore commanded a relatively better price. 
This was because it took much less capital to carry a given 
par amount, while the percentage of profit, if a profit were 
realized, would be larger. 

The State Lotteries, 1784- 1826 

We may now conveniently give the further history of the 
State lotteries. 

7— (1823) 



98 ENGLISH PUBLIC FINANCE 

After 1784, the practice was discontinued of attaching 
lottery schemes to loan flotations, but until 1823, a certain 
percentage of the annual requirements of the Exchequer was 
regularly provided from the proceeds of the sale of lottery 
tickets. 

There were no lotteries in 1824 and 1825 ; and in 1826 the 
last State lottery was drawn, Ashton, in his " History of 
English Lotteries," teUs us that the method pursued by the 
Chancellor of the Exchequer in placing the lottery tickets was 
to invite a few of the leading stockbrokers to a conference, in 
which he would state his views. He would tell them that he 
intended to issue a lottery for, say, £500,000 in ;flO tickets — 
all to be distributed as prizes. He would then ask at what 
price they would tender for them. A competition would 
then ensue and finally an offer might be accepted of, say, £5 
premium a share, which would give the Government a clear 
profit, without risk, of £250,000. Of course, those who 
got the concessions put up the price of tickets, but as single 
shares were seldom bought — most people taking a fourth, 
an eighth, or a sixteenth of a ticket — ^the rise was not much 
felt by the public. 

Although private lotteries were illegal, nevertheless they 
seem to have flourished. The example set by the State was 
followed by people in all walks in life. There were lottery 
tailors, lottery staymakers, lottery glovers, lottery barbers, 
" where a man being shaved, and paying threepence, may 
stand a chance of getting £10." There were even lottery 
shoeblacks. There were frequent cases of suicide traced 
to the lotteries. These were due to the losing of employers' 
money and trust funds by those who were tempted to gamble 
in this way and to disappointed hopes of gain which perhaps 
meant the loss of one's entire patrimony. There were many 
fraudulent practices connected with dealings in the lottery 
tickets. 

The prizes varied, ranging in some instances from as high 
as £30,000 down to £500. There were regular, reputable 
brokers who made a business of deahng in lottery tickets 



STATE LOTTERIES AND LOTTERY LOANS 99 

or shares in tickets. We are told that no small part of the 
business of the stockbroker consisted of dealings in lottery 
tickets. There were also many disreputable persons who 
devised all sorts of schemes to make money in connection with 
the lotteries. One scheme which flourished for some time 
was, for a consideration, to insure the receipt of prizes. This 
was in reality pure betting. In return for, say, a shilling, a 
pound would be promised if a certain specified number turned 
up. Of course these insurances were illegal, but they were so 
profitable to the office-keepers, that no penalties could keep 
them down. Any sum might be insured from one to twenty 
guineas. The sum charged for an insurance at the commence- 
ment of a lottery drawing gradually increased as the drawing 
proceeded, depending on whether the large prizes came out 
early or late. The class preyed upon were principally 
domestic servants. In 1800 it was computed that on an 
average each servant in the metropolis spent annually, as 
much as 25 shillings in this reprehensible practice of lottery 
insurance. This was when the drawing of the lottery was 
extended over days or even weeks. 

As time went on and the evils of lottery became more 
and more apparent, there was a growing feehng that it 
should be abohshed — still, it was not until 1826 that en- 
lightened pubhc opinion finally forced its discontinuance. 

Those who favoured the lottery claimed that properly 
conducted it was a voluntary tax, contributed to only by 
those who could afford it, and collected without trouble or 
expense. 

They claimed that most of the evils connected with the 
lottery had been due to the early practice of protracted 
drawings. In 1809 this abuse was done away with and the 
lottery was decided in one day. Ashton tells us that extra- 
ordinary efforts had to be made to dispose of the tickets for 
the last lottery. The public had become disgusted with this 
method of Government financing and were glad to see it 
discontinued. 

The State lotteries yielded a gross income of some £45 



100 ENGLISH PUBLIC FINANCE 

million, but the expenses of management and prizes absorbed 
over £33 million. Thus the net income from this source was 
about £12 miUion or about ;£218,000 a year for the 55 times 
between 1755 and 1826 when this method of raising revenue 
was used. 



CHAPTER XVIII 

THE SINKING FUNDS 

We may now profitably consider the early sinking fund 
operations. There were two of these, known respectively 
as Walpole's sinking fund and Pitt's sinking fund. 

Walpole's Sinking Fund 

When Robert Walpole became Chancellor of the Exchequer 
in October, 1715, the pubhc debt, including the capitahzed 
value of the annuities, amounted to around £50 miUion 
and the annual charge to £3,164,000. 

The people were genuinely alarmed at the magnitude of 
the debt. It had increased during the thirteen years of 
Anne's reign over 200 per cent. The debt charge had risen 
from about £1,200,000 to over £3 million. A capital levy 
was being seriously urged. It was imperative that steps 
be taken to quiet the alarm and to stop this discussion about 
a capital levy which was most distasteful to the moneyed 
classes. Therefore, Walpole brought forward in March, 1717, 
a plan for a sinking fund. Before he had fairly launched this 
plan there was a change in the Government and he was out 
of the Exchequer for four years, beginning with April, 1717. 
However, his plan was adopted by Stanhope, his successor, 
who laid proposals before Parliament on 20th May, 1717, 
which led to legislation appropriating the surplus revenues of 
the Bank, the South Sea Company, and what was known as the 
General Fund, to the redemption of the debt incurred prior 
to 25th December, 1716. 

By Christmas, 1727, £6,626,000 of this old debt had been 
retired, but in the interval it had been necessary to borrow 
new money so that the debt had actually increased about 
£2 mini on. 

Walpole, with all his ability as a financier, was unwilling 
to secure a radical reduction of the debt by imposing worth- 
while taxation for that purpose. He allowed the quarter of 

101 



102 ENGLISH PUBLIC FINANCE 

a century between wars to pass with only a nominal debt 
reduction. After 1727 the sinking fund became inoperative 
for debt reduction, the funds appropriated to it being diverted 
to meeting current expenses, in order that the taxation of the 
landed classes might be reduced. However, as a result of 
successful refunding operations, chiefly in connection with the 
South Sea Company's operations as described above, the debt 
charge was reduced between 1714 and 1739, by no less a sum 
than £1 milhon. 

Pitt's Sinking Fund 

If the people of Walpole's time were appalled at the size 
of the debt, those hving half a century later had good reason 
to be still more alarmed. In the interval, the Seven Years' 
War and the American War had raised the debt fivefold and 
the debt charge nearly in the same proportion. Therefore, 
after putting his house in order by introducing needed reforms 
in taxation and funding the floating debt, Pitt, the then 
Chancellor of the Exchequer, brought forward, in 1786, a plan 
for a sinking fund which, within a period of forty-five years, 
would entirely free the nation from debt. 

The sinking fund was to be a sure specific against the 
dangers of a pubhc debt. In fact it was to be a prophylactic 
which would make it quite safe on occasion to increase the 
debt. This, because with each increase of debt there was to 
be an increased fund with which to insure its cancellation. 

One milhon pounds a year was to be taken from revenue 
and paid to the Commissioners for the Reduction of the 
National Debt, in whose favour also the existing hfe and 
terminable annuities were, on their expiration, to be con- 
tinued. The Commissioners were to invest their income 
from all sources in purchase of the funded debt, until the 
annual sum received by them amounted to £4 million, after 
which, dividends on capital stock to be paid off by them, 
and any hfe and terminable annuities which should mature, 
should cease and be considered as redeemed. Subsequently 
;i(^400,000 a year was added to the fund ; also a sum equal to 



THE SINKING FUNDS 103 

the interest saved by any reduction of interest on any 
redeemable stock ; and 1 per cent, on all new loans issued 
for public purposes. 

Fallacy of Pitt's Scheme 

It is difficult to understand the vogue which this theory 
had for nearly half a century. 

The general principle that money placed at compound 
interest will double itself at 6 per cent, in about twelve years, 
at 4 per cent., in about eighteen years, and so on, is undeniable, 
but the error lay in assuming that to buy up and " keep alive " 
the Nation's own obhgations was equivalent to placing the 
funds of the sinking fund at interest. 

If peace had continued for an indefinite period, and if the 
additions to the fund had scrupulously been made from 
taxation alone, it would have accomphshed its purpose. But 
this would not have been because of the accumulations 
from compound interest, but because an amount, determined 
by such calculations, had in reality been taken from the 
people in the form of taxation. Strange as it may seem, 
most of the brightest intellects of the day were confused 
on this matter. If England could have placed a fund in some 
other country, or in Mars, to accumulate at compound 
interest, the theory and the practice would have been in 
harmony. So long as the fund had to accumulate at home, it 
was all one whether a straight annual appropriation for the 
reduction of the debt were made from revenue, or, an appro- 
priation made determined by the circumlocution of the 
sinking fund legislation. 

However, when, as happened later, the Commissioners 
borrowed money for the sinking fund, instead of obtaining 
it by taxation, and when, to cap the cHmax, they paid more 
for this borrowed money than the rate of interest borne by the 
debt redeemed, the situation became a serious one. As Tom 
Paine tersely and humorously put the case in one of his 
numerous pamphlets : " As to Mr. Pitt's project of paying off 
the National Debt, by applying a miUion a year for that 



104 ENGLISH PUBLIC FINANCE 

purpose, while he continues adding more than £2Q million 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." 

The lesson of the ineffectiveness of the cumulative sinking 
fund, as thus administered, was not learned for a number of 
years. It was not until 1829 that this fallacious method was 
finally abandoned, and not until after £322 milhon had been 
raised at an average cost of £5 Os. 6d. per cent, per annum, to 
pay off debt carrying interest at £A 10s. per cent. The 
difference between these two rates is 10s. 6d. per cent, per 
annum. Therefore, before the nation awoke to its folly it 
had increased its annual fixed debt charge for this purpose 
by £1,690,000 ! 

Modem Sinking Funds 

Finally, the discovery was made that the only way to pay 
off the debt was from an excess of clear revenue, derived from 
taxation, over the expenditures for current needs, upon which 
principle the sinking fund functioned from 1829 to 1914. 
However, the reduction in debt was small because of the 
unwiUingness of Parhament to make any substantial appro- 
priations for the purpose. The terms of existing sinking funds 
are given in notes, following the National Debt Statement. 

In 1868, and again in 1894, the plan was adopted of 
issuing terminable annuities in lieu of funded debt. In 
1868, £24 million of Savings Bank stock was cancelled and 
an annuity of £1,760,000 substituted, while in 1884, Chancery 
stock to the amount of £40 million and over £30 million of 
Post Office Savings Bank stock were similarly treated. Thus 
the nominal principal of the debt was reduced and the annual 
charge increased, just reversing the South Sea Company 
operation of 1720 and before. The advantage of the operation 
is hard to find, as the Government of course remains obligated 
to the Saving Banks' depositors and the estates in Chancery 
for the full amount of their claims. 



CHAPTER XIX 

EARLY REFUNDING OPERATIONS 

Reference has already been made, in discussing the affair 
of the South Sea Company, to the refunding operations 
prior to 1739. There were only two refunding operations 
of importance between 1739 and 1817. 

Refunding Operation of 1749 — ** Consols " 

Advantage was taken of the period of peace which followed 
the War of the Austrian Succession to take measures to 
reduce the interest paid on the debt to a uniform rate of 
3 per cent. At that time the funded debt, apart from that 
due to the Bank of England, South Sea Company and East 
India Company, consisted of various debts contracted at 
different periods under several Acts of Parhament and 
charged on many distinct funds. 

Parhament enacted a law in 1749 that all pubhc creditors 
at 4 per cent, should be paid the amount of their holdings 
except those who signified their consent to accept 3 per cent, 
after 25th December, 1757. These were to have their 
present interest continued until 25th December, 1750, and 
then to receive 3| per cent, until December, 1757. The 
amount of these debts, including those due to the Bank 
and the companies was £57,700,000. The greater part of 
the creditors accepted the proposition. A modified offer, not 
quite so favourable, was made to those who held out and was 
generally accepted, with the result that the Treasury was 
called upon to pay off only about £3 milUon. As a result 
of these operations and the payment of £3 miUion navy debt, 
there was a net decrease, in round figures, of nearly £5 million 
in debt before the outbreak of the Seven Years' War and a 
reduction in the annual charge of ;^539,000. As an indication 
of the state of the national credit it may be noted that the 
3 per cents, which in 1748 sold as low as 76 advanced to 

105 



106 ENGLISH PUBLIC FINANCE 

an average price of about par in 1749-1751, and upon the 
successful consummation of the refunding operations sold up 
to 106| in 1752. 

The success of this operation reflected great credit upon 
the administration. It also gave evidence of the prosperous 
condition of the country, notwithstanding the long war which 
it had just passed through. 

In the session of 1751-1752 an act was passed consohdating 
certain of the 3 per cent, issues into one joint -stock of 3 per 
cent, annuities. 

Thus originated the " Consolidated Annuities " or " Con- 
sols " as that part of the perpetual debt held by the public 
has ever since been known. 

Funding the Floating Debt in 1784 

In 1784, when WiUiam Pitt the younger assumed the 
duties of his office as Chancellor of the Exchequer, he found 
outstanding floating debt for over ;fl8 million, chiefly in 
the form of navy victualhng and transport bills. From the 
time of Charles II the payments for navy victualling and 
stores had been made in bills payable at uncertain periods. 
They were taken at a discount which increased very con- 
siderably at every time of war. During the last five years 
of the American War this discount had varied from 11| per 
cent, to 16| per cent. 

Pitt brought about legislation by which the Admiralty 
was required to make all of its payments in bills drawn 
at ninety days. Thereafter, as these bills were always 
discharged with rigid punctuality they came to be considered 
and accepted substantially at par, with a resultant large 
saving to the Government. 

Of the navy bills outstanding when he assumed office, Pitt 
funded into 5 per cent, stock £6,400,000 in 1785, and ^^9,800,000 
in 1786, giving for each ;^100 debt ;^107 10s. 6d. in the first 
instance and ;^111 8s. in the second. Pitt was desirous of 
completing the entire transaction in 1785, but in deference to 
the views of the bankers spread the operation over two years. 



EARLY REFUNDING OPERATIONS 107 

In view of his later change of poUcy in that respect it is of 
interest to note his statement to Parhament, " that a fund at 
a high rate of interest is better to the country than those at 
low rates ; that a 4 per cent, is preferable to a 3 per cent, 
and a 5 per cent, better than a 4." He explains — " the reason 
is that in all operations of finance we should always have in 
view a plan of redemption. Gradually to redeem and to 
extinguish our debt ought ever to be the wise pursuit of 
government. Every scheme and operation of finance should 
be directed to that end and managed with that view." 

Competitive Bidding Inaugurated 

Former ministers had made the placing of loans a source 
of patronage. Pitt resolved to consult the pubhc interest 
only. He gave notice through the Governor and the Deputy- 
Governor of the Bank that he was ready to contract for the 
loan with those who would offer the lowest terms. Sealed 
tenders were required. He thus established a salutary 
precedent which has been followed in connection with all 
subsequent loans not offered at fixed prices. It may be 
noted in passing that the purchasing of army supphes was 
placed by him on a similar competitive basis, thus ending 
scandalous practices of long standing. 



CHAPTER XX 

FINANCING THE GREAT FRENCH WAR 
(1793-1817) 

The outbreak of the French Revolution in 1789, leading 
up to the atrocities of 1792, which culminated in the execution 
of Louis XVI on the morning of 21st January, 1793, ushered 
in a period of internal strife and of foreign wars such as France 
and the world had never before experienced. With the 
declarations of war by France in February, 1793, against 
England, Holland and Spain, the period of peace which 
England had enjoyed since the American War and the hope 
of a further similar period was abruptly ended. The adminis- 
tration found themselves face to face with a foreign war, 
while for some time they had been compelled to deal with 
dangerous uprisings at home. Thus ended a period of nine 
years, perhaps one of the most prosperous and happy that 
England had ever known. It had not been a period of 
prosperity for all classes, because the radical changes in the 
conditions of the industrial and agricultural classes had brought 
cruel hardships to many. However, taking the country as an 
entirety, it had been a time of decided progress. This period 
of prosperity terminated in a severe financial crisis and con- 
sequent " hard times." A succession of bad harvests caused 
a scarcity of food and resultant high prices. Throughout 
the commercial world the war was preceded by "a great 
revulsion and derangement of commercial credit." There 
were many failures of mercantile houses, while no less than 
twenty-six country banks were forced to close their doors. 
In April, 1793, the distress became so acute that the Govern- 
ment found it necessary to apply extraordinary remedial 
measures. At a meeting of merchants held at the Mansion 
House on the 23rd of April it was voted to apply to Mr. Pitt 
to advance Exchequer Bills on the security of goods and 
merchandise and other property. The request was referred 

108 



FINANCING THE GREAT FRENCH WAR 109 

to Parliament and on the 29th of April, Exchequer Bills to 
the extent of £5 million were ordered applied to advances. 
This measure proved to be very successful in allaying fear 
and distrust. The fact that assistance could be obtained if 
needed made it unnecessary in most cases to ask for it. 

The Loan of 1793 

It was in such a market as this that William Pitt was com- 
pelled to arrange for his first war loan of £4,500,000. This 
loan was obtained by a sale of 3 per cent, consols at 72, 
making the money cost about 4^^ per cent, per annum. 

The effect of the business crisis had been to carry down 
the price of consols from quotations of around 90 which had 
been current during August, September and October, 1792, 
to below 80 in the latter part of November. Quotations in 
January, 1793, had averaged about 75. Upon the declara- 
tion of war they broke to 72 and under, so that Pitt's bargain 
was a fair one for the Exchequer, although prices rallied 
almost immediately to around 77 and did not go below 74 
during the rest of the year. The choice of the 3 per cents., 
while contrary to Pitt's previously expressed preference for 
stocks at higher interest rates and therefore seUing nearer 
to par, was fully justified by the fact that thus a better bargain 
for the Exchequer could be made, as the fours and fives were 
seUing relatively much lower — ^that is, on a higher interest 
basis. 

The war thus entered upon lasted until the middle of the 
year 1801, although the formal signing of the articles of peace 
at Amiens did not take place until March, 1802. 

The war ended in a draw. One by one the other antago- 
nists dropped out until England and France alone were 
involved. Each nation was ready for a cessation of hostihties. 
Nothing had been decided, and, in the settlement, Great Britain 
gave up practically all acquisitions of territory which she 
had made. Great Britain expended during the nine years 
about £420 miUion, 60 per cent, of which represented the cost 
of maintaining the army and navy, against a normal peace 



110 ENGLISH PUBLIC FINANCE 

expenditure of about one-fifth of this amount. The interest 
and management of the debt absorbed another 30 per cent, 
so that over 90 per cent, of the expenditure of the period may 
be said to have been due to war — ^past and current . Of this 
great sum, which was twice the average expenditure during 
the period of the " extravagant " American War, 55'60 
per cent, was raised by taxation and the remainder by 
borrowing. 

The Loyalty Loan of 1796 

During this period there were eighteen different loan 
negotiations. We have seen that the first loan was placed at 
a little over 4 per cent. In 1794, 1795, and the early part 
of 1796, it was necessary to pay over 4^ per cent. In Decem- 
ber, 1796, the money cost over 5J per cent., while in 1797 
and 1798 it cost from 6^ to 6| per cent. In 1799 and 1801, 
5| per cent, was paid, but in 1800 over £20 miUion was 
secured at about 4| per cent. Most of the loans were issued 
as threes with annuity bonuses and in some cases with a 
percentage in fours. The rate on Navy and Victualhng Bills, 
issued as fives repayable after relatively short periods, was 
substantially higher than that paid on the annuities. The 
average actual rate paid on all loans, long and short, was 
almost exactly 5J per cent. 

The Loyalty Loan issued in December, 1796, was offered 
for pubhc subscription, books being opened at the Bank. It 
was a year of great difficulty. The progress of the war had 
been discouraging. There had been a run on the Bank 
threatening the suspension of specie payments which took 
place in February of the following year, and symptoms of 
discontent had appeared in the army. Under these circum- 
stances, with the pressure of taxation keenly felt, the ministry 
believed that a resort to the ordinary methods of raising a 
loan would be perilous. It was determined, therefore, to 
throw the subscription open to the public and to appeal to 
the patriotism of the country. 

This course was fully justified by the outcome. Within 



FINANCING THE GREAT FRENCH WAR 111 

fifteen hours the entire £18 milhon was over-subscribed. 
However, the loan was at 4 per cent, discount before the 
payment of the deposit. This discount afterward became 
8 per cent, and finally 14 per cent., but every payment was 
duly made. 

Final Period (1803-1815) 

Such a peace as that signed at Amiens was not destined 
to be permanent. British statesmen felt that it was danger- 
ous to give such an antagonist as Napoleon time in which to 
grow strong. They therefore took advantage of a dispute in 
regard to the disposition of Malta to renew the war in May, 
1803, and thus to arrive at a settlement which would be con- 
clusive. Notwithstanding the fact that they caught Napoleon 
unprepared, the war proved to be one of long duration. 
The burdens which it imposed in the form of taxation and 
debt, deranged industrial conditions and unsettled commerce 
were tremendous. It has been said that it was a war of the 
Enghsh people rather than of great leaders. Pitt, who had 
dominated the first period, was out of office when hostiUties 
were renewed. Although temporarily called back under the 
stressed conditions of 1804, he had only been at the head of 
the Government a couple of years when he died in 1806, 
brokenhearted at Napoleon's apparent invincibleness. Thus 
we find no one master mind dictating the financing of this 
period. 

The Cost of the War 

During the second period of the war, terminated by the 
treaty of Paris, signed 20th November, 1815, the annual 
expense just about doubled that of the first period. Elim- 
inating an estimated normal expense based upon the budgets 
of the last preceding peace period the average annual war 
expense of the first period of the war was approximately 
£28 miUion and of the second period £62 million. 

Taking the entire period of twenty-three years of war into 
consideration the total cost in round figures was about £1,200 

RETURN TQ- 

BUREAU CF INTERKATICNAL RELATK^^ 

384 LIBRARY ANNEX 
UNIVERSITY OF CALIFORNIA?. 



112 ENGLISH PUBLIC FINANCE 

million, a yearly average of £52,150,000. This total is 
accounted for as follows : Direct increased military and naval 
expenditure, ;f826,223,000, increased cost of civil government 
;^111,212 000, increased debt charge £262,077,000. The 
extraordinary expenses of 1816 are included in these figures 
as the accounts of this year were still considerably affected 
by the aftermath of the war. In making estimates such as 
this, most writers include only the direct military expense. 
This manifestly leads to an underestimate. The increased 
cost of civil government due to the war conditions should 
surely be taken into consideration and there should be no 
difference of opinion as to the propriety of including 
the increased burden of the national debt, to the extent 
that the increase in debt is caused by the financing of the 
war. 

It is unfortunately true that with each recurring war 
there is not only a permanent addition to the debt charge, but 
also to the cost of civil government, while the military 
expenditure rises to a new level. 

Furthermore, each recurring war costs more for each year 
of war than does its predecessor. The first three wars oc- 
curring after the Revolution cost on the average £4 million 
sterling, for each year of war ; the next, £12 million ; the next, 
£13 million ; the first part of the Great French War, £28 
million, and the last, £62 million. The two other great wars 
of England preceding the greatest of all which has just ended 
— namely, the Crimean and the Boer Wars — cost on the 
average, respectively, £24 and £70 million for each year of 
war. This is not a place to moralize, but the mere statement 
of the facts alone is an eloquent indictment of war as a method 
of setthng international disputes. How frequently we find 
upon the conclusion of a war that the articles of peace in no 
way refer to the ostensible cause of the war. Still, if ever a 
war was really justified, this twenty-three-year war of Eng- 
land's was such a one — the first part of it a stand against 
the spectre of world anarchy and the second against the 
overweening ambition and autocratic plans of Napoleon. 



FINANCING THE GREAT FRENCH WAR 113 

The Cost Met from Taxation 

The financing of the war covered the Exchequer period 
from 10th October, 1793, to 5th January, 1817. It is im- 
possible to give the statistics with absolute accuracy, as in 1801 
a change took place in the method of stating the accounts. 
Prior to that date the returns are on a " net " basis — ^that is, 
the cost of collection and management of the revenues is 
deducted therefrom. Thereafter the gross revenue is given 
and the expenses of collection are stated on the other side 
of the account. The returns are said to be on a "gross" 
basis. Therefore, for part of the period under review we 
have " net " returns and for part " gross " returns. How- 
ever, this fact does not seriously interfere with securing a 
review of the finance of the period. 

The striking thing to note is that eUminating all items 
having to do with the debt, the other expenses were entirely 
met from revenue collections. The expenses of civil govern- 
ment averaged ;f6,708,000 a year and the mihtary expenses 
£39,213,000, an aggregate of about £46 million. The revenue 
receipts averaged £49,575,000 a year ; or, taking the aggre- 
gate figures for the twenty-four years, civil and mihtary 
expenses were £1,117,656,000 and revenue receipts were 
£1,202,195,000. 

It was during this time that pamphlets without number 
were being issued from the press in regard to the debt, its 
great and growing burden, the necessity for the cost of wars 
being met by the generation which carried them on and the 
blessings and operations of the sinking fund. 

The borrowing which took place provided the means for 
temporarily bridging gaps between expenditure and revenue, 
for meeting the interest charge on the inherited debt and for 
feeding the sinking fund which, strange to say, was adding to 
the debt instead of reducing it . For the twenty-four years the 
charge for the interest and management of the debt was 
£511,306,000— £227,655,000 on account of pre-war debt and 
£283,651,000 on account of new debt. 

8— (1823) 



114 



ENGLISH PUBLIC FINANCE 



The operations on account of the debt ran into heavy 
figures as will be seen from an examination of this table. 

SUMMARY OF DEBT OPERATIONS. 

Great French Wars. 

October, 1792 — February, 1817. 

In Millions Sterling. 



Money Values. 


Credits. 


Debits. 


Gross amount borrowed ..... 

Disposition — 

Debt paid off 

Interest and management on new or war debt 
Net benefit to Exchequer from war borrowings 


£ 

1,315 


£ 

881 
283 
151 




1,315 


1,315 



Thus the net benefit to the Exchequer from net borrowings 
of £434 million, money values, was only £151 million, 11^ per 
cent, of the gross amount borrowed, sufficient with, say, £77 
million from revenue to pay the charge of £227,655,000 for 
the pre-war debt. 

In 1793 the total debt was £239,663.000. On the 5th of 
January, 1817, it was £850 million, an increase of £610,337,000 
— par value. The debt charge meanwhile had increased 
£22,623,000, from £9,432,000 to £32,055,000. Mr. Chisholm 
in his monumental report on the debt, estimates that of the net 
amount borrowed during this period about one-third — say, 
£192,868,000 — was required for the sinking fund. The annual 
charge for interest on the new money borrowed was £5 3s. 9d. 
per cent., while the similar charge on the debt redeemed by 
the sinking fund was £4 16s. 8d. per cent. The difference 
between the two rates of interest, equal to 7s. Id. per cent., 
is the annual amount lost by the sinking fund operations 
on the £192,868,000 redeemed ; or, at the rate of about 
£683,000 added fixed charge per annum. 

Debt V. National Wealth 

The burden of the debt upon the community, while heavy. 



FINANCING THE GREAT FRENCH WAR 115 

was by no means " crushing," a term by which it has 
frequently been described. 

The per capita debt was about ;f50 sterUng, or not quite 
one-third of the estimated per capita national wealth. At 
the close of the American War, another period when the 
debt was " crushing," the per capita amount was estimated 
at about £2d and the debt at about 25 per cent . of the national 
wealth. These estimates all deal with par values. 

Debt Charge v. National Income 

On account of the pohcy of discount financing pursued in 
the negotiation of loans, a better way to judge of the actual 
burden of the debt is to institute a comparison between the 
annual charge for interest and maintenance and the estimated 
national income. The growth in national income had been 
very great since the beginning of the American War in 1775. 
At that time the national income was estimated to be ;^100 
million. At the close of that war an increase of about 25 per 
cent, is estimated to have taken place. At the beginning 
of the Great French Wars the people of England were probably 
in receipt of an aggregate income of £160 million. So far 
our estimates apply only to England and Wales. In 1802 
we may add Scotland and, too, we are now deahng with more 
rehable figures, as we begin to have the income tax returns as 
a basis. We seem to be warranted in accepting an estimate 
of £230 million for the national income at this date. At 
the close of the Napoleonic wars in 1815 we have an estimated 
income for the 17 million people of the United Kingdom 
of Great Britain and Ireland of £400 milhon. 

It is beheved these estimates fairly reflect the facts, for we 
know, notwithstanding the toll of the wars, that the popula- 
tion had been rapidly increasing ; also commerce, as evidenced 
by the increase in shipping and in the values of exported and 
imported goods ; also the volume of business, as evidenced by 
the steady increase in the yield of the income tax and the fact 
that the people at the same time were able to pay the 
enormous excise taxes. 





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Wars of Anne 

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Spanish- Austrian Wars 

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Seven Years' War 

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American War 

Peace 

Great French War — 

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FINANCING THE GREAT FRENCH WAR 117 

Therefore we seem to be justified in accepting them as a 
measure of the burden of the debt at the times indicated and 
of its comparative weight. So we arrive at the interesting 
summary statement contained in the table on page 116. In 
interpreting this table the fact should not be lost sight of that 
the purchasing power of money has varied considerably 
during the two and a third centuries. The relative burden 
of the debt cannot be judged merely by comparative 
statistics in terms of money. If we had index numbers of 
prices such as exist to-day covering the entire period and could 
adjust money values accordingly we would probably discover 
that to-day's burden is relatively not materially greater than 
at other crucial periods. 

This table demonstrates in a striking manner why it was, 
notwithstanding all the direful prophecies of disaster which 
were made at all of these periods, that after each war England 
shook herself hke a great ship coming up out of the trough of a 
stormy sea and went on her way unscathed. That reason 
was because, although one of the oldest of the nations, she 
was nevertheless full of vitahty and rapidly growing in popu- 
lation and in material resources. Students of this period 
point out that because of the integrity of property and con- 
tracts in England, she became to an important degree during 
the Great War the custodian of the savings of Europe. Thus 
she was enabled to finance her trade on an ever increasing 
scale as well as to finance the stupendous costs of the twenty- 
three years of war. Sowing and reaping in national finance 
is thus illustrated. 

Another moral phase of the situation which cannot be 
tabulated but which is at the base of England's credit 
structure, is that not once apparently was there even a 
thought of repudiation — even when the burden of debt 
pressed heaviest. Fears there were plenty of the abihty 
of the nation to continue to meet its obhgations, but never 
once a suggestion of trying to get rid of the obligations in any 
other way than the good old-fashioned one of paying. 



CHAPTER XXI 

REVENUE AND EXPENDITURE 
(1688-1817) 

During the centuries which preceded the EngHsh Revolution 
of 1688, the Enghshman had held the reins over his auto- 
cratic rulers and had finally won a state of comparative 
political freedom by his control of the purse. 

The King's hereditary revenues were passed on from one 
sovereign to the next, also those of which it was customary for 
Parhament to make a life grant at the beginning of each reign. 
However, Parliament retained absolute control over other 
sources of revenue which it voted from year to year. Thus, 
by making it necessary for the King to call them together to 
vote at least a pcirt of the supplies, the Commons were able 
to control, to some extent at least, the acts of the King. 

When William HI consented to assume the responsibihties 
of the throne in 1688 he expected that the usual grants would 
be made to him. To this Parhament in part demurred. No 
change was made in respect of the hereditary revenues, but 
Parliament declined to make the usual life grants. Instead, 
the revenues usually so granted were made renewable at the 
end of four years. 

Thus was confirmed, or more properly reasserted, the 
principle of a short grant of some considerable branch of the 
revenue with a view to keeping the sovereign dependent 
upon the will of Parhament . 

It is not our purpose to consider in detail the various forms 
of State expenditure, nor do we intend to take up in detail 
the methods of raising revenue during the period under 
review. 

Purposes of Expenditure 

The broad general purposes of expenditure were, as they 
are to-day, the expenses of civil government, the expense of 

118 



REVENUE AND EXPENDITURE 119 

the maintenance of the military establishment and the charge 
for the interest upon the national debt. 

An inspection of the table on page 120 will show how 
these expenses grew from one historical period to another. 

The table is arranged to show the average annual expen- 
diture for each period of peace and of war from the Revolution 
until the end of the French wars, and for the peace period 
immediately following. 

The important facts to notice are the progressive increasing 
expense of each war period and the fact that after each 
war the level of peace expenditure is raised. 

The Growing Burden 

It will be observed that the war period of the reign of 
Wilham III cost on the average about £5 million a year. 
The mihtaristic administration of Anne cost half as much 
again. During the Seven Years' War the expenses were 
double those of Queen Anne's reign. During the American 
War they were 50 per cent, higher than during the Seven 
Years' War. For the first part of the Great French War the 
expenses were double those of the American War period, 
while the expenses of the last part of the French War averaged 
nearly twice those of the first part. With these figures 
in mind let us now turn to the record of the intervening peace 
periods. Here we find this interesting sequence — we will use 
round figures. Following the peace of Ryswick in 1697, 
the average annual budget was ^^3,800,000 ; after the peace 
of Utrecht in 1713, about £5,700,000 ; after the peace of 
Aix la Chapelle in 1748, £6,600,000 ; following the peace 
of Paris in 1763, £9,900,000 ; after the peace of Versailles 
in 1783, £16,600,000 ; while looking ahead into the next 
period we find that for the years immediately following the 
peace of Paris in 1815, peace expenses rose to a new level 
of £56 million a year. 

It is true that a most important part of the growing cost 
of government was due to the cumulative effect of the charge 
for the growing public debt. Again it seemed to be considered 



120 



ENGLISH PUBLIC FINANCE 



necessary after each war to maintain the military establish- 
ment on a new level of expenditure. Still, even the expense 
of civil government, the strictly peace establishment, exhibited 
the same tendency to expand. The table follows — 



GOVERNMENT EXPENDITURES, 1688-1830. 

Average per Annum for Alternate Periods of War and Peace. 

In Millions Sterling. 



Period. 


Character of Period. 


Peace. 


War. 






i 


I 


1688-1697 


Wars of William III . . . 




5.1 


1698-1701 


Peace 








3,8 


— 


1702-1714 


Wars of Anne 








— 


7,6 


1715-1739 


Peace 








5,7 


— 


1740-1749 


Spanish- Austrian Wars 








— 


9,5 


1750-1755 


Peace 








6,6 


— 


1756-1766 


Seven Years' War , 








— 


14,5 


1767-1775 


Peace 








9.9 


— 


1776-1785 


American War 








— 


21,8 


1786-1792 


Peace 








16,6 


— 


1793-1802 


1st Period— Great French War 




— 


45,4 


1803-1817 


2nd Period — Great French War 




— 


80,5 


1818-1830 


Peace ..... 




56,2 


— 



Sources of Income 

Let us now turn to the other side of the account and see 
from what sources the income was derived with which to 
meet these constantly growing expenditures. Here we have 
some surprises awaiting us, particularly when we come to the 
period of the Great French War. Again we will deal with 
the average annual figures, as this is the only way in which we 
can make a comparative study. Taking first the revenue 
from other sources than borrowing, we find that the excise 
taxes were most productive, then the customs and then the 
land and house duties. The stamp taxes first began to be of 
importance in the period following the American War. During 
the second part of the Great French War the income tax 
assumed great importance, yielding almost as much as the 
customs. 



REVENUE AND EXPENDITURE 



121 



Now we come to the interesting and surprising phase 
of the situation. From the stress which has been put 
upon the growth of the debt it might be assumed that 
the greater part of the cost of the wars and of the growing 
expenses of all kinds had been obtained by mortgaging 
the future. As a matter of fact, just the reverse is true. 
Most surprising of all, the really stupendous expenses of 
the Napoleonic War — ^the second half of the Great French 
War period — were met chiefly from taxation, the exact 
percentages being 79-70 from taxation and 20"30 from 
borrowing. 

The table of Government income following, prepared to 
cover the same historical periods as in the case of the 
Expenditure table, may be studied with profit. 



GOVERNMENT REVENUE 1688-1830. 

Average per Annum for Alternate Periods of War and Peace 

In Millions Sterling. 







Peace. 






War. 






Period. 


Character of Period. 














Tax. 


Tax. 


Debt. 


Total. 


Tax. 


Debt. 






£ 


£ 


£ 


£ 


% 


%» 


1688-1697 


Wars of William III 




3,6 


1,8 


6.4 


66-43 


33-56 


1698-1701 


Peace 


4,6 


— 


— 


— 


— 


— 


1702-1714 


Wars of Aniie 




5,4 


2,3 


7.7 


69-55 


30-40 


1715-1739 


Peace 


5.9 


— 


— 


— 


— 


— 


1740-1749 


Spanish- Austrian 
















Wars . 


— 


6,6 


3,0 


9.6 


68-91 


31-08 


1750-1755 


Peace 


7,1 


— 


— 


— 


— 


— 


1756-1766 


Seven Years War . 




9,1 


5,5 


14,6 


62-62 


37-37 


1767-1775 


Peace 


loT? 


— 


— 




— 


— 


1776-1785 


American War 


— 


12,7 


9,4 


22.1 


57-39 


42-61 


1786-1792 


Peace 


17,0 


— 


— 


— 


— 


— 


1793-1802 


1st Period \ French 
2nd Period / War 




26,2 


20,9 


47.1 


55-60 


44-40 


1803-1817 


— 


64,4 


16,4 


80,8 


79-70 


20-30 


1818-1830 


Peace 


68,0 


■"" 


_. 




*"" 


~ 



CHAPTER XXII 

PEACE AND SOCIAL BETTERMENT 
(1817-1914) 

We have just been studying the finances of a period the 
dominating note in which was war. It was also the period 
when the greater part of the English debt, as it stood prior 
to the recent world cataclysm, was created. We now enter 
upon the study of a period where peace was dominant. 
During the century there were two important wars and a 
number of military expeditions, but as these were all fought 
at a distance, they scarcely interrupted the course of events at 
home. 

The period is one of intense interest to the social reformer, 
to the economist and to the pubhcist. For the student of 
public finance it is chiefly memorable as a time within which 
the methods of taxation were greatly simplified. A dis- 
tinguished succession of finance ministers, notably Peel, 
Disraeli and Gladstone, introduced and successfully established 
innovations in State finance of far-reaching importance. 

Sources of Revenue — ^Tariff Reform 

During this period England was transformed from a country 
surrounded by high tariff walls to one practising free trade 
in its most extreme form. From the standpoint of finance 
this resulted in reducing the number of classes of commodities 
upon which customs duties were collected from 1200 in 
1842 to 466 in 1853, and to only 48 in 1860. By 1880 the 
number of classes of articles upon the tariff had been reduced 
to 10. In 1914 substantially the entire customs revenue was 
derived, in the order named, from tobacco, tea and sugar and 
from spirits in various forms, including motor spirits; although 
cocoa and its preparations, and coffee, together yielded a 

122 



PEACE AND SOCIAL BETTERMENT 123 

substantial revenue. Notwithstanding this radical change in 
the customs tariff, the revenue from this source remained 
fairly uniform during most of the period, but with a marked 
tendency to increase during and following the period of 
the Boer War, The income from the excise taxes steadily 
increased during the century. The remaining important 
sources of revenue were the income and property tax, the 
estate duties, and the stamp taxes. The income tax was 
discontinued at the close of the French Wars to be reimposed 
in 1842 and has been of growing importance ever since, 
finally becoming the most important source of tax revenue 
in the financing of the recent war. 

Character of Expenditure 

Turning now to the purposes for which the money of the 
State was expended during this century we face a situation 
of great interest. 

First of all we find that the expenditure for the payment 
of the interest upon the debt in the fiscal year ended 31st 
March, 1914, was £18,700,000, a reduction of £14,200,000 
from the year 1817 when the maximum charge was reached. 

Military and Naval Expenditure 

In the next place, we discover that the military expendi- 
ture steadily grew during the entire period. The Crimean 
War cost £73 million, or at the rate of over £24 million a 
year for the three years (1854-1857) affected by the financing 
of that war ; but, eliminating this special feature, we find 
the cost of the military establishment in time of peace steadily 
mounting, until in the four years preceding the Boer War 
it averaged over £40 million ; more than the average military 
expense during the Great French War, although some £5 
inillion less than during the most expensive period of that 
war. The Boer War cost £281 million, bringing the entire 
military expense for the period (1899-1903) up to £431 million, 
over £100 million a year. However, for the peace period of 
over ten years following that war the military burden averaged 



124 



ENGLISH PUBLIC FINANCE 



annually over 50 per cent, higher than it had averaged in the 
four 3'ears preceding the war. In the fiscal year ended 31st 
March, 1914, the military establishment cost over £11 million. 

Civil Government Expenditure 

Let us see, now, what the statistics of the cost of civil 
government show, eliminating after 1870 expenditures for 
postal services, because these were offset by a corresponding 
or greater income. We find that the record can be allocated 
roughly to three periods. Down to the time of the Crimean 
War (1854-1856) these expenditures called on the average for 
about ;^9 million a year, increasing during the last decade 
to about £10 million. They then reached a new level, 
ranging from an average of about £12,500,000 during the 
period of the war to an average of slightly under £23 million 
during the five years of Gladstone's administration ending in 
1874. 

Thereafter they mounted rapidly until in 1914 they had 
reached over £75 million or substantially the same as the 
military expenditure. They had run neck and neck with the 
military expenditure for the previous six years. 

The following table will visualize this last statement — 

CIVIL GOVERNMENT v. MILITARY EXPENDITURE. 



In Millions Sterling. 



Years Ended 
31st March. 
1909 
1910 
1911 
1912 
1913 
1914 
* Postal expenses eliminated. 



Civil 1 


Military 


£ 


£ 


49,7 


59,0 


55,7 


63,0 


60,9 


67,8 


67,4 


70,5 


70,1 


72,4 


75,2 


77,2 



The explanation of this steady increase in the cost of civil 
government is to be found in the awakening of the civic con- 
science to the duty of the State to its citizens. As we have 
already noted, in 1839 Parliament for the first time voted a 
small sum for public education. By 1854 the expenditure for 



PEACE AND SOCIAL BETTERMENT 125 

this purpose reached £559,000 — twenty years later it was 
more than four times as great. In another twenty years the 
expenditure for this purpose had again quadrupled, while in 
1914 it was over £19 million, twice the 1895 amount. To 
complete the record we may note that this sum had again 
doubled in the year ended 31st March, 1920, and that the 
budget figure for the current year (1920-1921) is £56 million. 
The introduction of old age pensions in 1908, and of health 
insurance in 1911, added another similar amount to the 
annual expenditure by 1913-1914, and these expenditures 
tend to increase in almost a spectacular way. For example, 
in 1919, with scarcely a word of objection, old age pensions 
were increased by Parliament by an estimated annual sum 
of about £10 million, bringing up the estimated future annual 
expenditure for this purpose to about £28 million. 

The table on the next page, giving the distribution of the 
civil government expenditure at the end of historical periods 
from 1833 to 1914 inclusive, offers further interesting 
data. 

Therefore, to sum up, we find that the striking facts con- 
nected with public finance in the history of the century lying 
between the two great wars were these : A revision of the 
tariff and revenue laws to promote freedom of trade and to 
provide the means for great social reforms and a steady 
increase in military expenses, even during a prolonged period 
of an almost complete absence of war. 

Debt — Refunding 

Since 1817 several refunding operations have been carried 
through. The most important of these operations, and the 
only one to result in a saving commensurate with the effort, 
was that made by Mr. Goschen in 1888 and 1889, when some 
£565 million 3 per cents, of various issues were refunded 
into 2 J per cent, consols at a saving of £1,411,000 a year. In 
accordance with the terms of issue the interest rate on these 
consols became 2| per cent, after 1903. These are the consols 
of to-day. Mr. Gladstone had previously endeavoured, in 







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PEACE AND SOCIAL BETTERMENT 127 

1853, to effect a somewhat similar operation but the conditions 
at the time were unfavourable to the success of the under- 
taking. An operation undertaken in 1884 was likewise 
unsatisfactory in its final outcome, as it resulted in a saving 
of only ;^46,756 a year on some £22,362,000. 

Some Comparisons 

On 5th January, 1817, the debt stood at £850 million. The 
fixed charge for interest and management at that time was 
about £32 million. In this amount was included the sum of 
about £2 million annuity payments. It has for many years 
been customary for Treasury officials in making statements 
of the debt to capitalize the annuity payments. This hardly 
seems a proper method for 1817 as the annuities being paid at 
that period were really bonuses, or additional interest, and 
represented no expenditure of capital. However, if to agree 
with the Exchequer method of to-day we roughly calculate the 
capital value of the annuities outstanding in 1817 at fifteen 
years purchase, or, say, £30 million, this would bring up the 
par value of the debt in 1817 to £880 million, equivalent to 
about £52 per head of population. 

In 1817 the national wealth was estimated to be £2,700 
million, about £159 per capita. Therefore the national debt 
at that time was almost one third of the national wealth. 
In 1914 the national wealth was estimated at £14,500 million, 
say, £315 per capita. The debt, which was then £711 million, 
was thus less than 5 per cent, of the wealth. The fixed 
charge at the earlier date was 8 per cent, of the estimated 
national income of £400 milhon, while at the later date it was 
only a trifle over 1 per cent, of the estimated national income 
of £2,250 million. Therefore the growth in population, in 
wealth and in earning power had made the burdensome debt 
of 1817 a very unimportant affair by 1914, 

Again, the expenditures of the Government for all 
purposes amounted in 1817 to £71 million, about 18 per 
cent, of the national income ; in 1914 the expenditures 
of the Government had risen to £212 million but this 



128 



ENGLISH PUBLIC FINANCE 



amount was not quite 9J per cent, of the estimated national 
income. 

Casting these figures into tabular form we arrive at the 
following statement. It should be borne in mind that 
national income is the estimated income of the British people 
as a whole, not the revenue of the Exchequer. This latter 
would be substantially the same as the Government 
expenditure. 

THE FISCAL CHANGES OF A CENTURY. 
Grand Totals, Expressed in Millions. 
Italics indicate decreases. 



Date 


Popl. 


Natl. 
Wealth 


Debt 


Debt 
Charge 


Natl. 
Income 


Gov't. 
Expend. 


Jan. 1817 . 
Aug. 1914 . 


17 
46 


2,700 
14,500 


850 
711 


32 
24 


400 
2,250 


71 
212 


Changes . 


29 


11,800 


139 


8 


1.850 


141 



Stated Per Capita and Percentage. 



Date. 


Natl. 
Wealth 


Debt 


Natl. 
In- 
come 


Debt 
Charges 


Gov't. 
Expenditure 


Per 
Cap. 


Per 
Cap. 


0/ 

/o 
Wealth 


Per 
Cap. 


Per 
Cap. 


0/ 

Income 


Per 
Cap. 


% 
Nat'l. 
Income 


Jan. 1817 
Aug. 1914 


£ 

159 
315 


£ 
50 
15 


31-5 
4-9 


£ s. 

23 11 

49 - 


£ s. 

1 17 
10 


8-00 
106 


£ s. 

4 4 
4 7 


18-0 
9-4 


Changes 


156 


35 


26-6 


25 9 


1 7 


6-94 


3 


8-6 



In words of Sir Stafford H. Northcotc, writing in 1862, the 
great advance of the British nation from 1817 to 1914 may be 
summed up as due " to the progress of science, and its appli- 
cation to all the arts of life, the development of the railway 
system, the improvements in agriculture and manufactures, 
the discoveries of gold and the impulse given to colonization." 



PEACE ^ND SOCIAL BETTERMENT 129 

To these general causes he added the great improvement 
which had taken place in the fiscal administration. Since the 
time when he wrote has come the age of electricity with the 
wonderful impulse which it has given to the arts and sciences, 
especially as applied to the material well-being of the nation ; 
the tremendous advance in transportation methods, on land 
and sea and now in the air ; the intensive methods of produc- 
tion ; improvements in finance and, as an impressive result 
of the recent war, the welding together of the constituent 
political units of which the Empire is composed into a unified 
whole, one nation in sentiment and purpose composed of 
many separate political units. 

The history of public finance in England during the crucial 
period of the World War has already been related. 



9— (1823) 



CHAPTER XXIII 

THE ANCIENT EXCHEQUER 

There is every evidence that the early kings had in use 
well developed methods of adniinistering their finances. 

The Exchequer 

The Exchequer was the place where the King's revenue 
was received, where it was kept, supervised and controlled, 
and from whence it was issued. There were three officers of 
the Exchequer, each of whom had control over the issue of 
the money. The money was kept in chests, each chest having 
three locks and each of these officers having his key to one of 
the locks. One of these officers called the Teller, was the 
cashier who received the money ; then there was the Clerk of 
the Pells, who recorded on a pell or parchment all receipts 
and issues ; finally there was the Auditor, who examined the 
records and whose duty it was to see that no money was 
issued except in accordance with the law, and with the 
sanction of Parliament. 

This system existed until well into the nineteenth century, 
although certain changes were of course made in respect to 
the actual custody of the cash. In 1834 the whole system 
for the administration of the public finances was revised 
and modernized. 

The Accounting 

The King's revenues were collected by the Sheriffs and by 
them were twice a year, at Easter and at Michaelmas (the 
day after the feast of St. Michael, about the end of September), 
paid to the King's treasury. 

On the appointed day the Sheriffs would bring their 
accounts and the money which they had collected to the hall 
in which the settlements were to be made, known as the 

130 



THE ANCIENT EXCHEQUER 131 

Receipt of the Exchequer. Upon entering the hall the Sheriff 
would see at the farther end a table, about ten feet in length 
and five in breadth, covered with a black cloth which was 
divided by white lines into squares about a handbreadth in 
width. It was this chequered cloth which gave name at once 
to the system of accounting and to the place of meeting and 
which persists to this day as the designation of the English 
Treasury. 

Seated on a bench to the right of the table, clothed in their 
scarlet robes, the Sheriff would see the Bishop, the Justiciar 
who represented the King, and the Chancellor of the Excheq- 
uer ; also the Constable and several Chamberlains or courtiers. 
Seated at the far side of the table were the Treasurer and 
the scribes or clerks. Facing them were the calculator 
and the cutter of tallies. Seated on benches arranged around 
the room were the taxpayers, watching to see that the accounts 
as they affected their interests were correctly stated. The 
Sheriff upon approaching the table would place on it his 
receipt tallies and the silver coins for use in settling his 
account. He would then take his place at the foot of the 
table facing the Chancellor and other dignitaries. The 
game of chess which was to decide his indebtedness then 
proceeded. 

In the early days only the priests and monks were able to 
read and write ; therefore the accounting had to be visualized. 
To serve as counters foreign coins were used. The calculator 
would place the coins in the proper spaces on the chequered 
cloth to represent the Sheriff's indebtedness. Below he would 
place the silver paid in by the Sheriff and counters representing 
any credits due to him. Thus was visualized the state of 
the account, and the adjustments required to effect a settle- 
ment could be readily determined. The Chancellor's scribes 
meanwhile had entered a statement of the account in duplicate 
on the rolls of vellum which were used in place of the paper 
account books of to-day. A tally — ^receipt — ^prepared by 
the tally cutter would be given to the Sheriff to be carefully 
preserved until the next settlement. 



132 ENGLISH PUBLIC FINANCE 

Tallies 

These tallies were sticks of some hard wood on one side of 
which notches were cut of peculiar shapes and sizes corres- 
ponding to the figiires of account which they represented. The 
stick was bored near one end so that it could be filed upon a 
rod. When the sums paid had been cut on the two edges of 
the stick, and the name had been recorded, it was split nearly 
to the bottom, so that one part contained a stump or handle 
while the other was only a flat strip. The larger part or tally 
was retained by the Sheriff, while the smaller part remained 
in the Treasury. This was known as the counter-tally or 
counter-foil. As it was customary for the Sheriff to make 
only a partial settlement at Easter, it was necessary for him 
to bring with him at Michaelmas his Easter tallies in order 
that he might obtain the necessary credits in making his 
settlement for the year. The validity of the tallies presented 
could be determined by comparing them with the counter- 
foil. The use of tallies at the Exchequer was not finally 
discontinued until 1834. On the 10th of October of that year 
we read in the Gentleman's Magazine that the most ancient 
revenue department in the State, the Receipt of the Exchequer, 
terminated ; also that on the 16th the tallies were burned, 
and on the same day the Houses of Parliament were destroyed 
by fire. The presumption was that the flues were overheated 
on account of the great fire caused by the burning tallies. 

The use of tallies has left a permanent imprint upon the 
English language and usages. The larger part of the tally was 
sometimes called the stock and the smaller part the foil. 
Down to about a hundred years ago, if one lent money to the 
Bank of England or to the Exchequer, tallies were cut for the 
amount ; the bank kept the foil and the creditor received the 
stock. He thus held " bank stock " or " Exchequer stock " 
of the amount recorded upon the tally. Wlien the form of 
cheque was adopted it is true that it was not called a foil, but 
the part retained by the payer was called the counter-foil, 
and the word " cheque " itself goes back ultimately to the 
same root as " Exchequer." 



THE ANCIENT EXCHEQUER 133 

The Ancient Treasury 

The taxes in the early days were frequently paid in kind, 
as well as in money. The wealth of the King and of his nobles, 
not in the form of landed property, forests, flocks, herds and 
the like was represented not alone by money but by gold and 
silver plate, by jewels and gems and by richly embroidered 
robes. Such articles belonging to the King were kept in his 
Treasury. For a long time, wherever the King went the 
Treasury also went. The principal treasuries ultimately came 
to be located at Winchester and at Westminster, and finally 
with the growing importance of London the Treasury was 
definitely located there. 

It would be interesting to consider here the methods of 
administering the Treasury in the early days and the duties 
of the officials. However, it is impossible to do this in the 
space at our disposal. Therefore we will proceed at once to 
an examination of the system now in use. 



CHAPTER XXIV 

THE MODERN FISCAL SYSTEM 

The finances of Great Britain are conducted on what is 
known as the budgetary plan. Briefly stated, this plan 
involves the preparation by the executive of a " definite plan 
or proposal for financing the business of a future period both 
with respect to revenues and expenditures." 

The Budget 

The policy of the English budget is settled by the Chancellor 
of the Exchequer and the details worked out by the permanent 
staff of the Treasury. The budget is presented by the 
Chancellor to the Commons usually in April or May. Some- 
times a supplementary budget is presented in the Autumn. 
Previous to the presentation of the budget a financial state- 
ment containing carefully prepared estimates of revenue 
and expenditure is placed in the hands of each member of 
Parliament. These estimates are compared with the actual 
expenditure for the past year, also with the estimates for that 
year. At the time of presentation the Chancellor explains, — 
usually in great detail — the reason for the proposed methods 
of taxation or borrowing to be followed in obtaining the 
revenues necessary with which to meet the expenditures. 
Many of the budget speeches have been notable for their 
lucidity and interest. Gladstone's budget speeches were 
among his greatest efforts. Parliament can approve or reject 
the recommendations of the budget but does not add to its 
items or make an appropriation in excess of the amount 
proposed. 

Certain appropriations are of a continuing or permanent 
character, such as those for the support of the King and his 
household ; the interest and management of the public debt, 
and the salaries for the higher judicial officers. These are 

184 



THE MODERN FISCAL SYSTEM 135 

designated as " Consolidated Fund Services." Annual appro- 
priations for the other public expenses are known as the 
" Supply Services." Appropriations for such services cannot 
be made " unless recommended from the Crown." That is, 
unless set forth in the budget. This puts an effective check 
on log-roDing and trading and upon ill-considered expendi- 
tures. So carefully are the estimates of expenditures and 
receipts made that in normal times the actual results vary but 
slightly therefrom. 

The Public Tresisury 

The Treasury Department controls all financial operations 
of the Government which in any manner affect the amount 
of funds that Parliament will be called upon to vote for their 
support or the expenditure of funds when granted. Though 
termed a department the Treasury is technically a board. 
Prior to 1714 the head of the department was known as the 
Lord High Treasurer. In that year the office was put in 
commission ; that is, while the office remained a single one 
provision was made that its duties should be performed by a 
board consisting of a First Lord of the Treasury, the Chancellor 
of the Exchequer, and three Junior Lords. Though this 
board has continued in existence until the present time all 
real authority has in fact passed from its hands into those of 
the Chancellor of the Exchequer. 

The political heads of the Treasury are the First Lord 
(practically always the Prime Minister), the Chancellor of the 
Exchequer, a Parliamentary Secretary, a Financial Secretary, 
and three, or sometimes four, Junior Lords, the fourth Junior 
Lord not being a paid official. The First Lord does not 
concern himself with the actual management of the affairs 
of the department of which he is nominally the chief officer. 
He has the patronage of the board, save in so far as he dele- 
gates it in minor matters to the ParUamentary Secretary, 
and nominates for approval by the Sovereign the incumbents 
of certain Crown livings. He also recommends to the Sover- 
eign the names of persons to be the recipients of civil Ust 



136 ENGLISH PUBLIC FINANCE 

pensions or royal bounty. The three (or four) Junior Lords 
have certain minor duties in connection with the Treasury, 
but their real duties consist in acting as assistants to the 
ParUamentary Secretary of the Treasury, who acts as the 
chief whip of the Government in the House of Commons. 
Thus the officers nominally in charge of the Treasury in fact 
pay little or no attention to the direction of the affairs of 
that department, but concern themselves almost entirely 
with parUamentary matters. A Treasury Minute often 
concludes with the words " My Lords approve," and the 
Junior Lords affix their names formally to innumerable 
documents which they are not expected to peruse and for 
which they take no responsibility whatever. 

The Chancellor of the Exchequer and his Aids. 

The Chancellor of the Exchequer is the real responsible 
head of the Treasury. It is his function to regulate the pubUc 
income and expenditure, to propose any change of taxation 
or any measures affecting the public debt, to keep the pubhc 
services in funds and to supervise the currency and the 
banking legislation of the country. He is ex o-fficio Master 
of the Mint. He is assisted on the administrative side by the 
Financial Secretary. The Financial Secretary attends to 
the details of financial business and in particular to the 
sanction of estimates and to seeing them through the House 
of Commons. The Financial Secretary also represents in the 
House of Commons a number of departments which have no 
ministerial head. Both the Patronage Secretary and the 
Financial Secretary leave office whenever a change of 
administration takes place. 

The foregoing are political officers with seats in Parliament. 
At the head of the permanent staff of the Treasury there is 
a Permanent Secretary, and under him are three Controllers, 
with the status of heads of departments. Each, subject to 
the general supervision of the Permanent Secretary, is directly 
responsible to the Board (that is to say, in practice, to the 
Chancellor of the Exchequer) for one of the main departments 



THE MODERN FISCAL SYSTEM 137 

of the work of the Treasury, namely Finance, Supply Services, 
and Establishment. By Supply Services is meant voted 
Expenditure, while Estabhshments include all questions of 
personnel, salaries, wages, the staffing of public departments, 
pensions, and kindred matters. Each of the three depart- 
ments is organized in several divisions, with an Assistant 
Secretary at the head of each, with three or four subordinates. 

The Consolidated Fund 

In 1787 Parliament provided that there would be one 
general fund into which all the revenues of the Crown should 
be put and from which all disbursements should be made. 
Prior to this time it had been customary to allocate certain 
definite charges against each of the principal sources of 
revenue. It is stated that in 1785 there were no fewer than 
seventy-four charges, involving seventy-four separate accounts, 
imposed upon the customs revenue, while the militia charges 
were defrayed from the land tax and certain hereditary 
annuities were met out of the post office revenues. To correct 
this situation the " Consolidated Fund Act " was passed. 
A similar Act was passed in 1816 in reference to revenues 
and expenditures of Ireland and the two consolidated funds 
were further consolidated into one consolidated fund for 
Great Britain and Ireland. The Consolidated Fund stands 
to the credit of the Exchequer. 

The Bank of England and the Treasury 

The custodians of this account are the Bank of England 
and the Bank of Ireland. Thus these banks are substituted 
for the " strong box," or chest, of the old Exchequer for the 
keeping of the public treasure. The duty of the banks is 
confined to receiving the public revenue and paying it out to 
officers who are charged with the actual responsibility of 
settling and paying public obligations. These officers take 
the place of the Teller under the old cashbox system. 

The centralization of all public payments in London and 



138 ENGLISH PUBLIC FINANCE 

the direct hold of the Bank on the process of payment lend an 
importance to the central organization of public financial 
administration in England such as it possesses in no other 
country. Through the medium of the Bank public revenues, 
without being collected in provincial treasuries, are trans- 
mitted direct by the Receivers of Taxes to London, after local 
expenses have been met. The Bank of England thus actually 
receives the surplus cash of all the revenue departments. 
The greater part of the Government expenditures is paid in 
London itself. Expenditures which have to be met outside 
of London and which cannot be paid by the receivers from 
their collections are always remitted from London. This 
keeps the management of the money in the hands of the 
central authorities. 

Each of the head offices concerned with the administration 
of the various branches of the revenue has an account at 
the Bank. All the money received by these offices is in the 
first instance credited to one of these accounts. Only mis- 
cellaneous receipts which are managed by the Treasury are 
paid direct to the Exchequer account. 

Revenues received by the collectors in the provinces are 
remitted to London by means of bills of exchange which are 
made out to the head office to which payment is to be made. 
Should there be a branch of the Bank of England in the 
neighbourhood of the collector he deposits his money there, 
and the amount is at once credited to the general account of 
the Commissioners of Inland Revenue in the books of the 
Bank, but as the Bank has only eight ^ branches remittances 
are more usual. The bills run for two or three days and 
are sent to the Bank by the Commissioners of Inland 
Revenue to be cashed. When they have been honoured the 
Bank credits the account of the office with the amount in 
question. 

The Bank of Ireland acts for account of the Exchequer in 
Ireland, while in Scotland the six principal banks act in turn 
in this capacity, as agent for the Bank of England. 

^ In the provinces. 



THE MODERN FISCAL SYSTEM 139 

The Government account has been kept by the Bank of 
England since 1834 under the name of " The Account of His 
Majesty's Exchequer." Into this account all the public 
revenues are paid as soon as possible after their collection 
and from it all disbursements are made. The Exchequer 
account is not the account of a distinct central treasury as 
opposed to various other treasuries. It is the repository for 
all public moneys. 

The Pajrmaster General 

The English system of disbursing public funds rests upon 
the principle of having a single Paymaster General for the 
whole Government. He receives the money from the 
Exchequer that is required for the payment of public obli- 
gations and makes such payments himself or advances money 
to " sub-accountants " for that purpose. " Sub-accountants " 
are defined by the Exchequer and Audit Departments Act as 
" those who receive advances by way of imprests from prin- 
cipal accountants or who receive fees or other public moneys 
through other channels." The Paymaster General is in no 
sense an accounting officer. He has nothing to do with the 
examination and settlement of claims. His sole function is 
that of making payment of orders drawn upon him by 
accounting officers proper. His responsibility is limited to 
that of satisfying himself that the orders for payment are in 
due form and are supported by the proper documents as 
required by law. 

Originally there were a number of paymasters, one for the 
army, one for the navy and a number for the several civil 
services. During the years 1830-1856 these were abohshed 
and their duties consolidated in the single office of Paymaster 
General. A special feature of this system is that although 
the Paymaster General keeps a separate account in respect 
to each vote for the civil services and a separate consolidated 
account with each of the departments of the army and navy, 
he keeps but one general balance from which he makes pay- 
ments on account of all the votes. This means that so long 



140 ENGLISH PUBLIC FINANCE 

as he has a suf&cient balance he can pay any order drawn 
upon him, regardless of the vote to which it relates, whether 
he has requisitioned sufficient funds on account of that vote 
or not, provided that the aggregate of the vote for the year 
is not exceeded. Any payment on account of a vote in excess 
of a sum requisitioned for that vote is subsequently adjusted 
by a future requisition. 

Accounting Officers 

As we have seen, the duty of the Paymaster General is 
that of paying obligations found to be due. It is for the 
accounting officers to determine what payments are so due 
and payable. Technically an accounting officer is the officer 
charged with the duty and responsibility for the expenditure 
of a vote and of rendering an account of the manner in which 
the duty is performed. 

An accounting officer is designated for each vote. 
Theoretically there might be as many accounting officers as 
there are votes. The same person is usually made the accounting 
officer for all the votes for a department or other important 
branch of the public service. The duty of rendering an 
account of the manner in which funds are expended is a part 
only of the duties of this officer. He is also charged with the 
supervision and control of all the financial operations of the 
department to which he is attached. He is the officer whose 
approval is required before any expenditure of funds can be 
made or liability entered into. The accounting officer has 
entire charge of the financial operations of his service. He 
is responsible for all expenditures and the rendition of the 
accounts. His duties pertain not only to the settling of 
accounts but to the incurring of obligations in the first 
instance. He has the duty of seeing not only that the law is 
strictly complied with but that all expenditures are made to 
the best possible advantage. In a word he is the watch dog 
of his service and the permanent financial secretary of his 
department. 

There is a complete and thorough system of audit. 



THE MODERN FISCAL SYSTEM 141 

Financial Reports 

Various financial reports are submitted annually to Par- 
liament. The principal report, known as Finance Accounts, 
dates from 1802 and has not changed its essential character 
since its first issue. The accounts are made up for the fiscal 
year which terminates on 31st March, and are laid before 
Parliament on or before 30th June of each year. Finance 
Accounts also contains a statement in considerable detail in 
regard to the national debt. 

Note. — The principal dependence for the statements made in this 
chapter has been placed upon a report on The System of Financial 
Administration of Great Britain, made in 1917 to the Institute for 
Government Research, by Professors William F. Willoughby, Westel W. 
Willoughby, and Samuel McCune Lindsay, and upon the History of 
the Bank of England and Its Financial Services to the State, by Eugene 
Von Philippovich. We are also indebted to English friends for valued 
information in regard to recent changes in procedure. 

The word " vote " which frequently occurs in the chapter is used in 
a sense equivalent to our term " appropriation," while the word 
" issue " is equivalent in our usage to " pay." 



CHAPTER XXV 

CONCLUDING THOUGHT AND DEDUCTIONS 

We have now traced the history of English pubHc 
finance from the time of the accession of William III down 
to the present day. We have found that with relatively 
unimportant exceptions the debt has arisen from the extra- 
ordinary expenses of the various wars in which the nation 
has been engaged. We have seen that the cost of war has 
progressively increased and that after each war all expenses 
of the State have risen to a new level. We have found little 
disposition to reduce debt during the intervals of peace. 
However, we have found that the growth of the nation in 
material resources has reduced in each historical period the 
burden of the debt. 

We have learned that the English financiers have always 
derived a substantial portion of the cost of each war period 
from taxation. Turning to the revenue from taxation, we 
discover that the most flexible source of taxation has proved 
to be the income tax. The finance ministers since that form of 
taxation was introduced, have found it comparatively easy to 
meet the requirements of a new situation by slightly or largely 
raising or lowering the rate of this tax. It is no longer neces- 
sary to hunt up fantastic sources of income, such as taxation 
of bachelors, hearth taxes, window taxes and the like. Again, 
so far as the customs are concerned, it has been learned that 
much better results can be obtained from a moderate tax 
on a few articles of common use than by taxing many articles. 
This simplifies administration and reduces the cost of collecting 
the taxes. 

As to the purposes for which national taxes are raised, we 
find that outside of the cost of wars, the maintenance of the 
military establishment in times of peace and the public debt 
burden, other expenses are relatively small. Therefore, if a 
way could be discovered to end wars and to pay off the debt, 

142 



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the people of Great Britain thereafter need scarcely feel the 
burden of taxation for other purposes, that is, unless it 
seemed wise to undertake enlarged plans for social better- 
ment. As to such undertakings, we have found that since 
the widening of the suffrage there has been a growing ten- 
dency toward social betterment through State co-operation, 
and that when the war broke over the world in 1914 there 
were then pending plans which would have involved further 
heavy expenditures for such purposes, and that notwith- 
standing the heavy financial burdens of the war there has been 
during the war period an increasing expenditure for education, 
for old age pensions, and for similar purposes. 

From the point of view of the investor, especially of the 
foreign investor, we find that since the Revolution of 1688 
England has scrupulously kept her engagements with the 
public creditor, that she has done so in times of stress and that 
her burdens to-day, while heavy, are not much heavier, in 
proportion to national wealth and income, than those which 
she has borne at times in the past. Recent statistics of her 
commerce show that the country, even in the unsettled year 
1919, has quietly been forging ahead again. While we expect 
to vie with her in a generous rivalry for business, we cannot 
but be cognizant of the fact that her long experience in the 
shipping trade, extending over the centuries from the time of 
Drake's famous voyages in the days of Queen Elizabeth, give 
her a peculiar advantage in this line. The experience of her 
bankers and manufacturers is an asset of incalculable value. 
Her loyal overseas citizens, the peoples of her self-governing 
Dominions, Crown Colonies and Dependencies are a bulwark 
of strength and afford a wonderful home market, which it will 
be surprising not to see specially developed hereafter. 

What England requires to-day to insure her material well- 
being is a heavy output of goods and services which the world 
will take in exchange for the food which she must buy in order 
to maintain her population and for the raw materials of 
manufacture, most of which she must seek without her own 
borders. 



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If class distinctions are forgotten in a general effort for the 
common welfare — in short, if the Golden Rule of doing as you 
would be done by is made the rule of action for conservatives 
and liberals, for labour and for capital, there need be no fear 
but that England will maintain a strong and wholesome 
national life, that prosperity and happiness will be hers and that 
the wonderful credit standing which she has enjoyed for many 
generations will be maintained and strengthened in coming 
years. 

The tables printed on pages 143 and 145 summarize the 
statistical data for the entire period from 1688 to 1920. 
They have been compiled with great care and will be found 
worthy of study. 



The Bank of England 



CHAPTER I 

A BANKING EVOLUTION 

The Bank of England is more than a corporation. It is a 
personality. The first of the modern banks, if a bank two 
and a quarter centuries old may be so called, it is also the 
most powerful. This standing does not come because of 
its resources, for even its large capital and surplus of 
£17,800,000 are exceeded or closely approached by those of 
several of the London joint -stock banks, which also have 
greater total resources. The Federal Reserve Banks of the 
United States have combined capitals and surpluses nearly 
double those of the Bank of England, and gold holdings 
nearly five times as large. Nevertheless the Bank of England 
has a prestige and a standing which is all its own, won by years 
of honourable and capable administration of the finances of 
the world's greatest money capital. 

The Functions of the Bank 

The Bank of England while privately owned performs all 
the functions of a State bank. It also conducts a general 
banking business, receiving the deposit accounts of corpora- 
tions and of individuals. 

From 1844 until 1914 it possessed practically the sole 
right of note issue in England, but the Treasury, or Currency, 
notes now in circulation greatly exceed the combined circu- 
lation of the Bank of England and of the Scotch and Irish 
banks. 

The functions of the Bank in connection with the Exchequer 
described in another chapter are of great importance. 

The prerogative of the Bank, which has accrued to it by a 
process of evolution, of holding the ultimate reserve for the 

147 



148 ENGLISH PUBLIC FINANCE 

banking and commercial interests of the United Kingdom is, 
in normal times, what gives the Bank its premier position 
among English financial institutions. The other distinctive 
purpose which it serves, especially in times of national 
stress, is by the alchemy of credit to liquefy the assets of 
the Kingdom and put them to work for its preservation and 
advancement. 

Holds Ultimate Banking Reserves of Nation 

As to the first of these functions, that of holding the 
ultimate banking reserve of the Kingdom, it has come to be 
an axiom of the Englishman's financial creed that as the 
Government is back of the Bank it cannot fail. Therefore, it 
is argued, there is no reason why the other banks should 
carry any important reserve other than their deposit with the 
Bank, although some of the joint-stock banks in recent years 
have adopted the policy of carrying a substantial amount of 
gold in their own vaults. The amount so held in July, 1918, 
was estimated by the " Committee on Ciirrency and Foreign 
Exchanges after the War," of which Lord Cunliffe was 
Chairman, at £40 million. The Scotch and Irish banks, as 
explained in the previous chapter, also carry cash balances 
which may include a certain amount of specie. Except as to 
the gold so held, the banking business of Great Britain, with 
its world-wide ramifications, depends upon the strength of 
the Bank and the wisdom of the management, and in con- 
sequence the commercial credits of the world also may be 
said to rest largely on the same foundation. At least, such 
was the case until 1st August, 1914. The raising of the Bank's 
rate usually would automatically turn the exchanges in favour 
of London. The lowering of the rate would make for " easy 
money " throughout the world. Not only so, but the volume 
of the business which could be done, even in remote parts of 
the world, was determined by the attitude of the Bank. This 
delicate credit structure with its world-wide relations is now 
partly dislocated as a result of the war and will not properly 
function again until England returns to a specie basis. 



A BANKING EVOLUTION 149 

Mobilizes National Credit Resources 

The other special function served by the Bank is that of 
mobilizing the financial resources of the people for great 
financial and commercial emergencies and especially for 
meeting the needs of the Government in time of war. This 
is accomplished because of the fact that the ultimate banking 
reserve of the nation carried with the Bank can be made the 
basis, on occasion, for a great expansion of credit. It is the 
modern development of our forefathers' idea of a " fund of 
credit." The reserve of the joint-stock and private banks 
deposited with the Bank has come to be considered a basis 
for an extension of credits to their borrowing customers. 
As a result of long experience, it is found that a given reserve 
is sufficient to warrant the granting of credits for several 
times its amount. This principle is well known to bankers 
and constantly observed in their transactions. 



CHAPTER II 

THE GENESIS OF BANKING 

It will be of interest, before taking up the history of the 
Bank of England and discussing its functions more in detail, 
briefly to consider the evolutionary process which led up to 
conditions making this bank a possibility. 

Banking Originated in Italy 

The enterprise of the medieval Italian merchants carried 
them to all parts of the known world. It was natural, there- 
fore, that the Popes should commission them to collect their 
revenues and to transport them to Rome. As these revenues 
were paid in the moneys of the countries where collected, the 
merchants readily became money changers and early origi- 
nated and used letters of credit and bills of exchange. It 
was in keeping with their other activities to act as collectors 
and farmers of the revenues of the sovereigns of the countries 
which they visited. As farmers of the revenues they would 
make advances to the King and reimburse themselves, with 
a profit, by collecting the customs or some other branch of 
the King's revenue, which was given to them in " ferme " — 
that is, as secmity. From such advances against the revenues 
it was an easy step to making direct loans. Sometimes the 
repayment of these loans was guaranteed by the pledge of 
the Crown jewels, the royal wardrobe, or the very diadem 
itself. As the payment of interest (" usury ") was forbidden 
by the Church, the merchants were rewarded for these 
advances in various indirect ways. Sometimes the King 
agreed to buy jewels or other wares. Sometimes he granted 
trading concessions, or used his influence in behalf of the 
merchants with other potentates. Sometimes he made 
the merchants a substantial cash present for the use of 
the money beyond the time originally agreed upon for its 
repayment. 

150 



THE GENESIS OF BANKING 151 

The necessities for ready money by those taking part in 
the crusades gave the ItaHans special opportunities for 
making gain from conversions of properties of various kinds 
into liquid funds. 

The Italian Bankers and the Plantagenet Kings of England 

The Plantagenet kings of England from the time of Henry 
II through the reign of Edward III — that is, over a period of 
more than two hundred years, from the middle of the twelfth 
centiiry to well into the fourteenth century — were active 
patrons of the Italian merchant bankers. The archives of Old 
England contain copies of contracts between the Crown and 
the merchants dating from as far back as the reign of King 
John. Following is a translation from the Latin of such a 
contract, which must have been entered into during 1199, the 
first year of John's reign. It refers to the payment of a debt 
incurred by Richard I, presumably in connection with his 
crusade. Note in the last paragraph the promise of the King, 
" by way of thanks for your generous waiting . . . your 
waiting shall not seem burdensome to you." 

DEBENTURE OF THE REIGN OF JOHN. 

John, by the grace of God King, etc. ... to his beloved friends 
Speren, Barageton and their associate merchants of Placentia {i.e. 
Piacenza), greeting. 

Know that we wish to pay to you two thousand marks and 125 
marks, which, for love of the dear memory of King Richard, our 
brother and in accordance with his own request you lent to William 
Andegavensis {i.e. of Anjou) and R. Bangorensis, bishops, and to 
Stephen Ridel, for carrying out the business of our dearest grandson, 
the illustrious King Otho ; in the Senate of Rome. And therefore, 
by these presents, we bind ourselves to you for such an amount, 
promising that on the next Feast of St. Michael after our coronation, 
at our exchequer in England, we shall cause to be paid to you, or to your 
known envoy, upon his bringing and presenting these presents, 625 
marks, and at the Easter next following 500 marks in the same place, 
and at the following Feast of St. Michael 500 marks at the same place 
and likewise 500 marks at the next following Easter we shall cause 
to be paid at our exchequer in England to you or to your known envoy 
upon presentation of this our note of indebtedness. And nevertheless 
by way of thanks for your generous waiting we shall reply to you, 
the Lord favouring, that your waiting shall not seem burdensome to 
you. Witness my hand at Rothomagum, the 25th day of August. 

(1199 A.D.) 



152 ENGLISH PUBLIC FINANCE 

Following is a letter of credit dating from the second year 
of the same reign. This also is translated from the Latin. 

LETTER OF CREDIT OF THE REIGN OF JOHN 

John, by the Grace of God .... to all merchants, etc. Know 
all of your body, that we do appoint the bearers of these presents, 
Hugo of Feritas and Robert of Sablenc, to prosecute our business at 
the Senate of Rome, and to merchants from whom they shall have 
borrowed money up to 500 marks silver, for prosecuting this business, 
we shall be held bound to pay the money in full. And by these 
presents we are constitute principal debtors for this amount and, 
the term agreed upon, in accordance with the convention made between 
our aforenamed clerks and the merchants. To those who shall bring 
these presents to us or to our mandatory along with letters from the 
aforenamed clerks showing the sum of money borrowed from the 
protestants we shall cause the money to be paid in full. Witness my 
hand at Fissa, the 6th day of January. (1201 a.d.) 

The transactions with the Italians ended disastrously for 
them and disgracefully for Edward III, when, because of his 
failure to meet his obligations to them, the great Florentine 
houses, known as the Bardi and the Peruzzi, were unable to 
meet their commercial engagements, and finally became 
bankrupt. 

The King's Factor 

Dating from the reign of Edward III we find the kings of 
England having dealings with English merchants. The king's 
factor (financial agent — banker) held an honourable position 
at court. He was charged with the arduous duty of keeping 
the king's coffers filled. One of the first merchants to hold 
this position was William de la Pole, of Hull, who in 1338 
and 1339 lent Edward III what for those times were immense 
sums of money. He not only freely supplied the King from 
his own resources, but, in order to secure additional sums 
from others, he even mortgaged his own real estate. He is 
styled in all public instruments " our faithful and well beloved 
merchant," Passing by others worthy of mention, we find, 
about two hundred years later. Sir Thomas Gresham acting as 
royal agent or factor for Edward VI and later for each of his 
sisters, Queen Mary and Queen Elizabeth. Just as De la Pole 
arranged loans at Antwerp for Edward III, so two centuries 



THE GENESIS OF BANKING 153 

later we find Gresham doing for Edward, Mary and Eliza- 
beth. Thus it would appear that after the downfall of the 
Italian merchants, De la Pole was able to win the confidence 
of a group of Flemish merchants and that on the whole their 
transactions had proven to be sufficiently satisfactory to 
cause them and their successors to be wdling to continue 
financial relations over two centuries — relations which were 
to continue for yet other centuries. 

Early Italian Corporate Banks 

Before we take up the consideration of the development of 
banking in England let us now retrace our steps and see what 
happened in Italy following the commercial crisis due to the 
failure of the Bardi and Peruzzi. It would appear that there 
were recurrent revivals of business activities and of failures 
not unlike the recurring crises with which we have become 
familiar in modern times. Notwithstanding occasional dis- 
asters the banks, as they came to be called as early as 1421, 
grew and multiplied. They were banks both of deposit and 
discount. " Giro " payments — that is, payments by means 
of transfers on the bankers' books — were made from the early 
part of the fifteenth century. Transferable certificates of 
deposit were issued and used " hke coin." So these early 
banks were banks of issue as weU as banks of deposit. Some 
of these private banks became very powerful. However, 
recurrent failures which sometimes were due to bad banking 
practices, but often to forced loans to the Government which 
tied up a large part of the bankers' resources in a fixed form, 
weakened confidence in the private bankers and led to the 
establishment in Venice, in 1584, of the first public bank. 
This was known as the Banco della Piazza del Rialto. This 
bank restricted itself to keeping depositors' money in security, 
and to paying it out or transferring it according to their 
directions. 

In 1587 the private banks were suppressed. The need for 
further banking facilities led in 1619 to the establishment of 
the famous Banco del Giro, which in 1637 absorbed the Banco 



154 ENGLISH PUBLIC FINANCE 

della Piazza del Rialto. The Banco del Giro, or, as it came to 
be known, the Bank of Venice, continued in business until 
1806. 

Another famous early Italian bank was an outgrowth of 
the business of the Compania, or Casa, di San Giorgio of 
Genoa. This institution is described by Andr6ades in his 
History of the Bank of England as an association of State 
creditors who managed the revenues of the republic, owned 
colonies and possessions, maintained armies and fleets, made 
war and concluded treaties, and combined with all these 
various functions the duties of a bank of deposit. Its genesis 
dates back to the organization in 1148 of a company to 
make a loan to the republic. By 1250 a number of such com- 
panies, which were called " Compere," were merged under the 
name of Compera del Capitalo. In 1407 Jean le Maingre, 
Marshal of France, changed this compera into the Ufficio di 
San Giorgio, which continued until 1736 the business of 
making advances to the State. It soon became a State 
within the State, possessing great power and influence. Just 
how early it began to do a banking business is not evident. Its 
cartulary or registered notes were somewhat similar in 
character to modern bank notes. They were certificates of 
deposit, but as the deposits were not held as a definite fund to 
secure them but used in the general business of the bank the 
notes in fact circulated on the general credit of the bank. 
This bank continued in business until 1797 when it failed. 
So much for the early Italian banks. 

The Bank of Amsterdam 

In the Bank of Amsterdam, founded 1608 or 1609, the 
Dutch possessed the third public bank to be organized. 
Founded after the Italian banks, it continued in business until 
1790, when its affairs were liquidated by the city, which 
guaranteed its solvency. The Bank of Amsterdam theo- 
retically held in trust the actual coin or bullion deposited with 
it, issuing its notes against such deposits. At a time when the 
coinages were systematically sweated and clipped the function 



THE GENESIS OF BANKING 155 

which this bank performed of practically insuring the integ- 
rity of the currency was a valuable one to the commercial 
community. Thus its notes came to command a premium 
for purposes of exchange. The failure of the bank was 
precipitated by the disclosure that its assets had been 
clandestinely loaned to the Dutch East India Company. 
To return to England. 

The English Goldsmith Bankers 

Those who first engaged in business operations in England 
analogous to the modern profession of banking were the 
Italian merchants commonly known as Lombards. Hence 
Lombard Street in London, where their homes and places of 
business were chiefly situated. Naturalized foreigners and 
finally natives took up the business. The goldsmiths, as 
they were called, united the trades of the goldsmith, of the 
dealer in bullion and of the money-lender. In the latter 
capacity the goldsmith also conducted a pawn-brokerage 
business. Sometimes the pawns were the royal jewels and the 
jewels of the nobility, for the goldsmith was a canny person 
and usually took good care to obtain security for his ad- 
vances. A traveller who visited England from the Continent 
in 1593 tells us that in Lombard Street he saw " all sorts of 
gold and silver vessels exposed to sale, as well as ancient and 
modern coins." The goldsmiths gave and took a bond on 
receiving and lending money. They exacted heavy payments 
for their loans. About the time of Charles I — say, from 1625 
— it became customary for the merchants to entrust their 
balances to the goldsmiths. Before that, for some time, they 
had been in the habit of depositing them for safe keeping in 
the Tower of London. However, after Charles had seized 
£130,000 temporarily deposited in the Tower while en route 
from Spain to Dunkirk, the merchants were afraid to make 
further deposits, even though, after they had consented to 
make the King a loan of £40,000, he had released this particular 
deposit. 

They then got into the habit of entrusting their surpluses 



156 ENGLISH PUBLIC FINANCE 

to their cashiers. Some of these, of a thrifty turn of mind, 
instead of " wrapping their talent in a napkin " deposited 
the trust fund with the goldsmiths and so realized interest 
which substantially increased their yearly stipend from their 
employers. The latter then awoke to the fact that by such an 
arrangement their funds could be safe-guarded and income 
increased and so deposited them directly with the goldsmiths 
for their own account. 

This custom developed greatly during the troublous times 
of the civil wars and in the Cromwcllian era until it is said 
that half the gold in the kingdom came to be stowed away 
in the goldsmiths' vaults. The banking business of the 
mercantile community was in the goldsmiths' hands and from 
this business they derived handsome revenues, laying the 
foundations for fortunes, some of which have continued to 
the present day, and for banking businesses which in one 
form or another still endure. 

Charles II dealt the goldsmiths and their clients a cruel 
blow when in 1672 he confiscated the loans which the gold- 
smiths had made to the Exchequer. This " Stop of the 
Exchequer," already noted in a previous chapter, involved 
the large sum of £1,328,526 and, as might be expected, was 
followed by serious consequences to the goldsmiths and to the 
entire community. 



CHAPTER III 

THE pARLY HISTORY OF THE BANK OF ENGLAND 

Thus it was when, about twenty years after the happening 
of the events just described, WiUiam Paterson of Dumfries 
came forward with a project for a bank which would be 
the equal in strength of the Banks of Amsterdam, of 
Venice and of Genoa, he received a ready hearing in busi- 
ness circles. In 1691 Paterson urged the establishment of a 
national bank, so as to provide a safe means of borrowing 
money at proper rates of interest. Many of the great London 
merchants supported his project, notably, Michael Godfrey, 
one of the richest and most honest city men of that time. 
The plan was coldly received by Parliament, but the neces- 
sities of the Government for funds with which to prosecute 
the war against France led a committee of the Commons, 
to which a consideration of the project had been referred, 
to advise Paterson that they would receive any proposal to 
advance £1 million on a perpetual fund of interest. As the 
committee were unwilling to concede any reciprocal rights, 
Paterson and his friends naturally were not interested and 
abandoned the project for the time. Finally in 1694 they 
achieved their purpose, but the proposal " had to be smuggled 
into Parliament under cover of a bill imposing a new duty 
on tonnage, for the benefit of the capitalists lending money 
toward carrying on the war with France." This was known 
as the Tonnage Act. 

As it finally became a law the bill provided that the sub- 
scribers to a perpetual loan of £1,200,000 should form a 
corporation to be called " The Governor and Company of the 
Bank of England." The fund so raised was to be loaned to 
the Government. 

The First Years of the Bank 

When the Bank of England was organized in 1694 it com- 
bined all the methods of banking then known. Its capital 

157 



158 ENGLISH PUBLIC FINANCE 

of £1,200,000 was loaned wholly to the State for an annual 
return of £100,000 — that is, for " an interest " of 8 per cent, 
and £4,000 for management. The Bank acquired the right 
to receive deposits, to issue its demand notes and to loan 
its funds. It also bought and sold bills of exchange. It 
was organized entirely with private capital and as a private 
enterprise. However, it had very close relations with the 
State from the day of its organization. At first it had no 
monopoly rights of any kind. It was political necessity which 
brought it into being. The Whig Government was sorely 
in need of funds to maintain its existence against foreign 
aggression, unsettled conditions in Ireland and a latent liking 
of many of the great Tory families for the deposed James II, 
whom they would have been pleased to have seen back on the 
throne. The Bank not only provided William III, sometimes 
called Dutch William, and his Whig supporters with the 
original £1,200,000, but it stabilized the exchanges, helped to 
market the long annuities with which the people were just 
becoming familiarized, and also, even in those early days, made 
temporary advances to the Government. The Bank began 
business without a dollar of cash capital. Its resources were 
the " fund of credit," as the saying of the time had it, due to 
its holdings of the Government debt, its note issuing rights 
and its deposits. 

The good effects of such an institution were immediately 
felt. The Exchequer officials no longer had to make 
" frequent processions to the city to borrow money on the best 
and nearest public seciirities, at 10 or 12 per cent, per annum 
interest," while the mercantile community had a source 
from which to obtain loans at reasonable rates. One of the 
earliest and most important of the public functions of the 
Bank was to assist in the rehabilitation of the coinage which 
was so debased at the time of William's accession that one 
of the first acts of the new government had been to arrange 
for its restoration. 

In the early days the Bank allowed interest on its notes 
and also upon its deposits, a practice afterwards abandoned. 



EARLY HISTORY OF THE BANK OF ENGLAND 159 

To-day the Bank is chiefly a bankers' depository and therefore 
an offer to pay interest upon deposits would place it in com- 
petition with its chief patrons and interfere with its functions 
as the holder and protector of the ultimate banking reserve 
of the nation. On the other hand, in the inception of its 
business it desired to build up its deposits and increase its 
note issues by attracting money from the goldsmiths ; there- 
fore the payment of interest was a powerfiil lever for this 
purpose. The Bank was nearly wrecked in the second year of 
its career by its goldsmith enemies, who, taking advantage of 
the fact that there was a great scarcity of coin because of the 
restoration of the coinage then in progress, gathered up 
quantities of the Bank's notes and demanded immediate 
redemption. As the Bank could not promptly enough secure 
coin from the mint it could not respond and was temporarily 
compelled to suspend specie payments. To ease this situation 
the first Exchequer bills were issued. 

The necessities of the Government led from time to time 
to overtures to the Bank for larger advances. Taking advan- 
tage of such situations the Bank made them the basis for 
securing valuable concessions and additional privileges, in 
particular a monopoly of note issue. Mutual concessions on 
the part of Government and Bank were made, until to-day 
the Bank has the exclusive right of note issue in England, 
except for the unimportant exception noted on page 167, the 
management of the debt and the Government deposit accounts. 
The ownership and control of the Bank remains to this day 
in the hands of its proprietors. The State has no proprietary 
interest in the capital of the Bank and no voice in its 
management. 

Instead of attempting a detailed history of the Bank we 
may to better advantage consider certain special happenings 
in its long career. 

There are three especially notable periods in this history. 
These are the twenty-three years of the Great French War, 
the events of 1844 and the connection of the Bank with the 
financing of the recent war. ^ The notable services rendered 

1 Paxt 1, Chapter V., and Chapter VI. • 



160 ENGLISH PUBLIC FINANCE 

by the Bank during the crucial period of the past six years 
have already been discussed. We may now consider the two 
other great crises in its history. 

Lessons of Eighteenth Century — Commercial Crises 

We may note in passing that the Bank successfully weath- 
ered the commercial crises of 1763, 1772 and 1783, and the 
directors learned by experience " that while a drain of specie 
is going on their issues should be contracted as much as 
possible, but that as soon as the tide had given signs of ceasing 
and turning the other way it was then safe to extend their 
issues freely." The control in normal times of the inflow and 
outflow of specie by raising or lowering the bank rate of dis- 
count was another lesson which the managers learned and 
have ever since used effectively, except during the suspension 
of specie payments during and following the French wars and 
the practical suspension of such payments since 1914. 

The industrial revolution in England in the latter part of 
the eighteenth century, due to the invention of labour saving 
devices and the discovery of new processes of manufacture, 
led to a concentration of population, to great activity in manu- 
factures and in commerce and hence to the need for banking 
facilities on an enlarged scale. As joint-stock banks were 
prohibited, as more fully explained in a later chapter, this 
need was supplied by many small banks of issue and deposit 
organized by six persons or less — shop-keepers, chemists, 
tailors and bakers, or what not. The country and city 
were thus flooded with circulating notes of weak banking 
partnerships. Many of these issues proved to be worthless. 
From 1750 to 1783 the country banks increased from twelve 
to four hundred. In the crises of 1793 and 1797 many of 
these banks failed. 



CHAPTER IV 

THE BANK AND THE GREAT FRENCH WAR 

In 1793 when England was drawn into the maelstrom of 
war in Continental Europe, brought about by the French 
Revolution, the Bank was in a strong condition. Its capital 
had reached £11,786,000 — all loaned to the Government. It 
had a surplus (" The Rest ") of over £3 million. It had notes 
outstanding for £11,600,000. Its specie reserve was about 
£5 million. William Pitt was Chancellor of the Exchequer. 
The war came to him and to his confreres as a surprise. The 
English people had been watching the revolutionary pro- 
ceedings in France with great interest. They had not 
expected that England would be involved. Pitt and his 
Government had made all their plans for a long period of 
peace in which to recover fully from the losses of the American 
War which were still keenly felt. 

Therefore the determination to engage in war with France 
found the Government unprepared, the Exchequer empty, 
or relatively so, and the country still aghast at the burden 
of debt which had accrued from the American War and the 
other wars of the eighteenth century. General business 
conditions were bad, due to a succession of bad harvests and 
the culmination of a period of over-trading. Many country 
bank failures were occurring. The Bank of England itself 
became alarmed, contracted its credits and raised the rate of 
discount. To relieve the situation the Government had found 
it necessary to authorize a special issue of Exchequer bills to 
be loaned to merchants. 

It was in the midst of such financial conditions that Pitt 
was forced to find the means with )^hich to finance the war 
needs of England and her allies. Great sums must be sent 
abroad for subsidies and for the support and pay of the army 
and of the navy. The Finance Minister and the City had a 
very difficult situation with which to deal — depleted resources, 

161 

11— (1823) 



162 ENGLISH PUBLIC FINANCE 

adverse exchanges, heavily increased demands. Under the 
circumstances it is small wonder that Pitt used the resources 
of the Bank to the limit. He first secured legislation removing 
the restriction which Parliament had originally laid upon 
advances from the Bank to the State. The Bank was then 
at his mercy. In four years, from 1794 to 1797 inclusive, the 
debt of the Government to the Bank for advances of various 
kinds totalled just under £10 million sterhng. To meet the 
demands upon it the Bank increased its note issues. Mean- 
while its cash resources were runnmg down in an alarming way. 
After increasing to about £1 million in 1794, they fell to 
£6 million in February, 1795, to £5 million in August, to an 
average of a little over £2 million in 1796 and finally to 
£1,086,000 in February, 1797. 

Specie Payments Suspended 1 797-1 821 

The inevitable happened. Specie payments were sus- 
pended, not to be resumed until 1821. For a quarter of a 
century England was to experiment with an inconvertible 
currency. 

The King himself presided at the meeting of the Privy 
Council which authorized the suspension. A meeting of 
bankers and merchants passed a resolution agreeing to accept the 
notes of the Bank for payments due to them. This resolution 
was supported by some four thousand signatures. The matter 
was referred to Parliament for action. An examination hy a 
parliamentary committee disclosed the fact that in addition 
to the permanent debt of £11,700,000 represented by its 
capital, the Bank had loaned the State over £10 million out of 
its other assets of £17,600,000 leaving as an offset against 
£13,800,000 demand liabilities and about £8,600,000 notes, 
about £7,600,000 of banking assets other than obligations of 
the Government. Not exactly a liquid condition, especially 
when it is remembered that the specie reserve had fallen to 
£1,086,000. Substantially all of the floating debt of the State 
was then held by the Bank. 

How was this situation dealt with ? Parliament passed 



• THE BANK AND THE GREAT FRENCH WAR 163 

what is known as the Restriction Act. This granted the Bank 
and all connected with it a bill of indemnity. The Bank was 
forbidden to pay out specie except for the needs of the army 
and navy and for other special purposes approved by the 
Privy Council. The Bank was forbidden during the restric- 
tion to make advances for the public service in excess of 
£600,000. Bank notes were made legal tender in payment 
to the Government and between others by agreement. Pro- 
vision was made for the issue of £1 and £2 notes and, for 
smaller payments, Spanish dollars were put in circulation, at 
a valuation of 4s. 6d. 

Pitt threw all his influence in favour of the conservation 
of the Bank's credit, so that during the remainder of his life- 
time there were no excessive issues of notes. Therefore they 
remained substantially at par with gold. After Pitt's death, 
from 1809 to 1817, the issues of notes were steadily increased. 
This course of action was due partly to the exigencies of the 
Government and partly to the speculative conditions in the 
business world. 

It will be remembered that Napoleon endeavoured to bring 
England to her knees by closing to her all the Continental 
ports and markets. While such closing was only partial, as 
many ways were found of evading the edict, still it acted as a 
great stimulus to the home production of articles which would 
otherwise have been imported. At the same time the South 
American colonies of Spain and Portugal were declaring their 
independence and opening their ports to English products. 
These conditions led to speculation, which the Bank encour- 
aged by greatly expanding its credit facilities. These 
facilities were further accentuated by the large amounts of 
Exchequer bills put out by the Government, plus the con- 
siderable sum of inland bills of exchange which was in use and 
the country banks' bills which were in circulation. 

Effects of the Suspension 

Advancing prices of commodities, including gold, and 
adverse foreign exchanges were the barometers which measured 



1 Year. 


i 


s. 


Year 


1810 


. 13 


9 


1816 


1811 


7 


16 


to 


1812 


. 20 


4 


1818. 


1813 


. 22 


18 


1819 


1814 


. 25 


3 


1820 


1815 


. 16 


14 





164 ENGLISH PUBLIC FINANCE 

the inflation produced by the large issues of bank and 
Government paper. According to Toake, after being at a 
discount of £8 7s. per £100 in 1801 and £1 5s. in 1802, Bank 
Notes were almost at par (average £2 13s. discount) from 1803 
to 1809. The depreciation then became marked, averaging 
as follows, until the resumption of specie payments in 1821 — 



2 13 

4 9 
2 12 

^ Years ending 1st Februarj'. 

Silberling, by another basis of computation, arrived at the 
conclusion that the premium on gold in 1811 averaged nearly 
22 per cent., in 1812 over 32 per cent., in 1813 over 40 per 
cent. The Hamburg exchanges averaged 18 per cent, from 
normal in 1810, nearly 31 per cent, in 1811, over 24 per cent, 
in 1812, and over 26 per cent, in 1813. Commodity prices 
advanced until about 1814, averaging at their highest point 
about 70 per cent, above those of the pre-war period. 

The Bullion Report 

In 1810 a committee of Parliament known as the " Bullion 
Committee " made an exhaustive study of the causes which 
had produced these conditions, so far as they had then 
developed. The report of this committee is one of the land- 
marks on the highway of economic studies and is well known 
to all students. Therefore, we may to advantage refer 
briefly to the conclusions of the committee as set forth in 
the report. The points in controversy which they set them- 
selves to solve were these : Have the bank notes depreciated 
in value or has the price of gold actually risen ? Has the 
increase in the volume of the notes had any influence upon the 
exchanges ? What effect would a restriction of the issues have 
on the price of gold and the rate of the exchanges ? What 
policy should be followed in regard to the regulation of the 



THE BANK AND THE GREAT FRENCH WAR 165 

issues ? The committee called before them bank directors, 
private bankers, merchants and others. The conclusions at 
which they arrived were these : First, that an inconvertible 
and excessive credit currency caused a general rise in prices, 
including that of gold, and a fall in the exchanges on all coun- 
tries except those which had an equally depreciated currency. 
Second, that there then existed an excessive paper currency. 
Third, that the only true and proper remedy was resumption 
of cash payments. 

Unfortunately Parliament took an opposite view of the 
case. This encouraged the increasing issues on the part of 
the Bank, leading to the conditions, up to 1817, which we 
have already noted. 

Resumption of Specie Payments in 1821 

These conditions referred to were so serious that on 3rd 
February, 1819, the two Houses of Parliament each appointed 
a committee to inquire into the position of the Bank. These 
committees, after hearing the views of bankers, publicists 
and others, recommended a gradual resumption of specie 
payments. In piusuance of their recommendations an Act 
was passed unanimously in 1819 providing for the resumption 
of specie payments on 1st May, 1823. This date was antici- 
pated by two years, the metallic basis again becoming effective 
1st May, 1821. 



CHAPTER V 

THE JOINT-STOCK BANKS 

In 1697, Parliament evidently intended to give the Bank a 
virtual monopoly, since no other corporation of the nature 
of a bank was to be established thereafter by Act of Parlia- 
ment. However, this Act did not forbid the formation of 
joint -stock companies for other purposes nor forbid them to 
undertake a banking business. Shortly thereafter a corpora- 
tion, called the Company of Mine Adventurers of England, 
issued circulating notes, and apparently in so doing was quite 
within its legal rights under the Act of 1697. In 1708, to clear 
up this situation Parliament enacted, " That during the con- 
tinuance of the said corporation of the Governor and 
Company of the Bank of England, it shall not be lawful for any 
body politic or corporate whatsoever ... or for any other 
persons whatsoever, united or to be united in covenants 
or partnerships, exceeding the number of six persons, in that 
part of Great Britain called England, to borrow, owe, or take 
up any sum or sums of money on their bills or notes payable 
at demand, or at any time less than six months from the 
borrowing thereof." 

As the issuing of notes was at that time considered to 
be the very essence of banking, this Act was popularly 
taken to forbid the organization of any other bank. In fact 
it only forbade the organization of banks of issue by 
strong corporations, but left the door open for any group 
of six persons or less, however irresponsible, to engage in 
banking and to issue notes. It was thus that the great num- 
ber of mushroom country banks came into being whose failure 
precipitated or accentuated commercial crises for more than a 
century and whose note issues increased the redundancy 
of the currency during the period of the suspension of specie 
payments. 

By an Act passed in 1826 Corporate Banks of Issue were 

166 



THE JOINT- STOCK BANKS 167 

permitted if located more than 65 miles from London. This 
continued to be the law mitil 1844 when Parliament deprived 
both private and joint-stock banks of the right of issue 
as explained in the next chapter discussing the Bank Act of 
1844. However, those actually in existence — ^viz : 72 joint- 
stock banks and 207 private banks — retained limited privi- 
leges of note issue. The law provided that as such privileges 
lapsed they should accrue to the Bank of England. At the 
present time (1920) only six private banks and three joint- 
stock banks have issue rights and the aggregate authorized 
issues of these banks is only £334,820. 

In 1833 Parliament affirmed the legality of joint -stock 
banks which issued cheques. The Bank of England had 
vainly endeavoured to prevent the passage of such legislation. 
Steps were at once taken by James W. Gilbart and associates 
to organize " The London and Westminster Bank." This 
bank was opened at 38 Throgmorton Street, with a branch at 
9 Waterloo Place. In its prospectus it was stated that the 
bank would receive current accounts and that persons who 
did not care to keep a balance might " instead thereof, pay to 
the bank a certain sum annually for the management of their 
account." Interest at the rate of 2 per cent, per annum was 
offered on sums ranging from £10 to £1,000 received on 
" permanent lodgment." No interest was allowed on the 
balance of a current account. 

In 1832 there were 62 private banks in London. In 1834 
the number of private country banks and branches thereof 
in England and Wales was 638 and there were 45 joint-stock 
banks. Therefore, at or about the time of the organization 
of the London and Westminster Bank, there were in England 
about 745 banks and banking offices in addition to the Bank 
of England and its 12 branches. We are without information 
as to the resources of these banks, other than the Bank of 
England. It is of interest to note that the London and 
Westminster by amalgamation with the London and County 
in 1908 became The London County and Westminster Bank 
which absorbed Parr's Bank in 1918, when the name was 



168 



ENGLISH PUBLIC FINANCE 



changed to The London County Westminster and Parr's Bank, 
which according to a recent report had 147 offices in London 
alone and 630 in the Provinces, besides several foreign offices. 
The joint-stock banks of England and Wales now number 
only about 22 and the private banks 7 — say, about 29 in all — 
but they have in the neighbourhood of 6,300 branches. This 
great decrease in the number of banks and increase in branches 
is due to the policy of bank consolidations which has been a 
marked feature of English banking for so many years and 
especially during the last two or three years. On 31st 
December, 1919, the total resources of the joint-stock banks 
of England and Wales were about ;£2,300 million. Of these 
vast resources, £1,742 million — say, 76 per cent. — were held 
by five great banks. In alphabetic sequence, these banks, 
their liabilities and equivalent resources on 31st December, 
1919, were as follows — 

THE "BIG FIVE" JOINT-STOCK BANKS. 
In Millions Sterling. 





Capital 


Accept- 
ances and 


Deposits 
(including 


Total 


Name. 


and 


Endorse- 


Undivided 


Liabilities. 




Reserves. 


ments. 


Profits, 
etc.). 




Barclays 


15,8 


13.6 


296,1 


325,5 


Lloyds 


19,1 


32,1 


325,9 


377,1 


London County, West- 










minster and Parr's . 


17,3 


23,7 


305,8 


346,8 


London Joint City and 










Midland 


16,8 


29,0 


373,0 


418,8 


National Provincial and 










Union 


15,0 


6,0 


252,4 


273,4 




84,0 


104,4 


1553,2 


1741,6 



CHAPTER VI 

THE BANK CHARTER ACT OF 1844 

Before taking up the consideration of the legislation of 
1844 we may make note here, for the sake of the record, of 
some items of importance in regard to the Bank. The 
liability of the stockholders of the Bank of England is limited 
to the amount of their stock. In 1722 the reserve fund or 
Rest was established, never to be allowed to run below £3 
million. This added to the strength of the Bank and made 
it possible to equalize dividends which theretofore had 
fluctuated greatly. In 1751 the administration of the debt 
was entrusted to the Bank and in 1826 the Bank was given 
authority to establish branches ; of these, there are now 
ten, located respectively at Birmingham, Bristol, Hull, 
Leeds, Liverpool, Manchester, Newcastle, Plymouth, and the 
Western and Law Courts Branches, London. The notes 
of the Bank were made legal tender in 1833. 

Bank Statements in England 

In 1833 the Bank was required to render weekly state- 
ments to the Chancellor of the Exchequer, which statements 
were to be consolidated and published every three months in 
the London Gazette. The statements published by the Bank 
are very meagre and do not give one a complete view of its 
affairs. For comparison of one period with another, too, they 
are of little value, as it is the practice of the Bank to reduce 
the amount of its securities and deposits by any borrowing 
which it carries out and as it probably makes other adjust- 
ments which are not of public record. After 1875 it 
discontinued publishing the amount of discounted bills which 
it held. After 1877 it ceased publishing the London bankers' 
balances. After 1880 the separation formerly made between 
notes issued by the branches and in London was no longer 

169 



170 ENGLISH PUBLIC FINANCE 

made. To an American banker accustomed to the rigid 
supervision given to the affairs of the banks of the United 
States by State and Federal governments and to the hme- 
light of publicity which is turned on the affairs of our banks 
the lack of such supervision in Great Britain and the failure 
to require publicity is a surprise. It is because of such failure 
to enjoin any uniform system of accounting or of reporting 
that it is so difficult to make a really thorough and scientific 
study of English banking. Apropos of this the London 
Economist in its Banking Number issued 17th May, 1919, says : 
" The figures published weekly by the Bank are at all times 
full of snares for the unwary investigator, and are more so 
than ever in wartime, owing to the very complicated business 
that has to be done by the Bank, and the consequent cross 
currents that are concealed behind the inarticulate reticence 
of the items in its return. Any future historian who relies too 
closely on the Bank's figures for information is thus likely 
to flounder up to his neck." 

The Bank Charter Act of 1844 

Recurrent commercial crises, and especially the crisis of 
1836-1839, led English bankers and economists of the time 
to make exhaustive studies of the causes of such events. 
The rule which had been formulated by the Bank for the 
conduct of its business was as follows : First, the reserve 
kept, composed of bullion and of securities, was to be equal 
to its liabilities. Second, the regulation of the note circulation 
was left to the public through the natural movement of the 
foreign exchanges. Third, whether the demands on the Bank 
came from at home or abroad, it was to maintain a metallic 
reserve equal to one-third of its liabilities. This supposed 
rule it was difficult invariably to observe. In fact it was 
often broken. 

A heavy drain of specie in 1839 carried down the reserve 
to a nominal amount. The condition of the Bank became 
so serious that it was necessary, in order to meet the emer- 
gency, to resort to special measures, the most important of 



THE BANK CHARTER ACT OF 1844 171 

which was a large loan from the Bank of France which had 
been founded in 1800 by Napoleon. 

It was evident to the thoughtful banking men of the day, 
and to other students of finance, that steps must be taken to 
safeguard the Bank's reserves in future. It was desirable also, 
if possible, to stop these recurring periods of distress in the 
business world. Following a customary English method for 
dealing with difl&cult problems, a parliamentary committee 
was appointed to examine into the causes of the trouble and to 
suggest a remedy. This committee sat for over five years and 
asked more than 14,000 questions without reaching any 
definite conclusion or even presenting a report. Finally, Sir 
Robert Peel, then Prime Minister, decided that it was time 
to bring matters to a head. Therefore, taking advantage of 
a clause in the law which empowered the Government to 
suspend the Bank's charter in 1845, he brought forward a 
bill which became the Bank Charter Act of 1844. 

Convinced that the source of the trouble was due to over- 
issues of cmrency, he sought to devise a plan which would 
cure this evil. He proposed to take away from the private 
and joint-stock banks the right of issue and to concentrate 
all such rights in the Bank of England. Further to guard 
against over-issues he proposed that, save for a minimum 
amount, all issues of the Bank should be covered by an 
equivalent amount of specie, especially reserved for their 
redemption. 

Provisions of the Act 

The law based on these propositions provided as follows : 
1. After 31st August, 1844, the Bank of England was to be 
divided into two departments, the issue department and the 
banking department. Securities to the amount of £14 million, 
of which the perpetual Government debt of £11 million was 
to form a part, were to be transferred to the issue department ; 
also all the gold coin and gold and silver bullion not needed 
in the banking department. The issue department was 
to give back to the banking department an amount of notes 



172 ENGLISH PUBLIC FINANCE 

equal to the securities, coin and bullion so transferred to it. 
It was provided that the silver in the issue department should 
never exceed one-fourth of the gold. 

2. The limited rights of issue continued to bankers already 
having such rights, as they lapsed, were to the extent of 
two-thirds thereof to revert to the Bank. Thus it is that 
to-day the Bank has a right of issue against securities of 
£4,450,000 in excess of the original £14 million. 

3. The Bank was exempted from all stamp duties on its 
notes. In lieu thereof it was to pay the Government a lump 
sum of £180,000 a year. 

4. The Bank was obligated to buy standard gold when- 
ever offered to it, giving in payment its notes at £3 17s. 9d. 
per ounce. 

5. Weekly accounts in a specified form were to be sent to 
the Government and published in the London Gazette weekly, 
instead of quarterly as required by the Act of 1833. 

This division of the functions of the Bank into two depart- 
ments has been severely criticized as arbitrary and unscientific. 

Suspensions of the Act 

The result of the legislation was to put the management 
of the Bank in times of crises in a strait-jacket, as far as notes 
were concerned, from which they could escape only by special 
enabling legislation by Parliament. This has been had four 
times in the history of the Bank — in 1847, in 1857, in 1866 and 
in 1914. The mere fact that additional notes could be issued 
has of itself, in each case, been sufficient to allay the fears of 
the business community. The increase made in the amount 
of uncovered note issue in the earlier periods was trifling, 
while in the last instance an important increase was made 
unnecessary by the issuance of the Government Treasmy 
notes. As a matter of record it may be noted that for a couple 
of days while Treasury notes were being printed there was 
an excess fiduciary issue of Bank notes amounting to 
£3,043,000. 

Under the Federal Reserve System of the United States 



THE BANK CHARTER ACT OF 1844 173 

and of the Continental state banks, notes are created and 
issued on the security of discounted bills and on the specie 
reserve. Thus theoretically the volume of notes is responsive 
to the requirements of business, expanding and contracting 
with the periods of activity and quietude. On the contrary, 
with the Bank of England the note issue can only be in- 
creased against the deposit of specie in the issue department. 
This can be accomplished only by a transfer of gold from the 
Banking Department, in which department as a rule only a 
small amount of gold is held, or by obtaining gold from the 
Joint Stock Banks or by buying new gold in the market. 
Whatever method is used, except the purchasing of new gold, 
reduces the amount of gold in circulation or reduces the reserve 
upon which the credit or deposit currency of the country is 
based, and this has the effect of diminishing the credit facilities 
at the service of the business community just at a time when 
the contrary conditions should prevail. Therefore there is 
a growing feeling on the part of many bankers that the two 
departments of the Bank should be merged and the note 
issuing powers modernized. 

However, in times of great stress, such as the world has just 
been passing through, the best of systems tends to give way 
to emergency measures which cannot be defended on any 
principle of sound banking. The Bank of England has come 
through the storm in strong condition and has done yeoman 
service in upholding the hands of the Government and of the 
business community. This does not change the fact that 
upon a return to normal conditions it may be wise definitely to 
repeal the Act of 1844 in favour of a system based upon 
banking experience gained since that time. 



CHAPTER VII 

THE GOVERNMENT OF THE BANK 

The method by which the Bank of England is governed 
is so unique and so different from that observed in con- 
nection with any other bank that it wiU be of interest to 
consider it in some detail. The bank is governed by a Board 
of twenty-four directors, a Governor and a Deputy Governor. 

The Directorate 

The Board of Directors is self -electing. In theory, a certain 
portion go out annually, remain out a year, and are subject to 
re-election by the proprietors, but in fact they are nearly 
always re-elected after a year. This has been the unbroken 
practice for many years. When a vacancy occurs by death 
or resignation it is filled by an election by the Board. It is 
the practice in electing new members to choose young men, 
usually men connected with old established mercantile firms 
of London. The status which is given by an election to the 
Board, both to the individual who fills it and to the firm of 
merchants to which he belongs, is considerable. The selection 
of men to receive this honour is made with great Care for a 
reason which will now be stated. 

The Governor and Deputy Governor 

The ofhccs of Governor and Deputy Governor are given 
in rotation. The Deputy Governor always succeeds the 
Governor and usually the oldest Director who has not been 
in office becomes Deputy Governor. Occasionally, for 
special reasons, the election for the Deputy Governor is not 
always made in rotation, but except in rare cases a Director 
must serve as Governor and Deputy Governor about the time 
when his turn comes. On the other hand, he will not be asked 
to serve much before his turn. It is usually about twenty 
years from the time a man is first elected a Director before he 

174 



THE GOVERNMENT OF THE BANK 175 

arrives, as it is called, " at the Chair." Because it is impor- 
tant that the men who fill the offices of Governor and Deputy 
Governor should still be in the vigour of life, the choice of new 
Directors is always made from among young men. It might 
be feared that such a course would place upon the Board men 
who would be over-ambitious or would take chances which 
older men would not take, but the danger of such a happening 
is overcome by the fact that some of the Directors retire 
annually. By courtesy it is always the young Directors. 
Those who have served as Governor always remain. There- 
fore the young part of the Board is the fluctuating part, and 
the older part is the permanent part. The younger men, 
therefore, have but little influence. 

The Committee of Treasury 

As a further provision against any immature methods of 
handling the affairs of the Bank, the older members of the 
Board form a standing committee of indefinite powers. This 
is called the Committee of Treasury. No precise description 
has ever been given of the powers which this committee 
exercises. They appear to be of a general supervisory nature 
and in particular to control the relations and negotiations 
between the Bank and the Government. 

The Officers 

In the Bank of England there is no fixed Executive. The 
Governor and Deputy Governor who form the Executive, as 
a rule change every two years. They are expected to be con- 
stantly present at the Bank, to see all applicants for advances, 
to carry on the almost continuous correspondence between 
the Bank and its largest customer, the Government, and 
to bring all necessary matters before the Comt of Directors 
or the Committee of Treasury. In a word, to do very much 
the sam^e as falls to the lot of the Manager in most Companies. 
There are, of course, permanent heads of departments, and 
it is understood that during the war some important new 
departments were created. WTiile these men have high 



176 ENGLISH PUBLIC FINANCE 

standing in the Bank and much authority in their respec- 
tive departments, yet they are essentially subordinate. 
No one of them is like the General Manager of an ordinary 
bank. 

A changing management, such as the one by which the 
Bank is governed, would not be thought of in connection 
with any other corporation. It also seems strange that 
until recently trained bankers should have been excluded 
from the Board of Directors of the Bank which up to the 
present time has been admittedly, in a sense, the reserve 
Bank for the world's commerce. 

The Court and Committees 

The Directors of the Bank, together with the Governor and 
Deputy Governor, twenty-six persons in all, are known as 
" The Court." They meet once a week and usually sit for 
a very short time only ; say, from about eleven or twelve 
o'clock until one or one-thirty. It has been said that if they 
were to sit for four hours there would be a " panic solely from 
that." 

The Court of Directors is divided into certain committees. 
In addition to the Committee of Treasury already described, 
there is a Committee of Daily Waiting, a Committee for Law- 
suits and the Management of Branch Banks, a Committee 
for the House and Servants and Clerks, a Committee of 
Inspection for the Cashier's Office and a Committee of Inspec- 
tion for the Accountants' Office. In addition to these 
committees special committees are from time to time appointed 
as occasion may require. 

The Committee of Daily Waiting consists of three Directors 
in rotation from the whole body. Their attendance is at 
11.30 daily and they are required to remain until all that part 
of the business of the day which is usually referred to them is 
concluded. All bills offered for discount in London are 
submitted to this committee and all bills discounted at the 
country branches, except local bills, are shown to them on the 
following day. They likewise have charge of all bullion not 



THE GOVERNMENT OF THE BANK 177 

required by the cashiers for daily wants. The duties of the 
other committees arc evident from their titles. 

The Clerical Machinery 

The clerical machinery of the Bank is divided into the 
" Cash Side " and the " Accountant Side." The " Cash 
Side," which is under the immediate supervision of the Chief 
Cashier, comprises the transaction of all business where actual 
cash is concerned, together with the necessary book-keeping 
which it involves. The latter division, under charge of the 
Chief Accountant, takes cognizance of all matters of pure 
book-keeping where no actual cash is concerned, such as those 
which relate to the national debt account, registration of 
bank notes and kindred work. 

The Bank has a large staff of employees, for whose benefit 
there is maintained a provident society to promote life insur- 
ance among their members and the payment of annuities for 
widows of bank clerks and porters. There is a well appointed 
library and reading room. There is a physician in attendance 
who is called the Medical Ofhcer. He looks after the health 
of the clerks and other employees. The clerical force of the 
Bank is employed on a strictly civil service or competitive 
plan. Men entering the Bank in their youth frequently 
spend their entire lives in its service. 

The Bank Building 

The building of the Bank of England is located in the 
heart of what is known as " the City," the corporate centre 
of London now chiefly identified with the interests of City 
Government and Finance. In this section is the Mansion 
House, where the Mayor presides over the destinies of the 
City. Near by is the Royal Exchange founded in the days of 
Queen Elizabeth; and the Stock Exchange, the traditions of 
which also date back to the very early days. Lombard Street, 
the home of the goldsmiths and for many years the chief 
financial street in London, is near by. The head offices of the 
joint -stock banks and of the great private banking houses are 
not far away. 

12— (1823) 



178 ENGLISH PUBLIC FINANCE 

The entrance to the Bank is from Threadneedle Street 
through a large arched gateway which leads into a quad- 
rangular court from which communication may be had to all 
parts of the building. This court is guarded by a porter 
arrayed in bright crimson and gold lace and bearing a staff ; 
while the Bank messengers are dressed in swallow-tail coats 
of a delicate salmon colour with silver buttons, flaming scarlet 
waistcoats, black trousers and high silk hats. 

In the basement of the Bank are barracks wherein 36 
soldiers are quartered from 7 o'clock every evening until the 
next morning. This custom arose at the time of the Lord 
George Gordon riots in June, 1780, when the Bank was threat- 
ened by a mob. In addition to the soldiers there is a body of 
watchmen well trained in the use of the ample arrangements 
provided for in case of fire. 

The building covers about eight acres of ground. The first 
stone was laid in 1732. It is erected around nine courtyards, 
the largest one of which has a substantial amount of green 
sward with one or two beautiful elm trees and some shrubbery. 
There is also a fountain playing beneath the trees. For the 
first forty years of its existence the Bank was domiciled in the 
hall of the Grocers' Company, but in 1734 moved into the 
present building. In the great hall of the Bank building there 
is a statue of William III, in whose reign, it will be remembered, 
the Bank was founded. 



CHAPTER VIII 

THE SCOTCH AND IRISH BANKS 

In what goes before we have confined our studies to the 
status of Banking, to use the words of one of the Bank Charter 
Acts, " in that part of Great Britain called England." 

The first notice of Banking in Scotland which occurs in 
the statute books is an Act of King William III, passed in 1695, 
under which the Bank of Scotland was established. The 
Bank of Scotland remained the only bank in Scotland until 
the year 1727. At the date of the latest available reports 
(December, 1918) there were eight Joint-Stock Banks in Scot- 
land with 1,249 branches. These banks had total resources 
of £273,658,000. Their combined note issues on 31st 
December, 1919, amounted to £28,705,345, comparing with 
£7,744,000 on 31st December, 1913, an increase of £20,961,345. 

The Bank of Ireland was established in 1783, Its privi- 
leges resemble those of the Bank of England. At the close 
of 1918 there were nine Joint-Stock Banks in Ireland with 848 
branches and combined resources of £175,739,000. The out- 
standing note issues on 31st December, 1919, were £30,532,435, 
comparing with £8,074,000 on 31st December, 1913, an 
increase of £22,458,435. 

Note Circulation — How Regulated 

The bank note circulation of the Scotch and Irish Banks 
is regulated by the Bank Acts of 1845. These Acts authorized 
the Scotch Banks to make uncovered, or fiduciar}^ issues fixed 
at an aggregate of £3,087,209. As a result of the failure of the 
Western Bank of Scotland in 1858 and of the City of Glasgow 
Bank in 1878 the authorized fixed issue was reduced and is 
now £2,676,350. The Irish Banks were authorized to make 
uncovered issues fixed at an aggregate of £6,354,494. There 
has been no change in this authorization. 

179 



180 ENGLISH PUBLIC FINANCE 

The Scotch and Irish Banks may increase their circulation 
to any extent in accordance with the pubhc demand, pro- 
vided that they have gold or silver at their principal places of 
issue to an amount not less than the amount of such increase. 
The amount of silver against which notes may be issued must 
not exceed " one-fourth part of the gold coin held." 

The amount of notes which may be outstanding against 
specie is determined by averaging the note issues and the 
specie cover every four weeks. This provision of the law 
makes it possible temporarily to increase note issues without 
corresponding cover. 

The specie held in Scotland and Ireland does not form a 
special security against the note circulation. It is an asset 
held against the general liabilities of the issuing bank. It will 
be remembered that in the case of the Bank of England the 
specie securing the notes in excess of the fiduciary issue is held 
in the issue department solely as a reserve for the notes issued 
against it, while no notes can be issued, for ever so brief an 
interval, unless the specie is actually on deposit. 

By the terms of the Currency and Bank Notes Act of 
6th August, 1914, the note issues of the Scotch and Irish Banks 
were made legal tender and authority was given to substitute 
the Government Treasury Notes for specie as a cover for notes 
issued in excess of the authorized fixed, or fiduciary, issues. 
By a royal proclamation made in December, 1919, the legal 
tender status was withdrawn from Scotch and Irish Bank Notes 
to take effect from 1st January, 1920, and the pre-war status 
restored, but no change was made in regard to the provision 
whereby Government Treasury Notes may be used as cover for 
the note issues in excess of the fixed, or fiduciary, totals. 



Tabl 



es 



NATIONAL DEBT. 
United Kingdom — Great Britain and Ireland. 

Approximate Amount — 31st March, 1920. 

For further details see numbered descriptive notes following table. 
000 omitted. 



Title of Loan. 


Interest 
Rate. Payable 




Redeemable 
or Payable. 


Out- 
standing. 


Funded Debt — 

(1) ConsoUdated Stock 

(2) Annuities 

(3) Annuities 


2i 5 Ja., Ap., Jy. 
2i 5Ja.,Ap., Jy. 
2i 5Ja.,Ap.,Jy., 


Oct 
Oct. 
Oct. 


After 5 April, 1923 
After 5 Jan., 1905 
After 5 Jan.. 1905 


i 
277,200 
2,600 
21,500 


(4) Debt to Bank of 

England 

(5) Debt to Bank of 

Ireland 


2t 
2} 




Total Consols 

Perpetual 

Perpetual 


301,300 

11,000 

2,600 



(6) Total Funded Debt . 

(7) Terminable Annuities 

— Estimated Capital 
Value . 

(8) Unfunded Debt 

(9) Ways and Means 

Advances 

(10) War Loan 

(11) War Loan 



12) War Loan 

(13) War Loan 
National War Bonds — 

(14) First Series 
First Series 
First Series 
First Series 

(15) Second Series . 
Second Series . 
Second Series . 
Second Series . 

(16) Third Series . 
Third Series 
Third Series 
Third Scries 

(17) Fourth Series . 
Fourth Series . 
Fourth Series . 

(18) Funding Loan . 

(19) Victory Bonds 

(20) Exchequer Bonds 
Exch quer Bonds 
Exchequer Bonds 
Exchequer Bonds 

Exchequer Bonds 



1 Mar. and Sept. 

1 June and Dec. 

1 June and Dec. 

15 April and Oct. 

1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 April and Oct. 
1 Mar. and Sept. 
1 Mar. and Sept. 
1 Mar and Sept. 
1 Mar. and Sept. 
1 Feb. and Aug. 
1 Feb. and Aug. 
1 Feb. and Aug. 

4 1 May <"nd Nov. 

4 1 Mar. and Sept. 
3 28 Jan. and July 

5 1 June and Dec. 
5 5 .\pril and Oct. 
5 1 April and Oct. 

5i 1 Feb. and Aug. 



1925 > 
1 Mar., 1928 5 



< After 1 Mar, 
(On 

( After 1 Dec, 1925 

(On 1 Dec, 1945 

< After 1 June. 1929 ) 

< On 1 June, 1947 \ 



w 



. After 15 Oct., 
' On 15 Oct., 



1929 : 
1942 



On 
On 
On 
On 
On 
On 
On 
On 
On 
On 
On 
On 
On 
On 
On 



1 Oct., 1922 V 
1 Oct., 1924 
1 Oct., 1927 
1 Oct., 1927 
1 Apr., 1923 
1 Apr., 1925 
1 Apr. 1928 
1 Apr., 1928 
1 Sept, 1923 
1 Sept., 1925 



1 Sept., 
1 Sept. 
1 Feb., 
1 Feb., 
1 Feb.. 



1928 
1928 
1924 
1929 
1929' 



< After 1 May, 1960 ) 
( On 1 May, 1990 ) 
After 1 Sept., 1920 
On 28 Jan., 1930 \ 
On 16 Dec, 1920 | 
On S Oct., 1921 ' 
After 1 Oct., 1919 f 
O < 1 Apr., 1922 
^" I 1 Feb.. 1925 ' 
But see note (20). 



Carried forward 



314,900 

19,300 

204,900 
62,700 

12,800 

1,977,100 

64,100 



1,475,800 



408,900 
359,500 



319,100 



5219,100 



*■ Total correct — items approximate 



181 



182 



ENGLISH PUBLIC FINANCE 



NATIONAL DEBT— Conlinued. 



United Kingdom — Great Britain and Ireland. 

Approximate Amount — 31st March, 1920. 



For further details see numbered descriptive notes following table. 
000 omitted. 



Title of Loan. 
Brought forward 



Interest 
Rate. Payable. 



Redeemable 
or Payable. 



(21) Treasury Bills 

(22) War Savings Certifi- 

cates . 

(23) Other Capital 

Liabilities 
External Debt — 

(24) To United States 

Govt. 84,212,835,993 

(25) Anglo-French Loan 

$500,000,000 half 
taken into account 5 

(26) Five Year Secured 

Notes, $134,458,000 5i 

(27) Three Year Conv. 

Notes, $101,600,000 5J 
28) Ten Year Conv. Bonds 

$148,400,000 . 5| 

(29) Twenty Year Gold 

Bonds, $143,587,000 5J 

(30) Other Debt Created 

under War Loan 
Acts . 

Total External Debt 

Grand Total Direct Debt 

(31) Guaranteed Loans — 
Guaranteed Stock 

(created under Irish 



Out- 
standing. 

£5,219,100 

1,107,300 

273,500 

46,900 

865,600 



5 April and Oct. 


On 


15 Oct., 


1920 


51,400 


1 May and Nov. 


On 


1 Nov., 


, 1921 


26,500 


1 Feb. and Aug. 


On 


1 Nov. 


,1922 


20,900 


1 Feb. and Aug. 


On 


1 Aug., 


, 1929 


30,500 


1 Feb. and Aug. 


On 


1 Feb., 


1937 


29,500 
154,300 




£1,178,700 










£7,825,500 



Land Act, 1903) . 


2i% 


Jan. and July 


After 1 Nov., 1933 


57,043 


Guaranteed Stock 










(created under Irish 










Land Acts, 1903 










and 1909) . 


3 


Jan. and July 


After 3 Dec, 1939 


50,C40 


Local Loans Stock . 


3 


5 Ja., Ap., Jy., Oct. After Apr., 1912 


77,059 


Met. Police Deb. 










Stock . 


3 


Jan. and July 


On 1 July, 1920 


450 


Egyptian Government 










Guaranteed Loan . 


3 


Mar. and Sept. 


At any time. 


6,098 


Greek Guar. Gold 










Loan of '98 . 


2i 


April and Oct. 


Redeemable at par 
by annual drawings 


4,234 


Mauritius Stock, 1914 










Guar, by Imp. Gov. 


3 


1 Jan. and July 


On 1 Jan., 1940 


600 


Soudan Govt. Gtd. 










Bonds . 


51 


1 May and Nov. 




3.500 


Transvaal Govt. Gtd. 
Stock . 


3 


1 May and Nov. | 


After 1 May, 1923 > 
On 1 May, 1953 ] 


35,000 


Transvaal Govt. Gtd. 










Stock . 


3 • 


1 Jan. and July 


On 1 July, 1958 


5,000 


Turkish Guaranteed 










Loan . 


4 


1 Feb. and Aug. 


1855 


3,815 


Total Guaranteed Debt 






243,439 


Grand Total Direct and Guaranteed Debt 




£8,069,000 



NATIONAL DEBT 183 

DESCRIPTIVE NOTES. 

'* Stock " = Registered Bonds : See Item 32. 
Transfers, Denominations, etc. : See Item p. 186. 

(1) Consolidated Stock. — "Consols." In the session of Parliament of 1751-2 an act 
was passed consolidating five different loans and certain annuities into one joint stock of 
3% annuities. The taxes upon which the interest of these loans was charged were carried 
to the sinking fund out of which the annuities were made payable from 24th June, 1752. 
This was the origin of the 3% Consolidated annuities, known in the market from that time 
as " Consols." The present issue of 2J% " Consols " was created under the terms of the 
National Etebt (Conversion) Act of 1888. Up to 5th April, 1889, interest was at the rate of 
3% per annum, and for the 14 years ending with 5th April, 1903, it was at the rate of 2 j%. 
Since that date the rate has been 2i%. Redeemable at par on or after 5th April, 1923, in 
such order or manner as Parliament may direct. See also p. 105. 

(2) 2J% Annuities created under the National Debt Conversion of Stock Act, 1884. 

(3) 2J% Annuities created in 1853 for the purpose of redeeming South Sea stock and 
certain old 3% annuities. 

(4) Debt to the Bank of England. — Perpetual loans made in consideration of franchise 
as follows — 

Original Capital. £ £ 

1694— Act 5 and 6 W. and M. c. 20 1,200,000 

1708— Act 7 Anne, c. 7 400,000 

1742— Act 15 G. 2, c. 13 1,600,000 



3,200,000 



Capital purchased of the South Sea Co. 
1721— Act 8 G. 1. c 21 (residue of capital of £4,000,000 

purchased of the South Sea Company) . . . 3,328,300 

Other Advances to Government — 
1716— Act G. 1 c. 8, Balance of £2,000,000 of Exchequer Bills 

cancelled 500,000 

1717 — 1 G. 2, c. 8, Advance to Government .... 1,750,000 

1728— 2 G. 2, c. 3, Advance to Government .... 1,250,000 

1746 — 19 G. 2, c. 6, Exchequer Bills delivered up to be 

cancelled 986,800 



£11,015,100 



(5) Debt to the Bank of Ireland. — Perpetual loans made in consideration of franchise 
as follows — 

£ s. d. 

1782— Act 21 and 22 G. 3 c. 16 (Irish) (Irish Currency, £600,000) . 553,846 3 1 

1797— Act 37 G. 3 c. 50 (Irish) (Irish Currency, £500,000) . . 461,538 9 3 

1808— Act 48 G. 3 c. 103 (Irish Currency, £1,250,000) . . . 1,153,846 3 1 

1821— Act 2 G. 3, c. 72 (Irish Currency, £500,000) . . . 461,538 9 3 

£2,630,769 4 8 



(6) Total Funded Debt. — ^The above described issues, 1-5 inclusive, are known as the 
Funded Debt. The interest is included in the permanent or fixed annual charge. See 
also page 82. 

(7) Terminable Annuities. — These annuities were created under different acts dating 
from the time of George IV. 

(8) Unfunded Debt. — All debt, except the Funded Debt and the Terminable Annuities, 
is technically known as Unfimded Debt. 

(9) Ways and Means Advances. — ^These are book advances made by the Bank of 
England for short terms. See text, page 36. 

(10) 3i% War Loan. — Original issue, £350 million. Issued in Nov., 1914, at 95%. 
Inscribed stock ; or bearer bonds in denominations of £100, £500 and £1,000. 

(11) 4i% War Loan.— Original issue, £900,857,691. Issued 21st June to 10th July, 
1915, partly for cash at par and partly (say, £289,797,921) in exchange for " Consols " and 
3}% war loan. The greater part of this issue has been exchanged for subsequent war issues. 
Inscribed stock ; or bonds to bearer in denominations of £100, £200, £500 £1,000 and £5,000. 

(12) 5% War Loan.— Original issue, £2,075,814,114. Issued 11th Jan. to 16th Feb., 
1917, at 95 for cash and on certain terms in exchange for other previous issues. Receivable 
on certain conditions in payment of death duties. Stock and bonds and the dividends 
thereon are exempt from all British taxation present or future provided they are in the 
beneficial ownership of a person who is neither domiciled nor ordinarily resident in the 
United Kingdom. Dividends are exempt, without regard to domicile, if the owner of the 



184 ENGLISH PUBLIC FINANCE 

stock or bonds is not ordinarily a resident of the United Kingdom. Inscribed stock ; or 
bonds to bearer in denominations of £50, £100, £200, £500, £1,000 and £5,000. Interchange- 
able. 

(13) 4% War Loan.— Original issue £52,418,250. Issued simultaneously with (12) at 
par in cash and on certain terms in exchange for previous issues. Interest (dividends) 
exempt from British Government taxes other than super tax. For tax exemption in hands 
of foreigners see last clause (12). Inscribed stock ; or bonds to bearer in denominations of 
£50, £100, £200, £500, £1,000 and £5,000. Interchangeable. 

Etepreciation Fund : The holders of 4% and 5% War Loan are entitled to the benefit 
of a Sinking or Depreciation Fund which is under the control of the National Debt Commis- 
sioners. This fund is applicable to the purchase and cancellation of the stock and bonds 
of this loan whenever the market price of the 4% loan is below 100 or of the 5% loan below 
95. See item 34. 

(14) National War Bonds. — First Series. — Total sales about £614 million. Oflered at 
par 1st Oct., 1917, to 31st March, 1918. 

Exempt from all British taxation present or future if In the beneficial ownership of a 
person neither domiciled nor ordinarily resident in the United Kingdom. Dividends are 
exempt, without regard to domicile, if the owner of the stock or bonds is not ordinarily 
a resident of the United Kingdom. Interest on the 4% Bonds exempt from British income 
tax other than super tax. Received in payment of death duties, excess profits duty or 
munitions exchequer payments, if held for six months prior to the date of presentation. 

Convertible : 5% Bonds into 5% War Loan, 1929-47 (12) at the rate of £100 5% War 
Loan for each £95 nominal value 5% National War Bonds surrendered ; 4% Bonds into 
4% War Loan 1929-42 (13) at the rate of £110 War Loan for each £100 nominal value 
National War Bonds surrendered. 

Denominations, £50, £100, £500, £200, £1,000 and £5,000. Issued in both coupon and 
registered form ; also in registered coupon bonds. 

Payable : 5% Bonds due in 1922 at 102 ; due in 1924, at 103 ; due in 1927, at 105. The 
4% Bonds are payable at par. 

(15) Second Series offered at par 1st April, 1918, to 30th Sept., 1918. Total sales about 
£493 million. Terms same as first series. Payable : 5% Bonds due in 1923 at 102 ; in 
1925, at 103 ; in 1928, at 105. 4% Bonds payable at par. 

(16) Third Series.— ToUl sales about £500 million. Offered 30th Sept., 1918, to 18th 
Jan., 1919; 5% bonds at par and 4% bonds at £101 IDs. Payable: 5% bonds due 1st 
Sept., 1923, at 102, 1st Sept., 1925, at 103, 1st Sept., 1928, at 105 ; 4% bonds due 1st Sept., 
1928, at 100. Other terms and conditions, same as first stries. 

(17) Fourth Series.— Total sales about £80 million. Offered 31st Jan., 1919, to 31st 
May, 1919; 5% bonds at par; 4% bonds at £101 10s. Payable: 5% bonds 1st Feb., 
1924, at 102, 1st Feb., 1929, at 105 ; 4% bonds 1st Feb., 1929, at 100. Terms and conditions 
same as first series, except this series has no conversion right into War Loan. 

(18) 4% Funding Loan. — Original issue about £409 million. Offered at 80 12th June 
to 12th July, 1919. A sum equal to 2^% on the nominal amount of the loan originally 
created is set aside semi-annually and any balance remaining after payment of interest applied 
to the purchase and cancellation of bonds if obtainable at or under par. See item 34. 
Receivable on the basis of 80 in payment of death duties if held by the deceased for "ix 
months prior to death. Exempt from taxation in the hands of persons neither domiciled 
nor ordinarily resident in the United Kingdom. The interest (dividends) on Iwnds held by 
persons not ordinarily resident in the United Kingdom will be paid free of tax without regard 
to domicile of owner. Coupon and registered (either inscribed stock or registered certificate). 
Bearer bonds in denominations of £50, £100, £200, £500, £1,000 and £5,000. 

(19) Victory Bonds. — Original issue about £360 million. Offered at 85 12th June to 
12th July, 1919. A sum equal to 2i% of the nominal amount of bonds originally created 
is set aside every half year, and after payment of interest the balance of the fund is applied 
to the redemption of bonds at par by lot on 1st Sept., of each year. See item 34. Tax 
exemptions as in (18). Receivable at 100 on same basis as (18) in payment of death duties. 
Bearer and registered Bonds, but interest in all cases payable by means of Coupons attached 
to bonds. 

(20) ExciiEoUER Bonds. — First introduced by Mr. Gladstone in 1853. At present there 
are six series of these bonds outstanding ; the five series described in the table and the new 
series described on page 193. The bonds of all issues are p lyable to bearer and are in denomina- 
tions of £50, £100, £200, £500, £1,000 and £5,000 except there are no £200 bonds in the 3% 
issue of 28th Jan., 1920. The Exchequer Bonds may be registered either as inscribed stock 
or registered certificate. The 5% issue of 1920 andthe5's of 1922 are receivable in payment 
of death duties, the 5's of 1922 will also be received in payment of excess profit duties and 
munitions exchequer payments on the same conditions as those attached to the National 
War Bonds. The holders of 5J% issue due 1925 may give notice during the month of Jan. 



NATIONAL DEBT 185 

in any of the years 1921, 1922 or 1923, requiring repayment of the bonds at par on the 
1st of Feb. in the year next succeeding that in which such notice is given. Under no circum- 
stances may notice once given be subsequently withdrawn. Tax provisions all issues, except 
the last, concerning which there appears to be no exemption, same as item (18). 

(21) Treasury Bills. — On 14th April, 1915, a scheme was put into operation under 
which the Bank of England was prepared to receive applications daily for Treasury bills 
to mature at various dates up to twelve months after date of issue, but the sale of such 
bills was suspended on 3rd Jan., 1917. On 30th March, 1917, the sale of bills by tender 
was resumed, but the last issue under this system was made on I5th June, 1917, and was 
repaid 15th June, 1918, while on 18th June, 1917, the method of daily sales at fixed rates 
was reverted to, and was continued until 30th May, 1919, when sales were suspended for some 
weeks. On 15th July, 1919, bills were again placed on sale and are now (May, 1920) issued 
with a currency of three months. See also pages 75 and 193 and Index. 

(22) War Savings Certificates. — The issue of these Certificates was commenced Feb., 
1916, at the rate of 15s. 6d. for every £1 certificate, repayable at par free of income tax in 5 
years from dates of issue. See also page 21. 

(23) Other Capital Liabilities. — These comprise sundry liabilities under the Telegraph 
and Telephone Acts, Public Works Acts, Mi'itary Works Acts, and several similar acts. 

(24) Debt to the United States Government. — The British Finance Accounts do 
not give details in regard to this indebtedness. The report of the Secretary' of Treasury 
of the United States presented to Congress on 20th Nov., 1919, states that the total advances 
of the British Government to 15th Nov., 1920 aggregated $4,277,000,000. A letter of 
the Secretary of the Treasury to the Senate dated 13th March, 1920, indicates repayments 
of $64,164,000. The accrued unpaid interest to 10th March was reported to be $21 1,828,890. 

(25) Anglo-French Loan. — This loan for $500,000,000 offered in New York, 14th Oct., 
1915, at 98. It is a joint and several obligation of the Governments of the United Kingdom 
of Great Britain and Ireland, and the French Republic. Principal and interest are payable 
in New York City, in United States gold coin without deduction for any present or future 
British or French taxes. Coupon Bonds in denominations of $100, $500 and $1,000 may 
be registered as to principal Registered Bonds in denominations of $1,000, $10 000 and 
$50,000 and authorized multiples. Coupon and registered bonds interchangeable. Con- 
vertible at the option of the holder on any date not later than 15th April, 1920, or (provided 
that notice be given not later than 15th Apni, 1920) at maturity par for pai into 14-25 year 
joint and several 4i% bonds of the Governments of the United Kingdom of Great Britain 
and Ireland and the French Republic. Such 4^% bonds will be payab'e principal and 
intere-t n United States gold coin in New York City free from deduction for any present 
or future British or French taxes. They will mature 15th Oct., 1940, but will be re- 
deemable at par and accrued interest in whole or in part on any interest date not earlier 
than 15th Oct., 1930, upon 3 months notice. 

(26) Secured Dollar Notes. — Part of an original issue of $150,000,000 made in New York, 
1st Nov., 1916, principal and interest payable in New Yorkin United State-gold coinoratthe 
option of the holder in London in sterling at the fixed rate of $4865 to the pound. Free 
of any British taxes present or future. Redeemab'e on 30 days notice from 1st Nov., 1919, 
to 31st Oct., 1920, at 102, and interest, and from 1st Nov., 1920 to 31st Oct., 1921, at 101 
and interest. Secured by pi dge with the Guaranty Trust Company of New York of securities 
approved by Messrs. J. P. Morgan & Co. having a market value of 20% over the par value 
of the notes outstanding. The Government may sell the collateral at any time and apply 
the proceeds of sale to the retirement of the notes by purchase or redemption by lot. 

(27) 3-Year Convertible Notes. — Issued in New York, 23rd Oct., 1919, at 98 and 
interest. Offered in conjunction with 10-year convertible bends (28) $250,000 000 in aU. 
Denominations $100, $500, and $1,000. Interest and principal payable in New York in 
United States gold coin, without deduction for any British taxes present or future. Con- 
vertible at the option of the holder at par and interest into National War 5% Bonds fourth 
series (17), sterling exchange being computed for the purpose of conversion at the fixed 
rate of $4'30 to the pound. Conversion may be made at any time pr' to 21st Nov., 1922, 
notice to be given prior to 1st Sept. 1922, of intention to convert. The converting note 
holder wi" be entitled to receive £232 12s. principal amount of such National War Bonds 
for $1,000 of principal amount notes surrendered. 

(28) 10- Year Convertible Gold Bonds —Offered in New York with (27) 23rd Oct., 
at 96i and interest. Principal and interest payable in New York 'n United States gold 
coin, free of any British taxes present or future. Coupon bonds in denominations of $100, 
$500, $1,000, registered as to principal. Convertible at any time prior to 1st Feb., 1929. 
For terms and conditions see above. No. 26. 

(29) 20- Year Gold Bonds. — Issued 1st Feb., 1919, in exchange for 2-year secured notes 
of the United K ngdom which matured on that date. Principal and interest payable in 
New York, in United States gold coin or in London at the fixed rate of $4,865, free of British 
taxes, present or future. Denominations, coupon bonds, $100, $500 and $1,000, principal 



186 ENGLISH PUBLIC FINANCE 



registerable. Registered bonds $1,000, $5,000 and $10,000, coupon and registered bonds 
interchangeable. 

(30) Other Debt Created Ukder War Loan Act. — " Other debt is taken to include 
all borrowings outside this country, with the exception of the first American Loan raised 
in Nov., 1916, under the American Loan Act." (The Anglo-French 5's) (Economist, 3rd April, 
1920.) In the table the amount due in and to the United States has been segregated with 
the possible exception of around £12 million due for Treasury Bills sold in New York. Of 
the sum remaining the Monthly Review for March, 1920, of the London Joint City & Midland 
Bank estimates approximately £150 million to be due to other foreign countries — including 
Argentina, Uruguay, Japan and other neutrals ; the balance probably represents amounts 
due to the Dominions. 

(31) Guaranteed Loans. — Any liability In connection with these loans is apparently 
remote as all the foreign loans are a charge upon certain revenues of the nations whose bonds 
are guaranteed. The local loans are secured by the assets of the Local Loan Funds which 
are supported by local taxation. The Irish Land Purchase Bonds are secured by the Irish 
Land Purchase Funds. 

TRANSFER REGULATIONS. 

(32) Transfer and Other Regulations. — The Bank of England and the Bank of Ireland 
act as fiscal and transfer agents for the British Government debt. 

Transfers. — ^Transfers of Government securities can be made without charge from the boolcs 
of the Bank of England to the books of the Bank of Ireland or vice versa. Transfer days, 
Monday to Friday, inclusive, free of charge ; Saturday upon the payment of a fee of 2s. 6d. 

Stocks (Registered bonds, American parlance) are transferred in multiples of a penny 
(oi on the books of the Bank, in which case the owner has no documentary evidence of 
ownership (such stock is known as inscribed stock) or (6) by deed in which case the owner 
receives a certificate by the Bank of England in the following form : " This is to Certify that 
(blank) is the registered proprietor of (blank amount) registered (here follows the title of the 
Loan.)" Bearer Coupon Bonds are obtainable in exchange for mscribcd stock or stock 
transferred by deed, in the case of most issues. Registered Coupon Bonds are issued in the 
same denominations as Bearer Bonds. A Certificate of ownership similar to (h) above is 
issued to which Coupons for interest are attached. Each Registered Coupon Bond is 
transferable by deed but only in its entire amount. 

Dividends. — Cheques for dividends on inscribed and registered stocks are mailed to the 
owner. 

All business In regard to transfers must be conducted at the Bank of England or the 
Bank of Ireland in person or through a banker or other agent. The banks will not carry 
out any of these operations by correspondence. 

SINKING AND DEPRECIATION FUNDS. 

Sinking Funds. — Old Sinking Fund (38 and 39 Vict.) consisting of the surplus, if any, 
of income over expenditure for any year which the Treasury in the course of the 
next financial year shall cause to be issued out of the Consolidated Fund, or the growing 
produce thereof, at such times during that year as they may from time to time direct. Ihe 
Old Sinking Fund is to be issued to the National Debt Commissioners and applied by them 
in the same manner as the New Sinking Fund, except that it may be employed in paying 
ofi advances made by the Bank of England or the Bank of Ireland in pursuance of Section 
12 of the Exchequer and Audit Act, 1866, but not in paying off any loan borrowed under 
any Act to meet ways and means. 

New Sinking Fund (38 and 39 Vict.) consisting of such portion of the permanent annual 
charge for the National Debt as in any financial year not required for the purpose of paying 
the annual charges. This is to be Issued from time to time to the National Debt Commis- 
sioners and be applied by them, within six months after the date of issue thereof, in purchasing, 
redeeming, or paying off any one or more of the following descriptions of debt — namely, 
Annuities (perpetual or terminable) charged on the Consolidated Fund, and Exchequer 
Bonds and Exchequer Bills (whether held by the public or on account of the Exchequer, 
or sent Into the Bank of England for payment) ; but the New Sinking Fund is not to be applied 
in paying off any advances made by the Bank of England or the Bank of Ireland in pursuance 
of Section 12 of the Exchequer and Audit Act, 1866, or in paying off any loan borrowed 
under any Act to meet ways and means. (See Application of Sinking Funds, below.) 

An Annuity of £15,547 created under the National Debt (Conversion of Stock) Act, 1884, 
to extinguish the increase in the nominal capital amount of the National Debt due to conver- 
sion of 3% Stock into 2} and 21% Stock, and expiring in 1934. 

Application of Sinking Funds. — The Finance Act, 1915, makes Sections 3 and 4 of the 
Sinking Fund Act, 1875 (which relate to the application of the Old and New Sinking Funds), 



NATIONAL DEBT 187 

applicable to any securities issued under the War Loan Act, 19M, or any Act extending 
or amending that Act or any other enactment autboriring money to be borrowed for the 
purpose of the present war in like manner as they apply to annuities charged on the 
Consolidated Fund. 

Depreciation Fund for 4% and 5% War Loans.— [Items 12 and 13.) The foUowinR 
regulations have been made by the Treasury respecting the Depreciation Fund for 4% and 
5% War Loan. Under Section 32 of the Finance Act, 1917 : (1) There shall be established 
a fund to be known as the " Depreciation Fund," under the control of the National Debt 
Commissioners. (2) The following sums shall be paid to the fund from time to time under 
the direction of the Treasury : (a) In respect of the six months from 17th Feb., 1917, to 
16th August, 1917, an amount equal to six-eighths of 1% of the total nominal value of the 
Stock and Bonds of the 4% War Loan, 1929-1942, and the 5% War Loan, 1929-1947, 
originally created ; (6) in respect of each succeeding month an amount equal to one-eighth 
of 1% of the total nominal value of the said Stock and Bonds ; provided that no payTnent 
shall be made to the fund in respect of any period during which the unexpended balance 
of the fund amounts to £10,000,000. (3) The moneys standing to the credit of the Depreci- 
ation Fund shall be applied from time to time by the National Debt Commissioners in the 
purchase of Stock or Bonds of 4% War Loan, 1929-1942, or 5% War Loan, 1929-1947, 
whenever the market price of the Stock and Bonds of these issues is below the respective 
issue prices — viz., £100 and £95. (4) The Stock and Bonds bought on behalf of the Depreci- 
ation Fund shall be cancelled in the same manner as Stock or Bonds bought for the Old 
and New Sinking Funds. (5) The National Debt Commissioners shall, out of moneys 
standing to the credit of the Depreciation Fund, purchase for that fund any Stock or Bonds 
of the 4% War Loan, 1929-1942, or the 5% War Loan, 1929-1947, purchased out of funds 
standing to the credit of any Government Account between the 17th Feb., 1917, and the 
passing of the Finance Act, 1917, in anticipation of the establishment of the Depreciation 
Fund. (6) Any sums tanding to the credit of the fund, and not required for the immediate 
purchase of such Stock or Bonds as aforesaid, may be invested by the National Debt Commis- 
sioners in Treasury Bills, or in advances to the Treasury oi sums which the Treasury may 
borrow for the purpose of raising any sum which they arc authorized to issue out of the 
Consolidated Fund under any Consolidated Fund Act or Appropriation Act. (Up to the 
15th March, 1919, the amount issued out of the Exchequer for the Depreciation Fund was 
£62,180,513.) 

Sinking Fund for 4% Funding Loan and Victory Bonds. — (Items 18 and 19.) His 
Majesty's Government undertake to set aside at the close of each half-year a sum equal 
to 2i% on the nominal amount of the Loan and Bonds originally created. After deducting 
therefrom the amount required for payment of interest on the Loan for the half-year, the 
balance of the sum so set aside will be carried to a Sinking Fimd which will be applied as 
follows — 

In the case of the Funding Loan ; during the succeeding half-year to the purchase of the 
Loan for cancellation if the price is at or under par ; when the price is above par it will be 
either so applied or otherwise invested under the control of His Majesty's Treasury. Any 
outstanding balance of the Loan not previously redeemed will be repaid at par on 1st May, 
1990, but His Majesty's Government reserve to themselves the right, on giving three calendar 
months notice in the London Gatette, to redeem at par at any time on or after 1st May, any 
outstanding balance of the Loan not previously purchased and cancelled by the operation 
of the Sinking Fund. 

In the case of the Victory Bonds ; by annual drawings to the redemption of the Bonds 
at par (including Bonds which have been surrendered to the Commissioners of Inland Revenue 
for death duties as hereinafter provided), the Bonds to be redeemed in each year detemined 
by lot and paid off on 1st Sept. in such year in accordance with regulations made by the 
Treasury. The numbers of the Bonds drawn for redemption on each occasion will be adver- 
tised in the London Ga-.ette not less than two months prior to the date of redemption. 
Interest on Bonds drawn for repayment will cease from the date on which the Bonds becom* 
repayable. The first drawing will be that for the Bonds to be redeemed on 1st Sept., 1920. 

AUTHORITIES. 

The sources from which the above tables and notes have been compiled are Finance 
Accounts for 1919-20, the Stock Exchange (London) Daily Official List, official circulars so far 
as obtainable, the Stock Exchange Official Intelligence, Vol. 38 — for 1920, The Economist, 
and The Bankers Magasine (London). 



188 



ENGLISH PUBLIC FINANCE 



QUOTATIONS. 

Consols and Bank of England Stock, 

1697-1919. 

For closing years of historical periods and yearly from 1857. 





Consols. 


Bank of 


ENGLAND 


Year. 




Price. 




Average (A) Yield. 


Price. 




High. 


Month. 


Low. 


Month. 


Price. 


% 


High. 


Low. 


1697 


(a) 97 




79 




(e) 88.0 


5.7 


(i) 98 


514 


1701 


(a) 79 




57 




(«) 68.0 


7.3 


(/) 123 


1034 


1714 


(?) ^=* 




78} 




(e) 86.2 


5.8 


(m) 133} 


116i 


1739 


(6) 105 


Jan. 


97 


Nov. 


(/) 101.9 


3.3 


(») 144 


134 


1749 


102 


Oct. 


91 


Feb. 


97.6 


3.1 


140 


127 


1755 


101 


Jan. 


90 


Oct. 


94.5 


3.2 


131 


120 


1766 


90 


Jan. 


87 


Feb. 


88.5 


3.4 


140 


134 


1775 


90 


Jan. 


87 


July 


89.6 


3.3 


146 


140 


1785 


71 


Dec. 


55 


Feb. 


59.7 


5.0 


130 


112 


1792 


(c) 96 


Mar. 


76 


Dec. 


(g) 90.0 


(g) 3.3 


216 


175 


1802 


76 


Apr. 


68 


Jan. 


70.9 


4.2 


195 


180 


1817 


84i 


Dec. 


62 


Jan. 


75.3 


4.0 


(o) 294 


220 


1833 


91i 


June 


84} 


Jan. 


{h) 87.7 


3.4 


213i 


190 


1842 


97i 


Dec. 


88J 


Jan. 


(t) 92.0 


3.3 


173 


165 


1847 


93i 


Jan. 


78} 


Oct. 


87.2 


3.4 


206J 


180 


1854 


95J 


Sept. 


85J 


Mar. 


U) 9'-9 


3.3 


221 


2044 


1857 


94i 


Jan. 


86i 


Oct. 


91.9 


3.3 


222 


209 


1858 


981 


Oct. 


94i 


Jan. 


96.9 


3.1 


230 


217 


1859 


971 


Dec. 


88} 


Apr. 


95.1 


3.1 


231 


215 


1860 


95J 


Jan. 


92} 


Oct. 


94.0 


3.2 


235i 


225 


1861 


94i 


Nov. 


89i 


July 


91.5 


3.3 


241 


226i 


1862 


94J 


July 


914 


Jan. 


93.0 


3,2 


(/>) 244 


232^ 


1863 


94 


May 


90 


Dec. 


92.6 


3.2 


240 


232 


1864 


92 


May 


874 


Sept. 


90.1 


3.3 


244 


234 


1865 


91i 


June 


86} 


Dec. 


89.5 


3.3 


250 


238} 


1866 


90J 


Dec. 


84f 


May 


88.0 


3.4 


253 


240 


1867 


96i 


June 


89i 


Apr. 


93.0 


3.2 


264 


239 


1868 


96i 


May 


91} 


Jan. 


93.9 


3.2 


251 


240 


1869 


94i 


June 


91} 


May 


92.9 


3.3 


246 


235 


1870 


94 1 


May 


884 


Aug. 


92.5 


3.3 






1871 


94 


July 


911 


Dec. 


92.7 


3.3 






1872 


93i 


May 


914 


Dec. 


92.5 


3.3 






1873 


94 


May 


91} 


Dec. 


92.5 


3.3 






1874 


931 


May 


91} 


Dec. 


92.5 


3.3 


(r) 261 


2494 


1875 


95} 


Nov. 


914 


Jan. 


93.7 


3.2 


262 


251 


1876 


97i 


July 


93} 


Dec. 


95.0 


3.2 


260 


248 


1877 


97J 


Nov. 


93 


May 


95.4 


3.1 


267 


255 


1878 


98 


June 


93} 


Oct. 


95.2 


3.1 


263 


249 


1879 


991 


Apr. 


944 


Jan. 


97.5 


3.1 


271 


249 


1880 


100} 


Nov. 


97} 


Sept. 


98.4 


3.0 


280 


269 


1881 


103 


May 


98} 


Jan. 


100.0 


3.0 


299 


278 


1882 


102i 


May 


99 


Jan. 


100.5 


3.0 


291 


284 


1883 


102} 


Feb. 


99} 


July 


101.4 


2.9 


.302 


288 


1884 


102} 


Apr. 


984 


Dec. 


lOI.O 


2.9 


312 


294 


1885 


101| 


May 


9!« 


Apr. 


99.3 


3.0 


309 


2894 


1886 


102 J 


Nov. 


99} 


Jan. 


100.8 


3.0 


299 


291 


1887 


103} 


May 


994 


Feb. 


101.8 


2.9 


3084 


294 


1888 


103 J 


Mar. 


984 


Dec. 


lOI.O 


2.9 


332 


303 


1889 


99} 


Jan. 


96} 


Sept. 


98.0 


2.8 


346 


320 


1890 


98} 


May 


931 


Nov. 


96.3 


2.8 


3404 


327 


1891 


97i 


Jan. 


94} 


June 


95.7 


2.9 


343 


323 


1892 


96i 


Dec. 


93} 


Jan. 


96.7 


2.8 


344 


325 


1893 


98} 


June 


951 


Sept. 


98.5 


2.8 


344 


327 


1894 


1021 


Dec. 


974 


Jan. 


101.1 


2.7 


(s) 343 


325 


1895 


108 J 


Sept. 
July 


103} 


Jan. 


106.2 


2.6 


3384 


322 


1896 


113} 


1054 


Jan. 


110.7 


2.5 


336 


322 



NATIONAL DEBT 



189 



QVOTATIO'^S— Continued. 

Consols and Bank of England Stock, 

1697-1919. 

For closing years of historical periods and yearly from 1857 





Consols. 


Bank of E 


NGLAND. 


Year 




Price 






Average {k) Yield. 


Pric 


e 




High. 


Month. 


Low. 


Month. 


Price. 


% 


High. 


Low. 


1897 


U3i 


May 


110} 


Mar. 


112.4 


2.4 


328 


325 


1898 


1131 


Jan. 


106} 


Oct. 


110.9 


2.5 


351J 


326 


1899 


lllj 


Jan. 


97} 


Dec. 


106.9 


2.6 


(f) 361} 


325 


1900 


103i 


June 


96} 


Dec. 


99.6 


2.7 


349 


326 


1901 


97J 


Feb. 


91 


July 


94.2 


2.9 


342 


320 


1902 


97J 


June 


92} 


Dec. 


94.4 


2.9 


326} 


323} 


1903 


93 4 


Apr. 


86} 


Apr. 


90.7 


2.7 


331} 


311 


1904 


{d) 91} 


June 


85 


Mar. 


88.2 


2.8 


316 


295} 


1905 


91|S 


Mar. 


sn 


Jan. 


89.8 


2,8 


308 


291} 


1906 


91J 


Apr. 


85t"b 


Oct. 


88.3 


2.8 


301 


268 


1907 


87 ,^ 


Feb. 


80} 


Aug. 


84.1 


2.9 


288} 


255 


1908 


88^ 


Mar. 


83 i"^ 


Dec. 


86.1 


2.9 


(«) 285 


258* 


1909 


86 


Apr. 


82^ 


Oct. 


84.0 


3.0 


279 


256" 


1910 


83} 


Jan. 


78} 


Dec. 


81.0 


3.1 


272 


250 


1911 


82 ,3,. 


Apr. 


76} 


Sept. 


(t) 79.3 


3.1 


263} 


242} 


1912 


79,^, 


Feb. 


72i 


Oct. 


76.1 


3.3 


251 


234 


1913 


75}" 


Mar. 


71 


Dec. 


73^i 


3.4 


251 


224} 


1914 


77}', 


Feb. 


69i 


July 


741? 


3.3 


256 


234 


1915 


68} 


Jan. 


57 


Nov. 


65.5 


4.1 


249} 


230 


1916 


61} 


June 


53} 


Dec. 


58.0 


4.2 


230} 


194} 


1917 


56} 


Oct. 


51 


Feb. 


(e) 54.0 


4.6 


205 


190 


1918 


63i 


Oct. 


53J 


Mar. 


58.2 


4.3 


226 


191} 


1919 


60 


Jan. 


49} 


Sept. 


55.0 


4.5 


(u) 224} 


186} 



(a) These quotations are not for Government Stock but for the stock of the " Million 
Bank," an investment trust whose funds were invested in Government stocks. The 
quotations probably give a better idea of the true market than would quotations for Govern- 
ment annuities. The first quotation is for 1700, the first year in which the Million Bank 
stock was quoted. The dividends paid by the Million Bank in these years were at the rate 
of 5%. Scott, W. R., Vol. II. See Authorities. 

(6) (1739-1785) Rogers, J. E. T. History of Agriculture and Prices, Vol. VII, Part II. 

(c) (1792-1903) Mabson— The Statist's History of the Public Debt. 

\d) (1904-1919) Investors' Monthly Manual. 

(e) Average of high and low only. 

(/) (1739-1785) Average of daily prices as recorded in Rogers J. E. T., History of 
Agriculture and Prices, Vol. VII, Part II. 

(g) (1792-1817) Average of the mean of the monthly high and low prices. Silberling, 
N. J. in Harvard Review of Economic Statistics, Oct., 1919. 

(h) Van Sommers, James. Tables, London, 1848. 

(») (1842-1847) (1911-1916) Statistical Abstract for United Kingdom Average monthly 
price. 

ij) (1854-1910) Average and yield. Williams, T T., Jouma' of Royal Statistical Society 
March, 1912. 

(ft) Except where otherwise noted the yield is obtained by dividing the average yearly 
price into the rate of interest. This rate was 3% from 1739 to 5th April, 1889, then 2}% 
to 6th April, 1903, and since then 2}%. 

(1) (1697-1701) Scott, W. R., Vol. II. See Authorities. 

(»i) (1714) Rogers, J. E. T., History of Agriculture and Prices, Vol. VII, Part IL 

(n) (1739-1802) Sinclair, Vol. II. See Authorities. 

(o) (1817-1861) Francis, John — History of Bank of England — Its Times and Traditions. 

ip) (1862-1869) Thorn's Irish Almanac and Official Directory of the United Kingdom 
of Great Britain and Ireland. 

(f) (1874-1893) (1899-1907) Investors' Monthly Manual. 

(s) (1894-1898) Stock Exchange Ol/icial Intelligence. 

{I) (19081918) Mathieson's Handbook for Investors, 1919. 

(«) (1919) Investors' Monthly Manual. 

(u) High and low prices. The months given for the high and low prices of the year are 
those in which the price first occurred. In some years these same prices were reached 
several times. 



190 



ENGLISH PUBLIC FINANCE 



QUOTATIONS. 

LONDON STOCK EXCHANGE. 

British Funds. 



Calendar Years. 


1910 ! 1911 j 1912 


1913 


191 


1915 1916 


1917 j 1918 


1919 


Name. 
2J% (Goschen) 1923 

Money. (Int. Jan., 

Apr., July, Oct.) . 
2i (Childere) (Int. 

Jan., Apr., Ju!.,Oct.) 
21% Money (Int. Jan., 

Apr., July. Oct.) 
31% War Loan, red. 

1925-28. (Int. Mar., 


H 
L 
H 

L 
H 

L 

H 
L 

H 
L 

H 
L 
H 
L 

H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 


831 

781 

91i 

87 

811 

761 


82.3, 

761 

89 

80} 

801 

741 


79,1, 

721 

821 

73} 

76} 

701 


75» 

71 

7Hi 

741 

731 

671 


77 K', 

691 

80} 

741 

74} 

671 


68} 

57 

761 

59} 

65} 

54 

951 
891 

99|g 
961 


61} 
56} 
621 
531 
591 
50 

90} 
83 

971s 
921 


66i 631 
501 i 531 
56 f/ 611 
531 S3i 
531 59} 
48 j 501 

871 891^ 


60 

49} 

601 

501 

561 

461 

891 


Sept.) 


1 










83,»B 
1011 


85 
lOU 


841 


41% War Loan, red. 
1925-45 (Int. June, 












1001 


Dec.) 












891 98} 

961 961 
921 92} 


831 


5% War Loan, red. 
1929-47. (Int. June, 












96 ?« 


Dec.) 




1 










89 [it 


4% War Lo. n, red. 1929- 




1 












1031 
991 


103 


42. (Int. Apr., Oct.) 




i 


. 










98} 


4% Funding Loan 
1960-90. (Int. May, 




















781 


Nov.) 




















74 


4% Victory Bonds 




















851 


(Mar., Sept.) . 

National War Bonds. 

First Series. 
S% (Apr., Oct.), Oct., 
1922 




















79| 




















101 




















97 


5% (Apr., Oct.) Oct., 




















1011 


1924 




















961 


5% (Apr. Oct.), Oct., 
1927 














:::::::::: 




1001 




















951 


4% (Apr., Oct.), Oct., 
1927 




















100} 




















971 


Second Series 
5% (Apr., Oct.), Apr., 




















1001 


1923 




















96 


5% (Apr. Oct.), Apr., 




















lOOf 


1925 














:::::i:::;; 




961 


5% (Apr., Oct.), Apr., 
















1001 


1928 




















951 


4% (Apr., Oct.), Apr., 




















1001 


1928 




















971 


Third Series. 
5% (Mar., Sept.), Sept., 




















1001 


1923 




















951 


5% (Mar., Sept.), Sept., 




















100} 


1925 




















96. 
100 


5% (Mar., Sept.), Sept., 
1928 






































95} 


4% (Mar., Sept.) Sept., 




















100 
97 


1928 




















Fourth Series. 
6% (Feb., Aug ), Feb., 




















1001 


1924 




















451 


5% (Feb., Aug.), Feb., 




















100} 


1929 




















971 


4% (Feb., Aug.). Feb., 




















tool 




















97 



NATIONAL DEBT 



191 



QUOTATIONS LONDON STOCK EXCHANGE [Continued). 
British Funds. 



Calendar Years. 



1910 1 1911 I 1912 1913 1914 1915 1916 j 1917 ; 1918 1919 



Name. 

Exchequer Bokds. 

3% Jan., 1930. (Int. 

Jan., Apr. , July, Oct ) 

3% Jan.. 1930. (Int. 

Jan., July) 
5% Dec, 1920. (June, 

Dec.) 
5% Oct., 1921. (Int. 

April, Oct.) 
5% 1919-22, Apr., 1922. 

(April, Oct.) . 
6% Feb., 1920. (Feb., 

Aug.) 
2i% Guaranteed, 1933 
(issued under Irish 
Land Act). (Int. Jan., 
July) . 
2i% Guaranteed 1921 

(Int., Jan., July) 

3% Guaranteed red., 2 

Dec, 1939. (Int. Jan., 

July) . 

3% Local Loans, 1912. 

(Int. Jan., Apr. July, 

Oct.) 

3% Met. Poiice Deb., 

1920. (Int. Jan., July) 

3% Egyptian Guar. (Int 

Mar., Sept.) 1951 . 

2i% Greek Gua. Loans 

(Int. Apr., Oct.), 1898 

3% Mauritius, 1940 

(Int. Jan., July) 
.5J% Soudan Govt.Gtd. 
Bds. (Int. May, Nov.) 
3% Transvaal Gua. 
1923-53 Money. (Int. 
May, Nov.) 
3% Transvaal Gua. red. 
1st July, 1958. (Int. 
Jan., July) 
4% Turkish Gua. (Int. 

Feb., Aug.) 1855 
Bank of England 

Div. %, 5th April . 
Div. o/o, 5th Oct. 
Bank of Ireland 

Div. %, 1st Feb. 

Div. %, 1st Aug. 
^% India, 1931 

Money. (Int. Jan., 

April, July, Oct.) 
3% India, 1948 Money 

(Int. Jan., Apr., Jxine, 

Oct.) 
2i% India, 1926 

Money. (Int. Jan., 

April, Julv, Oct.) 
3i% India Bonds, 

1916-18. (Int. April, 

Oct.) 



84} 

79;? 

84 
79i 



84J I 791 
76i 1 73 

83, \, 79f 
76J I 74J 



92 92i I 86i 
83} i 79i 

96J I 94i : 90i 87i 

92J -- - 

93 

91i 



76y\ 79J 67 J 
691 69 65i 



65t 
50i 



76} 

70i''c 

82J 
75} 



94 J 

85J 

82i 

94 

91} 



95} 
91} 

94i 

91} 
106} 
102} 
272 
250 
9 
9 
314} 
293 

11} 

12 

94} 
92} 

84} 
79} 

70} 
66 



94} 94} 

93 U 92| 

97} 95} 

92} 88 

84} 84 

82 79} 



82 81 t', 



91} 
89} 



96} 
90} 

95;^ 
91} 
106} 
1102} 
263 
242} 

9 
303 
269 

12 

12 

97| 
91 



78 

71 
65} 

101} 
99ri 



87} 
87} 



96 

92} 

90} 

88 

79} 

73} 

87* 

87} 



79} 68} 
72} 66} 

i 
86} : 74} 
74 j 71} 

89} ! 81} 
81f 78} 
97 i 94} 
95 1 89 
95} 1 90 
89} \ 87} 
80} 75} 
78 75 
92} 
92} 



83 83} 

79 rJ 79} 
83 83 
81,il 78 
100} 101} 
99 ! 98 

100 J lOOJ 
99} 97 J, 

101 100} 
99} 1 96 

102} 101} 
100} 99} 



93} 91} 95 
87} 86} 88} 



92} 91 

88} : 86} 

104} 102} 

101} 99} 

251 251 

234 224} 

9 9 

9 1 9 

280} 243 

240 215 

11 10 

10 10 

94} 91} 

89} { 84,'s 

80} 78} 
76} 71 

67} 65 
63} ; 60} 

100}f, 100} 
99} 98} 



60^ 71 
53} 55 



71} 

54 *„ 



61} 
55 



78} 61} 

57} 56i 

91} I 93} 

91} I 90} 

72} j 69} 

68 66} 

75,>„ 75} 



63 
53} 

63} 
56} 

67 
57} 



58} 
51} 

63 
53} 

64 
54} 



90} 
86 



94} 
87} 
103} 

101} ! 

256 249} 

234 230 

10 I 10 

10 ,10 

'240} 230} 

222} 182} 

10 10 

10 10 



93} 
84 

80} 
71} 



66} 



66} 64} 

58} ! 55} 

97} 99} 

94 

72} 

66} 

80 

74 

71 

69} 



88} 68 
62} 63} 



86 

63 

97 

75 
230} 
194} 

10 

10 



66 

63 

79} 

72 
205 
190 

10 

10 



200} 195 

172 170 

10 10 

10 10 



83} 80} 69} 
80} 63} 1 62} 



98} 

73} 

61 

84} 

79 

69} 

64} 

74} 

70} 

73} 
62 

70 
62 

87} 
74 
224} 
186} 
10 
10 

223 226 

190 204 

10 12 

10 12 



70} 
67} 

70 
63} 
83} 
71 

226 

191} 
10 
10 



711 
69} 



66} 60} 
59 ; 57 



100, 
96 ■ 



69} 
54} 



60} 64 
53} 53 



74 
61} 



57} SO 
46} 1 45} 



97f? 98} I 99} 
97} j 96} I 99} 



53} 
44} 



71} 
60 

61} 
50} 

51 J 
43} 



192 



ENGLISH PUBLIC FINANCE 



QUOTATIONS LONDON STOCK EXCHANGE [Continued). 
British Funds. 



Calendar Years. 




1910 1911 


1912 


1913 


1914 1915 


1916 


1917 


1918 [ 1919 


Name. 




















t 


3J% Indian Rupee 
























Paper. (Int. various 


H 


6!H 


64» 


64J 


64 


64* 


tii;}, 


M4 


53 


534 


68 


Dates) . 


L 


6'2i 


62i 


63i 


62i 


63i 


54 


48* 


424 


43 


484 


3i% Indian Rupee 
























Paper, 1854-5. :(Int. 


H 


64 


64» 


64» 


64i 


Mkh 


624 


55 


524 


54 


68r 


June, Dec.) 


L 


62J 


63i 


63i 


63 


63i 


52 


48J 


4:^4 


43 


48: 


3% Indian Rupee Paper 
























1896-7. (Int. June, 


H 


53 


52i 


541 


54 


53i 


494 


454 


384 


414 58 


Dec.) 


L 


52 


52 


53» 


53} 


534 


484 


434 


3V4 


414 43 


3i% Isle of Man. (Int. 


H 


96J 


97,1, 


96+ 


94 


99 


99i 


96 r!, 


89i 


99,',! 994 


Feb., Aug.) . 


L 


96i 


974 


964 


94 


964 


96 


89 


97} ! 97 


3% Isle of Man Deb., 
























1919-29. (Int. Feb., 
Aug.) . 


H 


881 
88i 


87J 
85J 












804 


794 




L 












80 


77J 

















Authorities for Quotat'Ons 1910-1919, Investors' Monthly Manual — London. Stock 
Exchanges London and Provincial Ten-Year Record of Prices and Dividends — 1909-1918, 
Mathieson, Fred C. C. & Sons, London, 1919. Mathieson's Handbook for Investors for 1920. 



QUOTATIONS. 

NEW YORK STOCK EXCHANGE. 

British Funds. 



Calendar Years. 




1914 


1915 


1 
916 


1917 


1918 


1919 


Name. 
















5% Anglo-French 
















5yr. . 


H 




984 


964 


934 


974 


97J 


(Int. Apr. and Oct.) 


L 




93J 


924 


814 


884 


954 


United Kingdom of 
















Great Britain and 
















Ireland 
















2 yr. 5% Notes 1918. 


H 






99}J 


98 






(Int. Mch. & Sept.) 


L 






98 


95 






3 yr. 54% Notes 
















1919 . 


H 






98} 


98J 


100 




(Int. May & Nov.) 


L 






974 


934 


954 




5 yr. 54% Notes 
















1921 . 


U 






984 


984 


99 

91 i 


994 


(Int. May & Nov.) 


L 






97 


844 


94} 


54% Convertible 
















Notes . 


H 








lOOi 






1918 . 


L 








98 






54% Convertible 
















Notes 1919 . 


H 








1014 


105 




(Int. Feb. & Aug.) 


L 








954 


974 




54% 20 yr. Gold Bond 
















1937 . 


H 










101 


1014 


(Int. Feb. & Aug.) 


L 










100 


96$ 


10 yr. Conv. 54s 19-9 


H 












(Int. Feb. & Aug.) 


L 












944 


3 yr. Conv. 54s 1922 


H 












984 


(Int. Feb. & Aug.) 


L 












954 



NATIONAL DEBT 



193 



MONEY RATES. 
London Daily Average. 

Bank Rate. 





1914 


1915 


1916 


1917 


1918 


1919 


First half 
Second half . 


3 4 7 

4 16 10 


i s. d. 
5 
5 


i s. d. 
5 
5 18 6 


i S. d.£ 5. d. 

5 6 05 
5 05 


£ s. d. 

5 
5 6 


Whole year . 


4 9 


5 


5 9 3 


5 3 05 


5 3 





Market Rate — Three Months Bills. 




First half 
Second half . 




1 s. d. 

2 10 2 

3 5 3 


1 s. d. 

2 9 
4 19 3 


i s. d.l s. d.\£ s. d.£ s. d. 

4 17 64 16 73 13 03 10 

5 11 04 15 93 10 54 7 9 


Whole year . 


2 17 8 


3 14 1 


5 4 34 16 23 11 93 18 10 





Deposit Rate — Banks. 






First half 
Second half . 


£ s. d. 

1 14 7 

2 10 


£ s. d.\£ s. d}£ s. d. 

2 03 10 0,4 

3 4 13 18 94 


£ s. d. 

3 2 
3 


£ s. d. 
3 a 
379 


Whole year . 


2 2 42 12 o's 14 4I4 


3 1 


3 3 10. 





Short Loans. 






First half . 
Second half . 


£ s. d.t;^ s. d. 

1 1 1\\1 11 

2 5 114 3 9 


£ s. d.\£ s. d. 
4 5 114 11 
4 19 64 5 6 


£ s. d. 

3 6 2 
3 4 11 


£ s. d. 

3 4 7 
3 14 7 


Whole year . 


2 4 32 18 4 


4 12 84 8 3 


3 5 6397 



TREASURY BILLS. 

Discount Rate. 





Rate 




Date. 


% 


Maturity. 


1917. 






19th June 


4f 


3 and 6 months bills. 


27th Dec. 


4 




1918. 






14th Feb. 


3^ 


i> i> >> 


1919. 






31st May 


— 


Sales discontinued. 


14th July 


H 


2 months bills — (Sales discontinued 15th August), 




H 


3 




4 


6 


6th Oct. 


4i 


3 




5 


6 


7th Nov. 


5i 


3 and 6 months bills. 



For further data about Treasury Bills, see Item 21, page 185, also Index. 
13— (1823) 



194 



ENGLISH PUBLIC FINANCE 



SOVEREIGNS OF ENGLAND. 
From the Conquest. 



Reign Reigned, 
Sovereign. began, years. 

Norman Line. 

William the Conqueror . 1066 21 

WiUiam Rufus . . 1087 13 

Henry I . . . 1 100 35 

Stephen . . . .1135 19 



House of Plantagenet. 



Henry II 
Richard I 
John 

Henry III 
Edward I 
Edward II 
Edward III 
Richard IF 



1154 
1189 
119L) 
1216 
1272 
1307 
1327 
1377 



House of Lancaster. 



Henry IV 
Henry V 
Henry VI» 



1399 
1413 
1422 



House of York. 



Edward IV 
Edward V 
Richard III 



1461 
1483 
1483 



House of Tudor. 



Henry VII 
Henry VIII 
Edward VI 



1485 
1509 
1547 



Deposed 1399. 
Deposed 1461. 



35 
10 
17 
56 
35 
20 
50 
22 



Sovereign. 



Reign Reigned, 
began, years. 



Mary I 
Elizabeth 



1553 
1558 



House of Stuart. 



James I . . . . 1603 
Charles I » . . . 1625 

Commonwealth declared 

May 19th, 1649 
Oliver Cromwell 

Lord Protector 1653-1658 
Richard Cromwell 

Lord Protector 1658-1659 
Charles II . . . 1660 

James II* . . . 1685 

WUUam III J 

and V . . 1689 

Mary IP ) 
Anne .... 1702 



House of Hanover. 



George I 
George II 
George III 
George IV 
WiUiam IV 
Victoria . 



House op Kent. 
Edward VII . . . 1901 

House of Windsor. 
George V . . . 1910 

' Beheaded 1649. 
' Deposed 1688. 
■* Died 1694. 



5 
45 



22 
24 



13 



1714 


13 


1727 


33 


1760 


60 


1820 


10 


1830 


7 


1837 


64 



national debt 195 

Authorities. 

The statements contained in this book are for the most 
part based upon official data, chiefly derived from the 
following publications — 

Period. Revenue, Expenditure, Currency and Debt. 

1688-1869 House of Commons Sessional Papers, Vol. XXXV, 1868-69, 
No. 366. This monumental work of H. W. Chisholm gives 
complete data in regard to revenue and expenditure and 
the debt. 

1870-1919 Finance Accounts. See page 140. 

1919 and Budget Speeches as printed in various publications ; also 

1920 semi-official data tabulated in The Economist and The 
Statist. 

1914-1919 Committee on Currency and Foreign Exchanges After the War 
— Lord Cunlifie, Chairman. First Interim Report — C. 
9182, 1918. Final Report— C. 464, 1919. 

The Debt. 
1694-1786 History of the Earlier Years of the Funded Debt. A. T. King. 

House of Commons Sessional Papers, 1898. Vol. LII — 

C. 9010. 
1786-1890 Proceedings of the Commissioners for the Reduction of the 

National Debt. House of Commons Sessional Papers, 

1891. Vol. XLVIII— C. 6539. 
1836-1914 National Debt. House of Commons Sessional Papers, 

1914. Vol. L — C. 7426. Similar statements are published 

annually. 

Rev'enue, Expenditure and Debt. 
Of secondary sources the most valuable have been — 

AsHTON, John. — A History of from the earliest times to the 

English Lotteries. London, present day. London, 1884. 

1893. The authoritative work on the subject. 

The best authority. Freeman, Edward A. — The 

Atton, Henry, and Henry Growth of the English Constitu- 

HuRST Holland. — The King's Hon from the Earliest Times. 

Customs. New York, 1908. London, 1906. 

Covers from earliest times to 1800. GiFFEN, Robert. — The Growth of 

BoGART, Ernest L. — Direct and Capital. London, 1889. 

Indirect Costs of the Great World ^ exceUent study of national wealth. 

War. Hall, Hubert. — The Antiquities 

Carnegie Endowment for International «"^ Curiosities of the Exchequer. 

Peace. New York, 1919. London, 1891. 

Brisco, Norris a.— The Eco- Supplements Madox. See below. 

nomic Policy of Robert Walpole. ^ History of the Custom Revenue 

New York, 1907. "^ England to 1827. 2 Vols. 

A finished study; the best for the London, 1885. 

period. Mr. Hall is one of the most thorough 

DowELL, Stephen.— /i History of students of early fiscal methods. His 

™ ,. J _ ._,-',' historv of the Customs is the best 

1 axation and Faxes m England, authority. 



196 



ENGLISH PUBLIC FINANCE 



/. 



4 



Hamilton, Robert. — An Inquiry 
Concerning .... the National 
Debt. Edinburgh, 1818. 

A scientific study. Hamilton deserves 
the credit for convincingly demon- 
strating the fallacy of Pitt's sinking fund. 
A concise, authoritative exposition of 
the subject. 

HiGGS, Henry. The Financial 
System of the United Kingdom. 
London, 1914. 

A summary exposition of our financial 
sj'stem, its organization, methods and 
forms of procedure. 

Hughes, A., Crump, C. G., and 
Johnson, C. — " De Necessaries 
Observantiis Scaccarii Dialogus," 
commonly called Dialogus de 
Scaccario, by Richard, Son of 
Nigel, Treasurer of England and 
Bishop of London. Oxford, 
1902. 

Supplements Madox. A recent and very 
thorough study. 

Lowell, A. Lawrence. — The 
Government of England. 2 Vols. 
New York, 1912. 
The best authority on English govern- 
mental methods. 

Madox, Thomas. — The Ancient 
Dialogue Concerning the Ex- 
chequer. London, 1758. 
The best authority on the earliest history 
of EngUsh public finance. 

Poole, Reginald L. — The Ex- 
chequer in the \2th Century. 
Oxford, 1912. 
Supplements Madox. 

Ramsay, Sir James H. of Bampf. 

The historical works of this author 
cover the period of English history 
from B.C. 55 to A.D. 1485. He gives 
particular attention to matters of finance, 
and is perhaps the best authority on 
public finance from 1154, when the first 
records become available, to 1485. He 
is reputed to be very accurate. 

ScoTT, W. R. — The Constitution 
and Finance of English, Scottish 
and Irish Joint Stock Companies 
to 1720. 3 Vols. Cambridge, 
1910-1912. 

An extremely valuable study. Vol. HI 
contains data in re Crown finance in the 
time of Queen Elizabeth not to be 
found elsewhere. 
Scroggs, W. O. — English Finances 
under the Long Parliament. 



Quarterly' Journal of Economics. 

May, 1907. 

An important study. 

SiLBERLiNG, NoRMAN J. — British 
Financial Experience, 1 790- 1 830. 
In The (Harvard) Review of 
Economic Statistics, October, 
1919. 

An excellent study of commodity prices, 
/ wages, prices of gold and silver, exchange, 
and interest rates. 

Sinclair, Sir John. — The History 
of the Public Revenue of the Brit- 
ish Empire. 3 Vols. London, 
1803-04. 

The authority on the history of Crown 
and national finance to about 1801. 
Treats also of early borrowing methods. 

Stamp, J. C. — British Incomes 
and Property. London, 1916. 

The Wealth and Income of the 
Chief Powers. Journal Royal 
Stat. Soc. July, 1919. 

Probably the most scientific and authori- 
tative studies which have been made on 
these subjects. 

Stubbs, William. — The Constitu- 
tional History of England in its 
Origin and Developynent (1066- 
1485). 3 Vols. Oxford, 1880. 
The standard work on the English 
Constitution. Invaluable. 

Williams, W. M. J. — The King's 
Revenue. London, 1908. 
An excellent guide to a correct imder- 
standing of Treasury and budget state- 
ments. 

WlLLOUGHBY,WM.F.,andWESTEL, 

W. ; McCuNE, Samuel Lind- 
say. — The System of Financial 
Administration of Great Britain. 
New York, 1917. 

Describes particularly the English budget 
system. 

Banking. 

ANDR^ADis, A. — History of the 
Bank of England. London, 
1909. 
The acknowledged best authority. 

Bagehot, Walter. — Lombard 
Street. New York, 1912. 
For administrative methods. 



NATIONAL DEBT 



197 



BisscHOP, W. R. — The Rise of the 
London Money Market. Lon- 
don, 1910. 

Of especial value in connection with the 
genesis and history of the private and 
joint stock banks. 

Francis, Joseph Hume. — History 
of the Bank of England. Chicago, 
1888. 
For human interest notes. 

HoLDEN, Sir Edward H. — 
Annual addresses to Share- 
holders of the London Joint 
City & Midland Bank. 

These very able addresses were delivered 
at the annual meetings, 1915 to 1919 
inclusive. 

Palgrave, R. H. Inglis. — Bank 
Rate and the Money Market. 
New York, 1903. 

An invaluable study of the banking 
reserves and discount rates from 1845. 



Philippovich, Eugen von. — His- 
tory of the Bank of England. 
Washington, 1911. 

For relations to the Exchequer. 
Authoritative. 

Powell, Ellis T. — The Evolution 
of the Money Market. London, 
1916. 

a study of finance as a central co- 
ordinated force. 

Rogers, James E. — The First 
Nine Years of the Bank of 
England. London. 

The standard authority for the period 
covered. 

Withers, Hartley. — The English 
Banking System. Washington, 
1911. 

a concise review prepared for the 
National Monetary Commission. 

War and Lombard Street. Lon- 
don, 1917. 

For emergency measures adopted at 
outbreak of war. 



The Economist, The Statist, and The Bankers' Magazine, London, 
have been of the greatest value, particularly for the war period. 



Index and Glossary 

Where no page number is given the subject is not treated in the text. 



Acceptances, Use of, 7, How 

market was protected in 1914, 7 
Accounting Officers of Exchequer, 

140 
Aid, 57 — See Scutage, taxation 
Aids, Feudal, 53 
Alfred, Kang, 49 
Allies and Dominions, Loans to 

31st March, 1920, Table, 29 
American Securities, Mobilization 

of, 1914-1919, 20 

War — See War 

Amsterdam, Bank ot, established 

1609, 80, 154 

Anglo-French Loan, 20 — See also 
Debt Table, 182 

Anglo-Saxon Kings, Finances, 49- 
52 

Anne, Queen, 89 

Annuities, 87 

Antiqua Custuma, i.e., The 
ancient and equitable duties, 56 

Assessments, Monthly, 58 

Assets, National, 17 

Assize of Arms. A medieval 
term. Under the assize every 
freeman was required to pro- 
vide himself with arms and 
armour according to his means 
and rank and to stand ready 
for military service. 

Australia, Cost of War, 1914- 
1919, 1 

Auxilia. A medieval tax on 
tenants. 

Banco del Giro, 153 

' della Piazza del Rialto, 153 

Bank Charter Act of 1844 — See 
Bank of England, 170 

of Amsterdam, 154 

of England : Advances to 

Government on Credit of Ways 
and Means, 36 ; Bank Act of 
1844, terms of, 170, 171 ; sus- 
pension of in 1847, 1857, 1866 
and 1914, 172 ; Bank Rate- 
Effect of in regulating money 



rates and the exchanges, 148, 
normally controls money mar- 
ket, 148 ; Branches, 169 ; Build- 
ing, 177 ; BuUion Report 1810, 
164 ; Capital — original, 158 ; 
Charter granted, 24th July, 
1694, 75 ; Charter Act of 1844, 
169 ; Clerical machinery, 177 ; 
" The Court," 176 ; Commit- 
tees, 176 ; Crises, 18th Century, 
and the Bank, 1 60 ; Directors — 
How elected, 174 ; personnel, 
174, committees of, 176, 
court of, 176 ; Early His- 
tory, 157 ; Exchequer — rela- 
tion to, 137 ; First bank in 
modem sense, 147 ; Fund of 
Credit idea, 88, 158 ; French 
War, Great, and the bank, 161 ; 
Functions — acts as banker to 
nation, 138, 148, 159, carries 
reserves of other banks, 148, 
conducts general banking busi- 
ness, 147, issues bank notes, 
147, mobilizes national credit 
resources, 149 ; Fund of Credit, 
88, 158 ; Government of, 174, 
committees, 176, clerical ma- 
chinery, 177, directorate, 174 ; 
Governor and Deputy Gover- 
nor — How selected, 174, change 
every two years, 176, duties, 
176 ; Loan from Bank of 
France in 1839, 170 ; Note issue 
— rights in England practically 
exclusive, 147 ; Notes made 
legal tender in 1833, 169 ; 
Officers, 175 ; Origin, 157 ; 
Privately owned, 158 ; Privi- 
leges and obligations under 
Act of 1844, 171 ; Quotations 
for stock, 188 ; Reserves — 
ultimate banking r. of nation 
held, 148 ; Reserves — rule in re 
prior to 1844, 170 ; Reserves in 
1839, 170 ; Rest (reserve) estab- 
lished 1722, 169, Restriction Act, 
163 ; Resumes specie payments 



199 



200 



INDEX AND GLOSSARY 



in 1821, 165 ; Rule for Conduct 
of business prior to 1844, 170; 
Statements required, 169, com- 
ment of the Economist thereon, 
170 ; Stockholders' liabihty, 
169 ; Specie payments sus- 
pended 1797-1821, 162 ; effect 
on exchanges and prices, 
163 
Bank of France : Founded in 1800, 
171 ; Loan to Bank of England 
in 1839, 170 

of Genoa or Compania (Casa) 

di San Giorgio, Origin dates 
from 1148, 154 

of Ireland, 138 

of Venice or Banco del Giro, 

Founded 1619, 153 

Bankers — Itahan and Plantagenet 
Kings, 151 

Banking — Italian corporate banks 
— eariy, 153 

, Joint-stock — Introduced in 

1826,76,166; Privilege extend- 
ed to London 1833, 76. English 
forbidden to issue notes, 166, 
167, 171 ; Number of banks 
still having privileges in 1920, 
167 ; Number and resources in 
Dec, 1919, 168 

credits — How created, 37 ; 

How they helped to finance war 
1914-1920, 33; Reserves v. 
Credits, 34 

Reserves — v. Credits, 1914- 

1920, 34 ; ntimate carried in 
Bank of England, 148 ; Scotch, 
148, 179 

Statements — not required in 

England except by Bank of 
England, 169 

Banks, Country — failures in 1793, 
108, 160 

, Irish, 148, 179 

Banks or Partnerships of more 
than six persons forbidden in 
1708 to issue notes in England, 
166; In 1826 restrictions re- 
moved (until 1844) on banks 
located 65 miles from London, 
167 

Benevolences, 60 

Bona Vacantia, 54 

Boer War, 30 

Borrowing — See Debt 

Brig-bote, 49 



British Empire, Cost of War to 
1914-1919. 1 

Budget, 134 

From the French bougette, a 
little bag in which the Chan- 
cellor of the Exchequer kept his 
papers. Adopted in England 
in 1763 when the annual 
statement of the plan of supplies 
and means was first called 
" opening the Budget." 

(1920-1921). 15 

Bullion Report, 164 
Burg-bote, 49 

Canada— Cost of War to (1914- 
1919), 1 

Capital Levy urged in 1715. 101 

Chamberlain, Austen, 15, 16, 17, 
18, 22, 29 

Chancellor of the Exchequer — 
Ancient times, 130 ; Modem 
times, 134, 136 — See Chamber- 
lain. Austen ; Gladstone, Wil- 
liam ; North, Lord ; Pitt, 
William ; Walpole, Robert 

Charles I — Government without 
Parliament, 69 

II, 65, 70 ; Army dis- 
banded, 71 ; Clergy consent to 
be taxed by Parliament and 
obtain right to vote at elections, 
72 ; Dutch wars, 72 ; Excise 
Taxes, 72 ; Fire of London. 72 ; 
French loan makes him inde- 
pendent of Parliament, 73 ; 
Seizes deposits of Goldsmiths, 
65 ; Parliament ends Dutch war 
by withholding supplies, 72 ; 
Plague, 72 ; Poll tax — greatest 
known — cla.sses affected, 71 ; 
Stop of Exchequer, 65, 72, 156 ; 
Revenue — lOths and 15ths 
abandoned for monthly assess- 
ments, 72 ; Permanent revenue 
given in lieu of prerogative 
rights, 72 

Charters : Magna — extorted from 
King John in 1215. The great 
charter of the liberties of Eng- 
land, 47. 57, 66 — See Taxation : 
Aids, Customs, Escheats, Scut- 
age, Purveyance. Mercatoria — 
published in 1303. The Magna 
Charta of Commerce. The basis 
of the free trade system, 66 



INDEX AND GLOSSARY 



201 



Chisholm, H. W., Monumental 
reports on debt and revenue, 
114, 195 

Church, The, Revenues derived 
from, 68 ; Spoliation of by 
Henry VIII, 68 

Circulation, Bank Note : English, 
166, 167 ; Bank of England, 
169-173 ; Joint-stock banks, 
166 ; Private banks, 167 ; Irish 
banks, 179 ; Scotch banks, 
179 

Civil Government, Cost of, 1833- 
1920, 124-126 

Rights, Revenues and civil 

rights, histories bound together, 
47 

War Period. 1649-1660, 69 

Clergy : Supplies voted from own 

estate until time Charles II, 72 ; 
Obtain right to vote at elections, 
72 

Coinage : Debasement as source 
of revenue, 54, 60 ; Debased by 
Edw^ard I, Edward IV, Henry 
VIII, 60; Irish— debased by 
Elizabeth, 61 ; Restored by 
EUzabeth, 61 ; Restored by 
V^^iUiam III, 61 

Commerce, Foreign, Anglo-Saxon, 
50 

Commons : First admitted to 
share in taxing power (1295), 
66 ; Certain revenues voted 
yearly to insure control of 
government, 118 ; Right to ini- 
tiate money legislation becomes 
a precedent in reign of Henry 
IV, 67; WilHam III and, 
118 

Commonwealth and Protectorate 
(1649-1659): A period of active 
training for self-rule, 69 ; Cost 
of government high, 70 

Compania di San Giorgio, 154 

Compera del Capitalo, 154 

" Consols," 105, 183 

Constitutional Government 
veloped by control of 
under Plantagenets, 66 ; 
caster and York, 67 ; Tudors, 
67 ; Stuarts (earlier), 68 ; Com- 
monwealth and Protectorate, 
69 ; Stuarts (later), 70 ; Wilham 
III, 48 

Continental Policy, Napoleon's, 



De- 
purse 
Lan- 



Stimulated home trade of Eng- 
land, 163 

Contributions — See Revenue 

Corn Laws repealed, 77 

Cotton Trade, How financed, 1914, 
10 

Credit, Letter of, reign of John, 
152 

■, National, High sense of 

national honour at base of 
national credit, 117 

Structure : In war, 1914- 

1920, 39 

Credits, Loans to Dominions and 
Allies, 31st March, 1920— Table, 
29 

Cromwell, 70 

Crown Colonies, Cost of war to, 
1914-1919, 1 

Finance, 1066-1688, 47 

Lands, 59 

Jewels Pawned for Debt, 62 

Crusades and Italian bankers, 151 
Cunliffe, Lord, Committee on 

Currency and Foreign Ex- 
changes, 36 

Currency and Foreign Exchanges 
after War, Committee on, 36 

— — , Joint-stock Banks deprived 
of right to issue notes in 1844, 
171; Note and Deposit — actual 
and per capita, 1913-1919, 
Table II, 42 ; Note and deposit 
V. Gold Reserves, Table III, 44 

notes — See Treasury Notes 

Customs, 55 ; Anglo-Saxon, 50 ; 

Antiqua-Custuma, 56 ; Farm- 
ing, 150 ; Free Trade — absolute 
since 1866, 77 ; Charta Merca- 
toria, 66 ; Informal, 56 ; Magna 
Charta, defined, 56 ; New Cus- 
toms (Nova Custuma) 56 ; Old 
(Antiqua-Custuma), 56 ; Oldest 
branch of revenue, 55 ; Origin, 
50, 55 ; Prisage — two casks of 
wine from each cargo, 56 ; 
Protective Tariffs, 56 ; Sub- 
sidies, 56 ; Tariffs to promote 
and regulate commerce, 56 ; 
Tariff reform, 122 ; Tunnage 
and Poundage, 56 

Dane-geld, 49 

Debt, Crown : Compulsive loans, 
64 ; Crown jewels pawmed for 
debt, 62 ; First recorded, 62 ; 



202 



INDEX AND GLOSSARY 



Foreign borrowing, 64 ; Interest 
payments (usury) interdict in 
medieval times, 62 ; Henry 
VIII repudiates, 63 ; Security 
given — form of, 63 ; Stop of 
Exchequer, 65 
Debt National : Ability to carry 
due to progress of the arts and 
sciences, etc., during 18th and 
19th Centuries, 32, 115, 128; 
American War (1775-1783), 94 ; 
Amount at close of historical 
periods, 1688-1817, 81 ; 1817- 
1919, 31 ; Annuities, 87 ; ton- 
tine, 87 ; V. Bank Assets, 39 ; 
Began in 1688, 74, 79, 82 ; 
Burden, Comparative, 1688— 
1817, 114, 116; 1688-1920, 15, 
142-5; 1817-1914,128; 1817- 

1919, 30, 31 ; Cause, chieflv 
war, 76, 79. 112, 119, 143, 145"; 
Charge v. National Income, 30, 
115, 128; Competitive bidding 
for loans, inaugurated by Pitt, 
107 ; " Consols," origin, 1749, 

105, 183 ; Consols, quotations, 
1697-1920, 188, 190; Credits 
to 31st March, 1920, 29 ; 
Debenture — copy of one in 
reign of John, 151 ; East India 
Co., 89 ; Exchequer Bills, 75, 
85, 86 ; Exchequer bonds, 184 ; 
Exchequer order and tallies, 83 ; 
Floating debt— 1784, 106; 

1920, 25, 27 ; Foreign securi- 
ties mobilization, 1915, 20 ; 
French War Debt, 108-117; 
" Funded " and " unfunded " 
debt defined, 82 ; Funded, early 
forms, 87 ; Fund of Credit, 
88 ; Loans to Dominions and 
AlUes, 31st March, 1920— 
Table, 29 ; Lottery Loans, 93, 
Lotteries, State, 97 ; Loyalty 
Loan of 1796, 110; Maturities 
of debt on 31st Dec, 1919, 25 ; 
Navy supply bills — manner of 
issue time Charles II to 1784, 

106, discount in market, 1687, 
85, method of issue reformed 
by Pitt, 106, funded by Pitt in 
1785 and 1786, 106 ; Origin. 
74 ; Paying for the War bonds, 
35 ; Reduction, Proposed 1920- 

1921, 26, 27; Refunding and 
reduction of interest. 1749, 105, 



1784, 106, 1817-1914, 127, 
1920-1921, 26, 27 ; Sinking 
Fund : Walpole's, 1717, 101, 
after 1727 inoperative for debt 
reduction, 102 ; Sinking Fund, 
Pitt's, 1786-1829. 102, fallacy 
of. 103, Sinking Pounds, Modern. 
104. 186. old, 186,- new, 186. 
war debt, 1914-1920 (known 
as depreciation fund for 4% 
and 5% War Loans ; Sinking 
Fund for Victory and Funding 
Loans), 14, 26, 187; 31st March, 
1920, complete descriptive 
tables, 181-187 ; Spanish and 
Austrian Wars debt (1739- 
1748), 81, 82 ; Terms on which 
loans were placed, American 
War, 95-99, Great French 
War, 108. 109, 114, Great 
World War, 1914-1920. 19-25 ; 
Transfer regulations, 186 ; 
Treasury Bills, 8, 11, 27, 75. 
185 ; Treasurv Bonds, 27 ; 
Unfunded debt defined, 82, 
early forms of, 83 — army and 
navy supply bills, 85, exchequer 
bills, 85, 86, exchequer bonds, 
184, exchequer order, 84, tallies, 
83, treasury bills, 8, 11. 185, 
ways and means advances, 36 ; 
War Debt. 1914-1920, 19; 
War Savings Associations, 
1914-1920, 21 ; v. Wealth, 
1688-1817, 81 ; 1817-1914, 128 

" Demesne " — Domain, 49, 53 — 
See Prerogative 

Discount Rates — Money, 1898- 
1914, 4; 1914-1919. 193 

Dominions and Allies— Loans to. 
31st March. 1920, 2, 17 ; Table, 
29 

Dominions : Expenditures for 
War, 1914-1919, 1, 2 ; Per 
cent, met by taxation, 3 

East India Company, 89 
Edward the Confessor, 49 

I : Coinage Debased, 60, 

Commons admitted to share in 
taxing powers in 1295, 66 ; 
Laws codified by, 66 ; Tannage 
and Poundage originate in 
reign of, 56 

Ill : Default on obliga- 
tions to Italian bankers, 153 ; 



INDEX AND GLOSSARY 



203 



Necessity for revenue gives 
Parliament opportunity to ob- 
tain concessions in exchange for 
grants, 67 ; Poll tax first laid in 
1337 ; Tenths and Fifteenths 
originated in his reign, 57 
Edward IV, Coinage debased, 60 

VI, Foreign loans, 64, 68, 

152 

Elizabeth, Queen, Foreign loans, 
64, 152 ; Lottery, 93 ; Coinage 
restored, 60 ; Sanctions base 
coinage for Ireland, 61 ; Debts 
— father, brother and sister 
paid, 64 

Estate duties, 59 

Exchequer (The public Treasury) 
— Ancient Accounting system 
of, 130 ; Anglo-Saxon, 52 ; 
Budget, 134 ; Chancellor of, 
136 ; ConsoUdated Fund, 137 ; 
Departments and officials, 136 ; 
Emergency measures, 1914, 5 ; 
Expenditures, 1688-1817, 118. 
120 ; 1688-1920, 145, and Bank 
of England, 158 ; Modern, 135 ; 
Norman period, 53, 58 ; Re- 
ceipts, 1688-1830, 118-121; 
1688-1920, 142 ; Talhes, 132 ; 
Treasury, 133 ; and Bank of 
England, 137 

Bills : First issued, 1696, 

75, 85, Reign of William III, 
86, 158 ; Largely superseded 
by Exchequer bonds (1853), 
184 ; and Treasury bills (1871), 
11. 185 

Bonds, 184 

Order and Tallies, 83, 84 

, Stop of, 65 

Excess Profits Tax— See Taxation 
Excise Taxes : Introduced from 
Holland in 1643, 58 ; of Charies 
II, 72 ; French war period, 121 
Expenditure, 2^ centuries v. six 
years, 15 ; Character of, 1817- 
1914, 123; Civil — increase 
after each war, 120 ; Civil 
Government, 1817-1914, 123; 
Distribution, 1833-1914, Table, 
126 ; Debt charge, increasing 
burden after each war, 119; 
Debt charge, 1817-1914, 123 ; 
Military steadily rises, 119, 
124, 125 ; Principal objects of, 
1688-1920, 145 ; War chief 



cause, 77 ; 1688-1830 for alter- 
nate periods of peace and war, 
120; 1688-1920, 15, 145; MiH- 
tary— 1816-1914, 124 ; 1915- 
1920— Table, 15 

Exchanges, Foreign, Working of, 
described, 7 

Export Merchants, Advances to. 
in 1914. 9 

Extortions — Forms of, practised 
by early kings, 60 

Factor, The King's, 152 

Fairs, Anglo-Saxon and Norman, 
51 

Farm (or Ferme), Farming cus- 
toms, how done and why, 150 

Federal Reserve Banks — U.S. — 
carry ultimate specie reserves 
of all banks, 34 

Ferme — See Farm 

Feudal system : Aids, 53 ; Anglo- 
Saxon, 49 ; Knights service, 
53 ; Norman sj^stem of land 
tenure, 53 

" Finance Accounts," 58, 141 

, National : Dutch experi- 
ence a valuable asset to William 
III, 80 ; Germs of modem 
financing methods found in 
early practice, 58 

Financial conditions in July, 
1914, 4 

Fines, 54, Extortionate, 60 

Fiscal system to-day : Account- 
ing of&cers, 140 ; Bank of 
England, 137 ; Bank of Ire- 
land, 138; Budget, 134; 
Exchequer, 135 ; Chancellor 
and Aids, 136 ; Consolidated 
Fund, 137 ; Financial Reports, 
141 ; Paymaster-General, 139 

Flemish merchants. Loans to 
Edward VI. Mary and Eliza- 
beth, 64, 153 

Folk-land, 50 

Foreign investments, 5 

securities, Mobilization of, 20 

Forests, The King's, 53 

Forest laws, 53 

Free Trade — See Customs, 66, 77 

Fumage — See Taxation, 59 

Fund of credit, 88, 158 

Genoa, Bank of (Ufficio di San 
Giorgio), Cartulary notes — 
Character of business, 154 



204 



INDEX AND GLOSSARY 



George, David Lloyd, 5 

" Giro payments " defined, 153 

, Banco del (Bank of Venice), 

153 

Goldsmiths, The, 155, 159 

Grants — See Aid 

Great Britain — See United King- 
dom 

Gresham, Sir Thomas, King's 
factor, 152 

" Hearth-Money," 57 

Hereditary revenues — See Pre- 
rogative, 53 

Henry II : Exchequer records 
date from his reign, 47 

Ill : The first king of 

England whose debts are re- 
corded, 62 

IV, 67 

V, 63 

VIII, 60, 63, 64, 68 

" Here-geld," 49 

Hide — of Land : A medieval 
measure of land — about 100 
acres, 50 

Holden, Sir Edward H., 10 ; 
process of payment for govern- 
ment loans described, 35 

Hearth tax, 50 

" Heavy horse," 97 

House duty, 59 

Income, National : Defined, last 
T, 127; 1688-1817. 116, 117; 
V. Debt Charge, 115; 1817- 
1914, 128; 1920, 3 

tax — -See taxation. First 

modern, 1799, 75, 123 

Invisible trade balance, 5 

India, Cost of war to, 1914-1919, 

I. 17 

Inflation, High prices and bank 
credits, 43 ; By bank deposit 
credit, 1914-1920, 11 ; Methods 
of — used to finance war 1914- 
1920, 11 ; One measure of, 45 ; 
By notes, bank and treasury, 

II, 41 ; Prices v. Physical 
volume of trade, 43 

Interest : Charge for, forbidden 
in medieval times, 62 ; Pay- 
ment forbidden by Church, 62 ; 
Payments in lieu of, 62, 65, 150 

" Issue " — English Treasury term 
for " payment " 



Italian Banks, Early corporate, 
153 



James I, Financial methods re- 
viewed, 68, 69 

II, 73 

Jews, Taxation of, 57 

John: Debenture of, 151 ; Letter 

of Credit of, 152 

, Magna Charta (1215), 47, 66 

Joint-stock Banks — See Banks, 

Joint Stock 

Kemmerer, E. W., Physical 
volume of trade, 1913-1919, 43 
Kindersley, Sir Robert, 22, 23 
King : Demesne, 49 ; Factor, 
152 ; V. People, 47, 48 ; Pre- 
rogative, 53 ; Knights Service, 
53 

Lancaster and York, Period of, 

67 
Lands : Crown — See Demesne ; 

Taxation of — See Taxation 
Letter of Credit— A. D. 1201, 152, 

originated in Italy, 150 
Licence fees — See Taxation 
" Light Horse," 97 
Lombards, 155 
Loans — See Debt, National 
London Joint City & Midland 

Bank, 26 
Long Parliament (1640-1653), 57 ; 

Post Office inaugurated by, 58 
Lotteries — 5^^ also Debt, National 

First in England (1569), 93; 

Last (1826), 99; Private lot- 
teries illegal but flourish, 98 ; 

State lotteries, 97-100 
Lottery Loans, 94 — See Debt, 

National 

Tickets, 96 

Magna Charta — See Charters 

Mary, Queen, 64 

Merchants, Anglo-Saxon times, 51 

Million Bank, 88 

Mobilization of Foreign Securities, 
20 

Monopolies, 60 

" Monthly Assessments " — intro- 
duced by Long Parliament, 58 ; 
See Taxation 

Moratorium (1914), 7, 10 



INDEX AND GLOSSARY 



205 



Napoleon, Continental Policy — 
Result to England, 163 

National Debt — See Debt, Na- 
tional 

Na\-y Bills, 85, 106— See Debt, 
National 

Newfoundland, Cost of War, 1914- 
1919, 1 

New Zealand, Cost of War, 1 

Nicholson, Prof. J. Shield, 39 

Norman Period, 49 

North, Lord, Financial Methods 
in American War, 96 

Northcote, Sir Stafford H., 128 

" Nova Custuma," i.e., New Cus- 
toms — See Customs, 56 

" Omnium," 96 

Paterson, William, proposes or- 
ganization of Bank of England, 
157 

Paymaster-General, 139 

Peel, Sir Robert, brings about 
separation of Banking and 
Issue departments of Bank of 
England, 171 

" People," Definition of term as 
used herein, 47 

V. King, 47 

Peruzzi, Italian bankers, ruined by 
Edward III, 153 

Personal Property, Taxation, 
dates from reign of Edward 
III, 58 — See Taxation 

Pipe Rolls (" Rolls of account " 
in text), 47 

Pitt, William, The younger : Chan- 
cellor of Exchequer, 1784, 106 ; 
Competitive bidding for loans 
and army supplies inaugurated 
by, 107 ; Income tax, modern, 
originated by in 1799, 75 ; 
Methods used in financing 
French War, 108, 110, 161; 
Navy Bills funded by, 106 ; 
Recalled in 1804, HI; Death 
of, 1806, 111 

Plantagenets, Development of 

Constitution under, 66 
Pole, William de la, 153 
Poll-taxes, 57 ; of Charies II, 70 

— See Taxation 
Post Office, Introduced by Long 
Parliament, 58 



Pre-emption — See Prerogative, 54 
Prerogative, King's, 53 ; Aids, 

53 ; Benevolences, 54 ; Bona 
Vacantia, 54 ; Coinage, 54 ; 
Contributions, 54 ; Demesne, 
49, 53 ; Estates, unclaimed, 

54 ; Estrays, 54 ; Extortions, 
54 ; Feudal Aids, 53 ; Fines, 
54 ; Fish, large, 54 ; Forests, 
53 ; Forest laws, 53 ; Idiots, 
Custody of, 54 ; Loans, Com- 
pulsive, 54 ; Monopolies, 60 ; 
Knight's service {See also Scut- 
age), 53 ; Pre-emption, 54 ; 
Prisage of wine {See New 
Customs), 55 ; Purveyance, 
Anglo - Saxon, 50 ; Norman 
times, 54 ; Queen's Gold, 54 ; 
Treasure trove, 54 ; Trinoda 
Necessitas, 49 ; Wrecks, 54 ; 
Surrendered by Charles II, 72 

Prices, Index Number, 1913-1919, 
45 

and Bank Credits, 43, v. 

Physical Volume of Trade, 43 

Public Debt — See Debt, National • 

Expenditure — See Expendi- 
ture 

Purveyance : Anglo-Saxon, 50 ; 
Norman times to 1688, 55 ; 
See Prerogative 

Queens' gold, 54 

Quotations : Bank of England 
Stock, 1697-1919, 188; Con- 
sols, 1697-1919, 188; War 
issues, 1910-1919, 190 

Ransom : King Richard's, 59 — 
See also Feudal Aids under 
Prerogative 

Reserves : Specie, 1913-1919— 
Table, 44 

Restriction Act, 163 

Revenue — National, 118; Aver- 
age annual, 1688-1830, 121 ; 
At historic periods, 1688-1920, 
142 — See Debt, Prerogative, 
Taxation 

Revolution of 1688, dividing hne 
between old and new England, 
48, 74 

Richard I, Income tax first levied 
by, 59 

II, 64, 66 



2C6 



INDEX AND GLOSSARY 



" Scrip," 97 

Scutage (" Escuage," derived from 
" escu " (French), a shield ; a 
sum of money paid in lieu of 
service of the shield, i.e., of 
knight's service (53) ). An early 
form of land tax, 57 

Ship-geld, 50 — See Taxation 

Sinking Funds : Walpole's, 101 ; 
Pitt's, 102 ; Modem, 12, 18, 26, 
104, 186 

Social betterment, expenditure 
for, 125, 144 

South Sea Company, history, 
purpose and scheme of, 89 

Stamp duties, first imposed in 
1671, 58 — See Taxation 

Stock Exchange loans, how pro- 
tected 1914, 9 

Stuart and Cromwellian period, 
one of transition from autocracy 
to democracy, 68 

Stuarts, last of autocrats, 68 

Subsidy : Customs, 55 ; A form of 
tax, 56 — See Customs ; also 
Taxation 

Tally — (talea — a slender staff, a 
rod, stick, stake, bar), 132 — See 
Debt — national — unfunded, 83 ; 
" Tallies of assignment," 83 ; 
" Tallies of loan," 83 ; Ex- 
chequer order, 83, 84 

Tariff — See Customs, 77 ; Reform 
of, 1842-1914, 77, 122 

Taxation : Aid (Scutage) A form 
of land tax, 57 ; Aliens, 57 ; 
Anglo-Saxon : trinoda necessi- 
tas — brig-bote, here -geld, or 
here-fare, burg-bote ; also, dane- 
geld, fumage ,59, or hearth-tax, 
horn-geld, 49, 50 ; Assessed 
taxes, 1785, 58 ; Brig-bote, 49 ; 
Burg-bote 49 ; Cards, tax on, 
first introduced during reign of 
Charles I ; Carucage — A medi- 
eval tax levied on land at so 
much a carucate, i.e., the 
quantity of land that could be 
ploughed by one plough in a 
season; Customs (1154-1688), 
55, 59 ; Consolidated Fund, 
1787, 137; "Dane-geld," 50; 
Estate duties, 59 ; Excess 
profits, 13, 16, 18, 59; Excise, 
58 ; Fumage, 59 ; Fund, 



consolidated, 137 ; Hearth- 
money, 50, 57, 59 ; Here-geld, 
49 ; House duty, 59 ; Income tax 
— most flexible, 13 ; first levied 
by I^chard I, 59 ; first levied 
in modern form by Pitt in 1799, 
75, discontinued at close French 
Wars, re-introduced in 1843, 
123 ; Indirect, unknown until 
1643, 58 ; Jews, 57 ; Land 
taxes, 57, 59 ; Land-value 
duties, 59 ; Licences, 51 ; Laws 
in re must originate in Com- 
mons ; Long Parliament 
methods, 58 ; Marriages, births 
and deaths ; Methods in 1817- 
1914, 122 ; Moneyage — A form 
of hearth money originating in 
Anglo-Saxon times — " by way 
of bounty or recompense to the 
King, not to alter or debase the 
coin," abolished by Henry I ; 
Monthly assessments, 58 ; Ori- 
gin of present-day taxes, 58 ; 
Personal property, 57 ; Poll- 
taxes, 57. 71 ; Post Office. 17, 
59 ; Pre-emption, 54 ; Property 
and income, 59 ; Scutage, pur- 
pose for which it could be 
levied, 57 ; Ship-geld, 50 ; 
Stamp duties first imposed in 
1671, 59 ; Subsidy — customs, 
55 ; tax, 56 ; Tenths and 
Fifteenths, 57 ; Transfers of 
Stocks, 17 ; Trinoda necessitas, 
49 ; Of war wealth, 17 ; 1914- 
1920, principle upon which 
based, 12 ; Tenths and 
Fifteenths, 57 

Tonnage Act — 1694, Bank of 
England organized under, 157 

Trade, physical volume change, 
1913-1919, 43 

Treasurer — Norman times, 47 

Treasury, PubUc, 23, 47, 133, 135 

Bills, 8, 11, 75, 185— See 

Debt — national 

Notes, also called Currency 

Notes, Bradbury's, 6 ; Out- 
standing, 31st Dec, 1919, 25, 
41 

Trinoda necessitas, 49 

Tudor period, control of the 

crown lost by the people, 67 
Tunnage and poundage, 56 — See 

Customs 



INDEX AND GLOSSARY 



207 



Ufficio di San Giorgio, 154 
Union of South Africa, cost of war, 

1914-1919, 1 
United Kingdom, cost of war to, 

1914-1919, 1 
Usury — See Interest. 1 50 

Venice, Bank of. Character of 

business, 154 
" Vote " — English treasury term 

for appropriation, 141 

Walpole, Robert, Chancellor of 
Exchequer, 101 

War : American banks, how they 
helped finance world war, 33 ; 
Boer war, 30, 112; Debts 
caused by war, 79 ; Crimean 
war, 112 ; Cost cumulative, 
119; Comparison, 1688 to 1817, 
81, 118; Debts, 19; 1688- 
1817, 81 ; Expenditures, 1914- 
1920, 12, 14, 15; Income, 
1914-1920, 14 ; Dutch, 72 ; 
French, the Great, 31, financing 
described, 108-117; Greatest 
cause of public debt and 
expenditure, 76 

1914-1920— Summary, 1-3 ; 

Banks' part in financing, 33 ; 
Six years of war v. 2\ centuries, 
1, 13 ; Conditions in July, 
1914, 4 ; Emergency measures. 



1914, 5— currency notes, 6 ; 
clearing house certificates, 7 ; 
moratorium, 1914, 7 ; protect- 
ing acceptance market, 7 ; 
treasury bills issued, 8 ; stock 
exchange loans, 9 ; advances 
to exporters, 9 ; cotton trade 
financing, 10 ; success attend- 
ing these efforts, 10 ; Costs and 
how met, 11, 30, per cent, from 
tax, 2, per cent, from borrow- 
ing, 2 ; Credit structure and 
the banks— Table I, National 
debt V. bank assets, 40 ; II, 
curency and deposits, 42 ; III, 
specie reserves, 44 ; War Loans, 
how financed, 34 ; Loans to 
Dominions and Allies, 31st 
March, 1920— Table, 29 

Ways and means advances : War 
Debt, 1914-1920, 19, 36, 39 

Wealth, War, taxation of, 16 

, National, 1914 and 1920, 

3 ; 1688-1817— See table, 81 ; 
1817-1914, 127, 128 

WUliam I, 67 

Ill, coinage restored, 61, 

65 ; First loans, 84 ; Grant for 
Ufe denied, 48 ; Dutch financial 
experience an asset, 74 ; Fi- 
nance (pubUc), in reign, 80 ; 
Lottery loan, 93 ; National 
debt and Bank of England 
originate in his reign, 74. 75 



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