As a determinate proportion will tend to perspicuity in the reasoning, let it be supposed that the annual revenue to be applied, corresponding with the modification of the 6 per cent stock of the United States, is in the ratio of eight upon the hundred; that is, in the first instance, six on account of interest and two on account of principal.
Thus far, it is evident that the capital destroyed, to the capital created, would bear no greater proportion than 8 to 100. There would be withdrawn, from the total mass of other capitals a sum of $8 to be paid to the public creditor, while he would be possessed of a sum of $100, ready to be applied to any purpose, to be embarked in any enterprise which might appear to him eligible. Here, then, the augmentation of capital, or the excess of that which is produced beyond that which is destroyed, is equal to $92.
To this conclusion it may be objected that the sum of $8 is to be withdrawn annually until the whole hundred is extinguished, and it may be inferred that, in process of time, a capital will be destroyed equal to that which is at first created.
But is it nevertheless true that, during the whole of the interval between the creation of the capital of $100 and its reduction to a sum not greater than that of the annual revenue appropriated to its redemption, there will be a greater active capital in existence than if no debt had been contracted. The sum drawn from other capitals in any one year will not exceed $8; but there will be, at every instant of time during the whole period in question, a sum corresponding with so much of the principal as remains unredeemed in the hands of some person or other employed, or ready to be employed, in some profitable undertaking. There will, therefore, constantly be more capital in capacity to be employed than capital taken from employment. The excess, for the first year, has been stated to be $92; it will diminish yearly; but there always will be an excess, until the principal of the debt is brought to a level with the redeeming annuity; that is, in the case which has been assumed, by way of example, to $8. The reality of this excess becomes palpable, if it be supposed, as often happens, that the citizen of a foreign country imports into the United States $100 for the purchase of an equal sum of public debt—here is an absolute augmentation of the mass of circulating coin to the extent of $100. At the end of a year the foreigner is presumed to draw back $8, on account of his principal and interest, but he still leaves $92 of his original deposit in circulation, as he, in like manner, leaves $84 at the end of the second year, drawing back then, also, the annuity of $8. And thus the matter proceeds: The capital left in circulation diminishing in each year, and coming nearer to the level of the annuity drawn back. There are, however, some differences in the ultimate operation of the part of the debt which is purchased by foreigners and that which remains in the hands of citizens. But the general effect in each case, though in different degrees, is to add to the active capital of the country.
Hitherto the reasoning has proceeded on a concession of the position that there is a destruction of some other capital to the extent of the annuity appropriated to the payment of the interest and the redemption of the principal of the debt; but in this too much has been conceded. There is. at most, a temporary transfer of some other capital to the amount of the annuity from those who pay to the creditor who
