The national governments of the civilised world to-day owe more than twenty-seven and one-half thousand millions of dollars, or five andone-half thousand million pounds sterling. With the addition of the debts owed by the local governments this sum exceeds thirty thousand millions of dollars, or six thousand million pounds. The exact figures according to the Eleventh Census of the United States are :

National debt of all countries . . $27,524,976,915 Local debt of all countries . . . 2,824,950,694

Total .... $30,349,927,609 According to the best authorities the national indebtedness of the world has increased fourfold since



Aggregate debt.


Per cent of increase

1848 .

. $7,627,692,215

1860 .

. 10,399,341,688



1870 .

, 17,117,640,428



1880 .

. 27,421,037,643



1890 .




[From the Eleventh Census.]

The increase of national indebtedness since 1880 has been comparatively slight. But this is partly due to the payment of a large part of the national debt of the United States. Other countries have continued the process of debt-making — although less rapidly, owing to the continuance of peace. The above figures do not include pensions, which are really debts in the form of annuities.1

While the absolute amount of the debt has increased, the burden has materially decreased since 1880, owing to the increase in population and wealth. In 1880, the national indebtedness of countries other than the United States amounted to $35.64 per capita, while in 1890 it was $32.90 per capita. The national debt of the United States was reduced absolutely by over a billion dollars, and relatively from $38.33 per capita to $14.24 per capita. Of course statistics of this sort are neither perfectly accurate nor easy to interpret. The only proper comparison between different countries would be that of the ratio of the interest charge to the annual income of the people.

1 If these were included and capitalised at ten years' purchase, which would, perhaps, be a fair average, they would add to the debt of the United States at least $1,400,000,000.

But the annual income is very difficult to ascertain, and the errors would, probably, be so great as to destroy the significance of the result. But these figures, while not absolutely correct, are sufficiently so to indicate that the policy of borrowing has become a most vital part of the system of public finance. The cause of these debts is almost exclusively war and the preparation for war. If the expenses of war and its preparation had been excluded from the finances of most nations, and the finances relieved of the subsequent burden of interest, civilised nations would have been easily able to meet their current expenses. In England the annual public-debt charges for interest and debt payments consume more than one-fourth of the annual revenues from every source ; 25,200,000 out of 97,297,361. The policy pursued by England is to make the debt charge permanent at that amount, using all that can be saved over and above the interest charges for the payment of the principal. The funded debt of France, the largest ever contracted by any country, imposes an interest charge of $176,461,275 upon a total revenue of $650,372,370. If we include certain annuities and pensions, more than one-third of the revenues of France are consumed in this way.

Germany is the only country of importance that does not now rely entirely upon the possibility of borrowing money in case of war. That country has a special cash reserve of $30,000,000, which is available for immediate application to war purposes should it be needed. Although theGerman Empire began in 1871 withoutdebt, it now has a debt of $85,000,000 in excess of its available assets. This is all due to armament. So that, although Germany holds a cash reserve for military purposes, it is practically a borrowed one and she is making her preparation for war on borrowed money. This policy does not differ essentially from that of other countries. In the middle ages, however, as in classical times, it was the practice of nations to accumulate a treasure for war purposes in advance, by collecting more revenue each year than was needed. This practice is now obsolete and is also indefensible as too costly.1

Modern nations, then, practise a method of deficit financiering. They make provision in their annual revenues for the current, regular, or "ordinary" expenditures only, and rely for funds at other times upon their ability to borrow. What then constitutes this ability to borrow upon which so much reliance is placed that even the very existence of the nation is allowed to depend upon it ? Since when, and how is it that nations have been able to rely so absolutely upon public credit? The answer to both these questions is contained in the analysis of public credit.