III.

The largest form of an Annuity, i. e., a series of future payments for ever.

This comprehends the whole theory of the value of estates in fee simple, and that portion of the public funds which consists of perpetual annuities. To purchase an estate in fee simple is merely to discount a series of future payments for ever, as already explained, and the same is obviously true of buying into the Funds.

On the Nature of the FUNDS.

12. The nature of the Funds has been a source of so much misconception among writers that we must enlarge somewhat upon them.

Suppose that a man possessed a million of money in the funds, as is said, every one would say that he was a wealthy man, and these funds would be called capital to him, because they would produce him an income of £30,000 a year.

If this be allowed, it would appear to follow that the Funds are Wealth and Capital. Yet many persons would think that any one who said so had taken leave of his senses. This disagreement among writers only shews that they have not thoroughly investigated the subject. And to understand the subject properly requires an investigation of the fundamental conceptions and nature of Economics.

In the first place-What are the Funds?

When a Government wants to raise a large sum of money at once to meet some great public emergency, such as a famine, a war, or to construct some great public work, such as a railway, canal, or anything else, it borrows a capital sum of money, and in exchange for the capital sum it agrees to pay a fixed annuity for ever. Now the Right to demand this perpetual annuity is called a Rent; just as the Right to receive an annuity in exchange for the use of lands or houses is called a Rent. This annuity was called a Rent formerly in English, but the name has been generally discontinued: it is, however, still the usual name in French the French funds are called Rentes. The capital sum is said to be funded, i. e., fixed, because the Government does not bind itself to repay the capital, but only the annual rent. If the annuitant wishes to get back his capital sum he must sell his annuity to some one else. So far as regards the annuitant, there

Q

fore, it is exactly the same thing to him as if he had bought an estate in land. Now the nature of this property has been a sore puzzle to many Economists: and some have denied that the incomes of the fundholders are to be reckoned in the general income of the country.

Mill says" This leads to an important distinction in the meaning of the word Wealth, as applied to the possessions of the individual, and to those of a nation or of mankind. In the wealth of mankind nothing is included which does not of itself answer some purpose of use or pleasure (?) To an individual, anything is wealth which, though useless in itself, enables him to claim from others a part of their stock of things, useful or pleasant. Take, for instance, a mortgage of a thousand pounds on a landed estate. This is wealth to the person to whom it brings in a revenue, and who could perhaps sell it in the market for the full amount of the debt. But it is not wealth to the country; if the engagement were annulled the country would be neither poorer nor richer. The mortgagee would have lost a thousand pounds and the owner of the land would have gained it. Speaking nationally, the mortgage was not itself wealth, but merely gave A a claim to a portion of the wealth of B. It was wealth to A, and wealth which he could transfer to a third person; but what he so transferred was in fact a joint ownership, to the extent of a thousand pounds, in the land of which B was nominally the sole proprietor. The position of fundholders, or owners of the public debt of a country, is similar. They are mortgagees on the general wealth of the country. The cancelling of the debt would be no destruction of wealth, but a transfer of it: a wrongful abstraction of wealth from certain members of the community, for the profit of the Government, or of the taxpayers. Funded property, therefore, cannot be counted as part of the national wealth. This is not always borne in mind by the dealers in statistical calculations. For example, in estimates

the gross income of the country, founded on the proceeds of the income tax, incomes derived from the Funds are not always excluded: though the taxpayers are assessed on their whole nominal income, without being permitted to deduct from it the portion levied from them in taxation to form the income of the fundholder. In the calculation, therefore, one portion of the general income of the country is counted twice over, and the 1 Preliminary Remarks.

aggregate amount made to appear greater than it is by almost thirty millions. A country, however, may include in its wealth all stock held by its citizens in the funds of foreign countries, and other debts due to them from abroad. But even this is only wealth to them by being a part ownership in wealth held by others. It forms no part of the collective wealth of the human race. It is an element in the distribution, but not in the composition, of the general wealth."

18. It would be impossible for any passage to contain a greater series of misconceptions and errors than the preceding paragraphs and as they relate to a subject of great importance, and involve many of the fundamental conceptions of Economics, we must examine them at some length.

1. The first ambiguity arises from the use of the term "National Wealth." Mill allows that the funds are wealth to the owners of them; but he says they are not part of the national wealth. Now the ambiguity arises in the use of the word national. Now when we say that the word Wealth means nothing but exchangeable property, national wealth can only mean that property which belongs to the nation in its corporate capacity, such as public lands, public forests, dockyards, the navy, and so on; things which do not belong to any private individual. No one could properly say that property which belongs to individuals is national wealth. My money belongs to me and not to the nation. The funded debt is the right, or property, residing in certain individuals to demand certain payments from the nation. Now a man's duty to pay a certain sum of money at a given time is no part of his wealth; but yet the right to receive it is the property of his creditor, which may be bought and sold; and therefore, by our definition, it is simply wealth, or an exchangeable quantity, until it is paid off, when it ceases to exist, like anything else which is destroyed. In a similar way the national duty to pay certain sums of money is no part of the national wealth; but yet the Rights to demand these payments are exchangeable quantities; they may be bought and sold; therefore they are simply wealth; precisely in the same sense that Bills of Exchange and Bank Notes are. The funds are certain Rights created by the nation in favour of certain individuals who have done services to the nation: and they are exactly similar to a debt created by an

individual in exchange for services. Now we have several times distinctly explained that a debt is always created by an exchange, and that a duty to pay a sum of money at a future time is no diminution of a man's present property. But yet the Right to demand the money may be bought and sold, and therefore it is wealth, by the unanimous declaration of all lawyers and Economists. When the debt is paid off it is another exchange. So, although the nation has engaged to make a series of payments in future, that is no diminution of its present property; but, nevertheless, the Rights to these future payments may be bought and sold. When we say, therefore, that the funds are wealth, it means nothing more than this-that they are exchangeable propertythey may be bought and sold. There is no assertion made that they are national wealth. What may be called national wealth, however, is the belief in its probity and capacity of fulfilling its engagements, which enables it to purchase this money with its promise to pay a series of sums in future. This is its "purchasing power"; just in the same way as a merchant's credit is purchasing power to him; and hence as Mill himself defines wealth to be "everything which has purchasing power"; this credit is wealth equally to the merchant and to the nation.

2. Mill has completely mistaken the nature of the funds: he compares them to a mortgage deed. This is a fundamental misconception of the nature of the funds. What is a mortgage deed? When a man wants to borrow money on the security of land, he executes a deed transferring the property in the land itself to the lender: a mortgage deed, therefore, is nothing but a title deed to land and, of course, no one says that the title deeds to a piece of land are separate property from the land itself. A mortgage deed, therefore, belongs to the same class of documents, or instruments, as Bills of Lading, Dock Warrants, Invoices, and other titles to specific things. We have carefully pointed out the fundamental distinction between these kinds of instruments, and instruments of credit. Mortgages, Invoices, Bills of Lading, and Dock Warrants always describe the specific land or goods to which they are attached: they do not form any property separate from them: but Credit is a mere abstract Right to demand money; absolutely separate from any specific money, by the very nature of the thing. Now the funds are not a mortgage deed, but are simple credit. Chap. VII., § 1.

Mill says that the fundholders are mortgagees on the general wealth of the country. If so, where are the mortgage deeds? Where are the deeds enumerating and cataloguing the general wealth of the country and conveying it to the fundholders? The fact is that Mill's idea is a complete delusion, though a very common one. Suppose a merchant has a house valued at £1,000; and suppose he is making an income of £1,000 a year in his business; and in the course of his business he accepts a bill for £100. Then, according to the doctrine of Mill and many others, by accepting a bill for £100, he has thereby executed a mortgage on his house! It is evident that this is a great delusion. When he accepts the bill of £100, it is evident he expects and means to pay it out of the future profits of his business. Hence the bill is not a mortgage on his house; but a charge upon his income. It is exactly the same with the funds; they are not a mortgage upon the existing property of the nation; they are a charge upon its future income.

This fallacy appears more conspicuously in another writer who gained a prize of £200 put at the disposal of the Society of Arts for the best essay on the mode of liquidating the National Debt. Mr. Capps says "There are two antagonistic and conflicting fallacies respecting the National Debt, which are very prevalent. The first is that funded property forms as much a portion of the wealth of the country, and is therefore to be reckoned among its assets, as lands, houses, or any other description of tangible property. The second, which is precisely the opposite of the former, is, that the debt is a subtraction, or deduction, from the wealth of the country; that the country is so much the poorer for it. Neither the one nor the other is correct; for the truth is that the country, with the trifling exception, which we shall hereafter name, is neither the richer nor the poorer for the existence of the debt, and that, consequently, both the opinions we have mentioned as being prevalent, are erroneous; which we shall now proceed to shew.

"With regard to the first-we have seen estimates made of the total wealth of the country, in which, after the enumeration, as a portion of the wealth of the nation, of lands, houses, raw materials, and manufactured products of all descriptions, there has been an item inserted of Funded Property,' which has been 1 The National Debt financially considered, p. 86.