We shall suppose that some one has occasion for L.100, which he finds a friend obliging enough to lend him.  On receiving it, he requests the loan of other L.10; and being asked for what purpose, he answers, that with that L.10 he will pay up the original L.100.  This is a rather startling proposal; but when he is asked how he is to manage this practical paradox, he says:  ’Oh, I shall put out the L.10 to interest, and in the course of time it will increase until it pays off the L.100.’  The lender is perhaps a little staggered at first by the audacious plausibility of the proposal, but it requires but a few seconds to enable him to say:  ’Why, yes, you may lend out the L.10 at interest; but in the meantime, as you have borrowed it, interest runs against you upon it; so what better are you?’ The lender, so far from concurring with the sanguine hopes about the fructification of the L.10, will only regret his having intrusted the larger sum to a person whose notions of money are so loose and preposterous.

Yet the proposal would only have carried into private pecuniary matters the principle of the sinking-fund, so long deemed a blessing, and a source of future prosperity to the country.  A sinking-fund is an expression generally applied to any sum of money reserved out of expenditure to pay debt, or meet any contingency.  Now, observe that our remarks are not directed against it in this simple form.  A surplus of revenue obtained by moderate taxation, saved through frugal expenditure, and applied to the reduction of the national debt, is always a good thing.  But the sinking-fund to which we chiefly refer was a system of borrowing money to pay debt.  It might be said that the identical money which was borrowed was not the same which was used for paying the debt; but it came to the same thing if the sinking-fund was kept up while the nation was borrowing.  Thus, taking the case of the private borrower as we have already put it, if he took L.10 of his own money and put it out at interest, that it might increase and pay off his loan, and if, by so doing, he found it necessary to borrow L.110, instead of merely L.100, it was virtually the same as if he applied L.10 of the borrowed money for his sinking-fund.  Thus for the year 1808, the state required L.12,200,000 in loan above what the taxes produced.  But in the same year L.1,200,000 were applied to the sinking-fund; consequently, it was necessary to borrow so much more, and therefore the whole loan of that year amounted to L.13,400,000.  The loan was increased exactly in the way in which our friend added the L.10 to the L.100.  It was borrowing money to pay loans.