Public Debts

SOME have imagined that it was advantageous for a state to be indebted to itself.

They thought that this multiplied riches, by increasing the circulation. They confounded a circulating paper which represents money or profits with a paper which represents a debt.

Circulating money or profits are extremely advantageous to the state.

But a debt can never be advantageous. It only shows that the people trust their government as to lend to it. There are other inconveniences:

1. If foreigners possess much paper which represent a debt, they annually draw out of the nation a considerable sum for interest.

2. A nation that is thus perpetually in debt, ought to have the exchange very low.

3. The taxes raised for the payment of the interest of the debt, are a hurt to the manufactures, by raising the price of the artificer’s labour.

4. It takes the true revenue of the state from those who have activity and industry, to convey it to the indolent; that is, it gives the conveniencies for labour [109] to those who do not labour, and clogs with difficulties the industrious artist.

Ten persons have each a yearly income of 1,000 crowns, either in land or trade. This raises to the nation, at 5% a capital of 200,000 crowns.

If these ten persons employed the half of their income, that is, five thousand crowns, in paying the interest of an hundred thousand crowns which they had borrowed of others, that would be only to the state, as two hundred thousand crowns; that is, in the language of the Algebraists, 200,000 crowns - 100,000 crowns, + 100,000 crowns = 200,000.

People make this error by reflecting, that the paper which represents the debt of a nation is the sign of riches; for none but a rich state can support such paper, without falling into decay. And if it does not fall, it is a proof that the state has other riches besides. They say that it is not an evil, because there are resources against it; and that it is an advantage, since these resources surpass the evil.

Chapter 18: The Payment of Public Debts

There should be a proportion between the state as creditor, and the state as debtor.

The state may be a creditor to infinity, but it can only be a debtor to a certain degree; and when it surpasses that degree, the title of creditor vanishes.

If the credit of the state has never received the least blemish, it may do what has been so happily [110] practised in one of the kingdoms* of Europe; that is, it may acquire a great quantity of specie, and offer to reimbuse every individual, at least if they will not reduce their interest. When the state borrows, the individuals fix the interest; when it pays, the interest for the future is fixed by the state.

It is not sufficient to reduce the interest= it is necessary to erect a sinking fund from the advantage of the reduction, in order to pay every year a part of the capital= a proceeding so happy, that its success increases every day.

When the credit of the state is not entire, there is a new reason for endeavouring to form a sinking fund, because this fund being once established, will soon procure the public confidence.

1. If the state is a republic, the government of which is in its own nature consistent with its entering into projects of a long duration, the capital of the sinking fund may be inconsiderable; but it is necessary in a monarchy for the capital to be much greater.

2. The regulations ought to be so ordered, that all the subjects of the state may support the weight of the establishment of these funds, because they have all the weight of the establishment of the debt; thus the creditor of the state, by the sums he contributes, pays himself.

3. There are four classes of men who pay the debts of the state; the proprietors of the land, those engaged in trade, the labourers and artificers, and, in fine, the annuitants either of the state, or of private people. Of these four classes, the last, in a case of necessity, one would imagine, ought least to be spared, because it is a class entirely passive, while the state is supported by the active vigour of the other three. [111]

But as it cannot be higher taxed, without destroying the public confidence, of which the state in general, and these three classes in particular, have the utmost need; as a breach in the public faith cannot be made on a certain number of subjects, without seeming to be made on all; as the class of creditors is always the most exposed to the projects of ministers, and always in their eye, and under their immediate inspection, the state is obliged to give them a singular protection, that the part which is indebted may never have the least advantage over that which is the creditor.