This section of the book is from the "Introduction To Public Finance" book, by Carl Copping Plehn.
Among the contractual debts the first thing that strikes us is that certain of the contracts contain features especially intended to add to or ensure the confidence of the creditor, while in others there is little or nothing looking to that end. This at once suggests two natural subdivisions of contractual debts. On the objective side the first class consists of claims good (1) upon particular funds, or (2) upon particular revenues or the revenues of a particular period, or (3) upon certain definite portions of the general revenue permanently set aside to meet them. These three bases for the claims suggest three natural subdivisions of the first class. Of these three again, the second, consisting of those claims which bear upon certain definite revenues, may be most conveniently analysed according to the classification that was adopted for public revenues.
The most important element of those debts, the contracts for which contain no provisions directly intended to ensure the confidence of would-be creditors, is the length of time that the debt has to run, or what is much the same thing, the relative size of the demands made thereby on the general revenue. Here we find that certain contracts call (1) for the repayment of the principal only, some (2) for the payment of principal and interest, while others (3) call for the payment of interest only. To shorten the matter the whole classification will now be presented in the form of a table. The names of the classes are generally self-explanatory, but in some cases, for clearness' sake, a concrete or a general example is appended.
I. Forced Debts : (Now mostly obsolete. Akin thereto are the quasi-debts in the form of irredeemable paper money.)
II. Contractual Debts :
A. The contracts for which contain provisions directly intended or calculated to ensure additional confidence. Such confidence resting :
1. On the fact that the sums received from the creditor are not expended but are retained to meet the debt charges. These are of two kinds :
a. Voluntary deposits :
1) Without interest. Ex. Post-office orders.
2) With interest. Ex. Deposits inpublic banks, etc.
3) Insurance (not compulsory).
b. Statutory deposits :
1) Guarantee funds of various kinds, with and without interest. Ex. Deposits by insurance companies to protect policy holders, etc.
2) Insurance (compulsory).
3) Deposits of coin or bullion to secure circulating notes. Ex. United States silver and gold certificates.. 4) Estates in hands of the courts pending litigation.
2. On the fact that definitely specified revenues are set aside for the payment of the debt (subdivided according to the classification of revenues).
a. Based generally on the revenues of a definite period. Debts contracted in anticipation of the revenues. Exchequer bills and redeemable notes.
b. Based on prices. Ex. Money borrowed for the establishment of some productive enterprises carried on in competition with private enterprises of the same character.
c. Based on fees. Ex. Municipal bonds for water-works.
d. Based on special taxes :
1) By the method of farming taxes (now obsolete). 2) By appropriating special taxes, (or a percentage of all taxes) and putting the funds thus received into the hands of trustees, for the payment of the debt.
Where confidence is so assured that no special means are taken to arouse it. Classified according to the thing promised :
1. Principal only. Ex. Redeemable notes (money) not legal tender, and not assured by any deposit.
2. Principal and interest :
a. Bonds sold in the market for what
they will bring, and bearing a fixed rate of interest, payable at a set time or in instalments.
b. Annuities, terminable at the end of a definite or indefinite period, as a term of years or a life, so calculated that at the end of the period the amount paid shall equal the principal and interest. These may be in many different forms; they may be arranged in the form of life annuities, of pensions, of lotteries, or in that of tontines and the like.
3. Interest only :
a. "Perpetual bonds," in the case of which the creditor has no right to demand the payment of the bond within any definite period, but the government may generally, after a fixed time has elapsed, redeem the bonds for a stated sum.
b. Permanent annuities.