The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 3: Annuities

Chapter 3c: Annuitues

Translator's note: To make large number simpler, the shillings and pences have been removed in some amounts.
29 Besides borrowing by anticipations and perpetual funding, there are two other methods in between them: 30 During the reigns of King William and Queen Anne, large sums were frequently borrowed on annuities for terms of years which varied. 31 During the two wars which began in 1739 and 1755, little money was borrowed on annuities for terms of years, or on those for lives. 32 During those two wars, annuities were granted as premiums to the subscribers to a new loan. 33 Annuities for lives was granted in two ways: In French, these are called tontines, from the name of their inventor.

The type of lending used depends of the character and interest of the lenders

34 In France, a much greater proportion of the public debts consists in annuities for lives than in England. 35 In England, the seat of government is in the greatest mercantile city in the world. 36 In France, the seat of government is not in a great mercantile city. 37 The ordinary expence of most modern governments in peacetime is nearly equal to their ordinary revenue. 38 The return of peace seldom relieves them from most of the wartime taxes. 39 The new taxes were imposed only to pay the interest. 40 During peacetime, various events require an extraordinary expence. 41 In Great Britain, from the start of perpetual funding, the public debt reduction in peacetime was never proportional to its accumulation in wartime. 42 On December 31 1697, Great Britain's public debts, funded and unfunded, was £21,515,742. 43 In the War of the Spanish Succession of 1709, concluded by the Treaty of Utrecht, the public debts further increased. 44 The debt increased because of the War of Jenkins' Ear, which began in 1739, and the War of the Austrian Succession which soon followed it. 45 During Mr. Pelham's prudent and truly patriotic administration [1743-1754], the interest of the public debt was reduced from 4% to 3%.
Henry Pelham
Henry Pelham
46 On January 5, 1775, Great Britain's funded debt was £124,996,086. 47 The total must be much more than £5 million if we add: Since the peace: We are now involved in a new war which may be as expensive as our former wars. 48 One author represented the public funds of indebted European nations as the accumulation of a great capital superadded to the capitals of other countries. 49 When a revenue is raised within the year from free or unmortgaged taxes, private revenue is turned away from maintaining one species of unproductive labour towards maintaining another. 50 When the public expence is defrayed by funding, it is defrayed by the annual destruction of some capital which existed in the country before. 51 The system of funding only has this advantage over the system of direct taxation during a long war. 52 When funding has made a certain progress, the multiplication of taxes that goes with it impairs private people from accumulating in peacetime, as direct taxation impairs in wartime.   53 It has been said that in paying the interest of the public debt, it is the right hand which pays the left.

Next: Chapter 3d: Bad Effects of Funding