government, the date of payment, and the rate of interest. A bond may be for a small sum or for many thousands of dollars. The amount received by a government for a bond depends upon (1) the confidence which lenders have in the government's ability to redeem the bond, that is, to pay the debt, (2) the rate of interest offered, and (3) the length of time the debt is to run. Sometimes the conditions of borrowing are so favorable that government receives as much as one hundred and twenty dollars for a bond of one hundred dollars.

Besides raising money by issuing bonds the national government issued (in 1862-3) paper money and declared this "lawful money and a legal tender in payment of all debts, public and private, except duties on imports and interest on bonds and notes of the United States. This money was printed by the government and paid out to its creditors. Those who received it could compel others to take it in payment of debts. This paper money issue of 1862-3 will be discussed more fully hereafter (p. 322). It is mentioned here because it furnishes an illustration of a method by which government may borrow money. Money secured in this way may be regarded as a forced loan.

The National Debt. The Constitution gives to Congress unlimited power to borrow money (46); it imposes no restriction as to time, or amount, or security, or interest. Congress may not, however, pay any debt incurred in aid of rebellion against the United States (157). The debts contracted by the United States under the confederation were made valid as against the new government (125).. Alexander Hamilton, the first Secretary of the Treasury, and the greatest financier perhaps in our history, wished to make the credit of the national government so good that no one would ever hesitate to lend it money. He urged Congress to pay not only the regularly contracted debt of the confederation (foreign, $12,000,000; domestic, $42,000,000), but also to assume the war debt ($21,000,000) in

curred by the States during the War of the Revolution. After a long debate the policy of assumption was adopted, and the new government began its career with a debt of about $75,000,000.

Hamilton was inclined to regard a public debt as a source of strength to a government. By scattering the government's bonds among the people, he contended, you create an interest in its stability. Men will always rally to the support of a government which owes them money. Hamilton's financiering, therefore, did not tend to pay off the national debt as rapidly as possible. When his political rival, Jefferson, who was not deeply concerned about the strength of the central government, came into power, a policy of paying off the debt as fast as possible was pursued, and its amount steadily fell until the War of 1812, when it rose to nearly $125,000,000. After the War of 1812 the policy of reducing the debt continued, and by 1836 the national debt was practically extinguished, and the treasury had on hand about $40,000,000 for which it had no use. The greater part of this surplus was actually distributed among the States according to population.

After 1836 the government began again to incur small debts, and during the Mexican War it borrowed considerable sums. At no time, however, did it become very large until the outbreak of the Civil War, when it jumped from less than $65,000,000 in 1860 to more than $500,000,000 in 1862. After 1862 the debt steadily mounted until 1866, when it approached $3,000,000,000. Since 1866 it has steadily declined, and is now (1905) about $1,000,000,000,1 a sum which is about one per cent. of the total wealth of the United States.

State Debt. A State must not assume a debt incurred in aid of insurrection or rebellion against the United States

The public debt of Germany in 1901 was $3,345,000,000; of England, $3,455,000,000; of France, $6,000,000,000; of Russia, $3,640,000,

(158). This is the only federal restriction upon the State as to its debts. The constitutions of most States, however, forbid the unlimited borrowing of money, although the restrictions do not extend to borrowing for purposes of public defense. To defend itself against invasion, or to suppress insurrections, the State may borrow to an unlimited extent, upon the principle that the public safety is above every other consideration. In most of the States a deficit can be met by borrowing, but the constitutions usually specify how large a deficit may be met in this way. In some of the States the amount that may be borrowed to cover a deficit must not exceed $50,000, in others it may be as large as $1,000,000. In the constitutions of a number of the States it is provided that money cannot be borrowed unless the law authorizing the loan is first submitted to the people and their assent to it secured.

Generally speaking, the finances of the State governments in respect to debt are in a healthful condition. In no State is the debt very large; in a few States it is so small as to be inappreciable; in two States (Nebraska and West Virginia) there is no debt at all. This praiseworthy condition of affairs is due in part to constitutional provisions, in part to the great resources of the State governments, in part to the wisdom and self-restraint of the State legislatures.

The Debts of Local Governments. Restrictions upon local governments in reference to borrowing are found in almost every State. If the restrictions do not appear in the constitution, they appear in the laws of the legislature or in the municipal charters. Most of the State constitutions fix the rate of indebtedness which the local government may incur. Frequently this rate is five per cent. of the total valuation of the property within the civil division which borrows the money. Sometimes before money can be borrowed by a local government the question must be referred to the people.

Notwithstanding the restrictions placed upon the borrowing power of local governments, they are everywhere throughout the United States heavily in debt. Especially is this true of municipalities. The combined municipal debt is three times as large as the combined debt of the States. The debt of New York city alone is much larger than the total debt of the forty-five States, and the debts of many other cities are proportionally as large as that of the metropolis.

The debts of cities have been incurred for the building of water-works, city halls, school-houses, and for the paving of streets and the construction of sewers. These improvements have necessitated the outlay of large sums in a short period of time, and it has not been possible to collect sufficient money by taxation to pay for them as they have been made. The rapid growth of American cities has sometimes caused the expenditures to increase at an alarming rate. In some instances sewers and water-works have been constructed on a scale suitable for a city of a hundred thousand people, and, behold, the population has increased to four times that number! This increase has rendered the old improvements worthless and made necessary the construction of new ones at an enormous expense. Besides, it is generally confessed that the management of the finances of cities has been bad the country over. In the awarding of contracts for public works larger sums of money have been paid to contractors than the work has been worth. Franchises have been granted to corporations for a song, when they ought to have realized large sums. Temporary or floating debts caused by deficits have not been paid promptly by means of taxation, but have been added to the bonded debt.

The management of the finances of cities has called forth various schemes of reform. One of these is the plan of taking away from the city council some of its financial powers and lodging them with the board of estimate (p. 220). Another remedy proposed is to prescribe a prop

erty qualification for voters, when financial questions are involved. This plan is both impracticable and unwise: impracticable, because voters will not consent to it; unwise, because it would be an unnecessary assault upon the principle of democracy. The corrupt bargains which are made in the management of the finances of a city are made by those who possess property, not by those who have no property. A property qualification would not exclude the corruptionists from taking a part in city affairs, but it would exclude many honest men from taking part, and it is to honest men, after all, that we must look for genuine reform. The possession or non-possession of property has really very little to do with the matter. Good municipal government is purely and simply a question of honesty.

How Public Debts are Paid. Public debts of course must be paid by taxation. Indeed, they are often called anticipatory taxes, from the fact that government, in borrowing a sum of money, anticipates certain revenue which it expects to receive by taxation. A State cannot be compelled by federal authority to pay a debt to a citizen, for, without the consent of the State a citizen cannot bring his suit into a federal court (145) and establish his claim. The United States cannot be compelled to pay a debt, for you cannot compel a sovereign power to do anything against its will.

It is customary in the United States for a government, national, State and local, to prepare for the payment of a Idebt at the time it is incurred, according to the doctrine of Hamilton, who held that the "creation of a debt ought to be accompanied with means of its extinguishment." This preparation usually consists in the creation of a sinking fund. Under the sinking fund plan the law which provides for the borrowing of money also provides for the raising by taxation of a certain sum annually which shall be set aside for the "sinking" or the paying of the bonds when they shall become due. The sum raised for the sink