The funds set free by conversion are of course available
either for the remission of taxation or for further redemp-
tion. It seems, however, that the latter use is the prefer-
able one. Gains from skilful management of the debt are
in justice to be credited to it, and their application in this
way is, unless in exceptional cases, to be recommended.
The retention of the fixed debt charge at 28,000,000
would have brought the present English provisions for pay-
ment nearer to the position they should occupy.

6. Among the plans proposed for getting rid of the
debt, that of a general contribution by the holders of pro-
perty has commanded most support. Ricardo declares
that ' a country would act wisely by ransoming itself, at the
sacrifice of any portion of its property which might be
necessary to redeem its debt/ and Mill allows that this
course ' would be incomparably the best if it were practic-
able 1 .' The objections are, however, overwhelmingly
strong. The method would place the whole burden on
property-holders, as earnings could not contribute to the
extent that would in fairness be required. But all property
is not equally disposable, and some of it will at any
given time be almost incapable of realization. As a con-
sequence this class of wealth would be sacrificed, or its
owners compelled to borrow on far more onerous terms than
the State has to pay. In fact the same arguments that prove
the necessity of borrowing at times of pressure, also prove
the impossibility, or at all events the great inexpediency, of
wiping out debt by a general contribution.

The use of capital in investments at a higher rate of
interest has also been suggested as a mode of creating a
surplus. Such a method really involves the action of the
State as a capitalist, the danger of which appeared in
connexion with the economic receipts 2 , and in any event it
is rather a mode of increasing State income than simply a
means of debt redemption. If the policy be justifiable, it

1 Ricardo, Works, 149 ; Mill, Principles, Bk. v. ch. 7. 2.

2 Bk. ii. ch. 4. i.



CHAP. VII.] THE REDEMPTION AND CONVERSION OF DEBT. 623

is so quite apart from the existence of public liabilities,
and it should be judged on its own merits.

7. Altogether independent of the agencies already
noticed, it has been often pointed out that there are certain
normal forces in operation that tend to diminish the
pressure of debt, and will in the future make its redemption
easier. The progress of society, so much relied on by
Macaulay, adds to the national wealth, and makes a public
debt, that once seemed formidable, of comparatively little
importance. The progress of Great Britain in the last cen-
tury would have reduced the debt charge as it stood in 1791
to a very small part of the present public revenue. Other
countries show the same phenomenon, and therefore there
is some apparent force in the argument that the redemption
of debt should be postponed to a more seasonable oppor-
tunity. In a country like the United States the steady
increase of national wealth is sure to make the debt burden
much lighter as time passes on.

But though this fact undoubtedly deserves recognition,
it hardly supports the inference drawn from it. The repay-
ment of debt is not a weakening of national power, nor
ought it to be a severe pressure on the existing members
of the society. Its amount should be kept within the
bounds set by the extent of suitable taxation, which would
not press heavily on any class of taxpayers. The reduction
of debt is moreover a steady relief to public credit, and
by its progress affords the means for reducing taxation.
Again, as each period has its own charges to meet, the
neglect of repayment will make the future burden at least
equal to the increased resources. Such a policy is a
dangerous discounting of the future, and the tendency to
adopt it is one of the worst symptoms in modern Finance.
There is, it must be added, no sure ground for concluding
that economic progress will continue indefinitely. Many
possible causes, some of them in action at present, might
bring it to a standstill. Jevons has familiarized us with the
idea that England's prosperity depends on her coal supply,



624 PUBLIC FINANCE. [BOOK V.

which must at some time be exhausted. This relation of
industrial expansion to the possession of certain material
agents points to the necessity of taking careful account of
! the potential extent of these conditions of progress, before
allowing debt to be accumulated. We cannot foresee the
precise line of economic change, but it is well to err on the
side of safety, and provide for the liquidation of existing
liabilities within a reasonable period.

Another supposed alleviation of the pressure of state
debts has been discovered in the progressive depreciation
of money or the standard of value. That the Australian
and Californian gold discoveries had, among other con-
sequences, the effect of making the real weight of public
debts lighter is evident enough. All depreciation favours
the debtor at the creditor's expense, but so does appre-
ciation give the latter a like advantage. The mention of
this possibility shows the weakness of the position of those
who look to monetary depreciation as a source of relief. For
the last twenty years the weight of debt has been increas-
ing, and in that fact lies one of the bimetallic arguments.
We cannot say whether in the distant future the standard
of value will rise or fall, and no satisfactory conclusion can
be based on its probable movement. But even on the
assumption that depreciation will ultimately take place, it
does not follow that the State will gain. Is it not likely
that lenders will hesitate to make advances on a depreciating
security, unless they receive compensation in higher interest
for the risk they run? There is in addition the objection that
to cpunt on this change is really to speculate on a defect
in the standard that should as far as possible be remedied.
The establishment of the fact that future depreciation is
certain places on the public authority the duty of providing
a corrective for the faulty standard in existence. Neither
on grounds of fact or equity can we regard the relief of
the state debt through depreciation as well-established or
desirable.

8. The distinction drawn between home and foreign
loans and the error of exaggerating its importance have
been previously noticed. In connexion with repayment
it has been said that a public loan held by foreigners is,
when productively applied, an augmentation of the coun-
try's capital, and that its redemption is not desirable. Not
to dwell again on the fact that the boundary between
inland and foreign loans is not so very easy to determine,
it may be remarked that the service of a loan consists in its
application, not in the existence of the obligation. The
advances made to the Australian colonies for railways were
of service by allowing those agencies of transport to be
speedily built, for which purpose the continuance of the
debt is not needed. The real question at issue is rather
between the use of state funds for redemption or for fresh
production, or again between raising loans to pay off debt
and "leaving that wealth in the possession of the citizens.
To settle this question the rate of interest and the probable
effect of the other courses open must be duly considered.
When gains are high the continuance of a loan at a low interest rate may be expedient, but effective provision
for repayment is the best mode of securing loans at a
low rate.