Governments may borrow money in almost any of the ways which an individual may use. These different forms can be bestmade clear in connection with their classification.The principles upon which acorrect classification should be built arethose developed in the preceding chapter. Public debts are forms of public credit, and the kind of credit upon which each debt is based should be shown in the classification. Some light can be thrown on the different forms of debt by a review of the older classifications. One of the commonest distinctions is that between funded and floating debts. Originally this distinction was very simple, and correspondingly useful. In the words of Adam Smith : "Nations, like private men, have generally begunto borrow upon what may be called personal credit, without assigning or mortgaging any particular fund for the payment of the debt ; and when this resource has failed them, they have gone on to borrow upon assignments or mortgages of particular funds." The first of these is the unfunded debt, the other is the funded debt.1 But although these terms are still in common. use, the meaning attributed to them has so entirely changed, that to-day the so-called floating or unfunded debt consists, in large part, of outstanding claims upon very definite revenues, while it is often the case that no particular fund or source of revenue is directly pledged for the payment of the so-called funded debt. Hence it is that Professor Cohn treats Smith's grounds of distinction as antiquated, and saysthat the real distinction is found in the fact that the funded debts are those of longer duration, and the floating debts those of shorter duration, "although," he adds, "different causes and purposes of credit lie behind the difference in duration."2 The most elaborate attempt to explain the modern uses of these terms is that of Wagner. As it is so complete, it is well worth summarising here. Funded and floating debts can be distinguished by the following characteristics, which are more or less clearly recognisable in the different cases : (1) The purpose of the loan — floating debts are generally for rapidly passing needs, especially for the payment of the current dues of the treasury ; funded debts are to supply the capital for permanent needs of the civic household ; (2) continuance of the debt — together with the former characteristic, relatively shorter continuance of floating debts, at least in intention; longer continuance of funded ;

1 Wealth of Nations, V., III.

2 Finanzwissenschaft, p. 767.

(3) the legal conditions of repayment — in the case of floating debts the different items are repayable at sight or within a comparatively short period ; in that of the funded, the creditor has a more limited control over the principal, the debtor (the State) being bound to repayment according to a fixed plan for amortisation, or making no agreement as to the repayment of the principal. This last is regarded as the essential test.1

The difficulty found in drawing a sharp line between these two classes arises from the fact that the distinction is at best purely an arbitrary one. It may differ from State to State, or from time to time in the same State, according to the temporary whim of the public official or statistician. The terms are relative ones. By a floating debt is generally meant one that is regarded by the person using the term as a temporary one. One official will call any debt temporary, or a floating debt, which has three, five, or even ten years to run ; while another will refuse the term to any debt that is to run longer than six months or a year. Strictly speaking, the term floating debt ought never to be applied to any debt that is, on the face of it, to run beyond the end of the fiscal year next succeeding that in which it is created.

1 Most writers make use of these terms ; few have defined them so accurately as Wagner. For example : Adams, Public Debts, p. 147, concedes the term floating debt only to those in which the government retains the right to investigate each particular claim. This necessitates a new class of "temporary debts," consisting of treasurer's notes, bills of exchequer, and the like. Nothing would seem to be gained by this distinction.

But there is no established custom for such a limitation. In trying to draw a sharp line between these two classes we meet with the same difficulty that we met in attempting to distinguish between direct and indirect taxes. But we have even less to go upon. Official, statutory, and scientific usage varies so much that nothing is gained by attempting to collate all the meanings. Even for the most general scientific purposes, therefore, these terms are of little value, and for the purposes of classification the distinction is absolutely useless.