It must be seen, that this account is imperfect and defective. It is, however, sufficient to prove, that the whole money raisedDIRECTLYby the taxes, (exclusive of tithes, county rates, and the taxes which support the poor,) cannot be much less thanTwelve Millions. TheEarl of Stairhas in his papers made it to be above 400,000l. more, by including in his estimate several articles which I have omitted; particularly, the interest and management on the equivalent toScotland, the Scotch crown Revenues, Dutchy ofCornwallandLancasterFines, &c. He has also given an estimate of the fees and perquisites of office of every kind, and reckoned them at half a million; whereas, I have only reckoned the perquisites of office at theCustom-house.
I should be inexcusable were I to quit this subject, without taking notice of the particular gratitude due from the public toLord Stair, for publishing his papers; and for stepping forth at this time to draw attention, by the weight of his name and character, to calculations, which, as he justly says, “it becomes every man of property among us to understand; to awaken the nation from the lethargy into which the mockery of paper wealth has plunged it; and to bear his testimony against the present unnatural war.”
The followingPostscripthas been published only in a few of the last Editions of theObservations on Civil Liberty.It has been often referred to in the preceding work; and, therefore, it is necessary to give it a place here.
Accountof Public Debts discharged, Money borrowed, and Annual Interest saved from 1763 to 1775.
In 1764, there was paid off 650,000l.navy-debt; but this I have not charged, because scarcely equal to that annual increase of the navy-debt for 1764, 1765, and 1766, which forms a part of the ordinary peace establishment. The same is true of 300,000l.navy-debt, paid in 1767; of 400,000l.paid in 1769; of 100,200l.paid in 1770; 200,000l.in 1771; 215,883l.in 1772; and 200,000l.in 1774.
Account of money borrowed and debts contracted since 1763.
From 15.483,553l.the total of debts discharged, subtract 7.150,000l.the total of debts contracted; and the remainder, or 8.333,553l.will be the diminution of the public debts since 1763. Also, from 561,342l.the total of the decrease of the annual interest, subtract 199,500l.(the total of its increase), and the remainder, or 361,842l.will be the interest or annuity saved since 1763.—To this must be added 12,537l.per ann.saved by changing a capital of 1.253,700l.(part of 20.240,000l.) from an interest of 4 to 3per cent.pursuant to an act of the 10th of George III.; also the life-annuities that have fallen in; and 7,500l.per ann.gained by the falling (in 1771) of 1.500,000l.from an interest of 3½ to 3per cent.; which will make a saving in the whole of near 400,000l.per annum: And it is to this saving, together with the increase of luxury, that the increase of theSinking-Fundfor the last ten years has been owing.
To the debts discharged the following additions must be made.
In 1764 there was paid towards discharging the extraordinary expences of the army, 987,434l.: In 1765, these expences amounted to 404,496l.: In 1766, to 479,088l.—Total 1.871,018l.—This sum is at least a million higher than the extraordinary expences of the army for three years in a time of peace. This excess, being derived from the preceding war, must be reckoned a debt leftby the war. And the same is true of 1.106,000l.applied, in 1764, 1765, and 1766, towards satisfyingGermandemands.—There are likewise some smaller sums of the same kind; such as subsidies toHesse-Cassel,Brunswick, &c. And they may be taken at 200,000l.—The total of all these sums is 2.306,240l.; which, added to 8.333,553l.makes the whole diminution of the public debt since 1763, to be 10.639,793l.
Soon after the peace in 1763, an unfunded debt, amounting to 6.983,553l.was funded on theSinking Fund, and on new duties on wine and cyder, at 4per cent.There has been since borrowed and funded on coals exported, window-lights, &c. 6.400,000l.The funded debt, therefore, has increased since the war 13.383,553l.It has decreased (as appears frompage 171) 11.983,553l.; and, consequently, there has been on the whole an addition to it of 1.400,000l.—During seven years, from 1767 to 1774, 1.415,883l.navy-debt was paid off. Seepage 172. But, as this is a debt arising from constant deficiencies in the peace estimates for the navy, it is a part of the current peace expences.—In 1768 this debt was[137]1.226,915l.—In 1774 it was 1.850,000l.; and consequently, though 1.415,883l.was paid off, an addition was made to it, in seven years, of 623,085l.It increased, therefore, at the rate of 291,000l.per ann.
The paper from which I have taken the following account, came into my hands after almost the whole of this work had been printed off. It contains a fact of so much importance, that I cannot satisfy myself without laying it before the public.—In a Committee ofCongressinJune1775, a declaration was drawn up containing an offer toGreat Britain, “that the Colonies would not only continue to grant extraordinary aids in time of war, but also, if allowed a free commerce, pay into theSinking Fundsuch a sum annually forONE HUNDRED YEARS, as should bemorethan sufficient in that time, if faithfully applied, to extinguish all the present debts ofBritain. Or, provided this was not accepted, that, to remove the groundless jealousy ofBritainthat the Colonies aimed at Independence and an abolition of the Navigation Act, which, in truth, they had never intended; and also, to avoid all future disputes about the right of making that and other Acts for regulating their commerce for the general benefit, they would enter into a covenant withBritain, that she should fully possess and exercise that right forone hundred yearsto come.”
At the end of theObservations on Civil Liberty, I had the honor of laying before the public the Earl ofShelburne’splan of Pacification with theColonies. In that plan, it is particularly proposed, that the Colonies should grant an annual supply to be carried to the Sinking Fund, and unalienably appropriated to the discharge of the public debt.—It must give this excellent Peer great pleasure to learn, from this resolution, that even this part of his plan, as well as all the other parts, would, most probably, have been accepted by the Colonies. For though the resolution only offers the alternative of either afreetrade, with extraordinary aids and an annual supply, or anexclusivetrade confirmed and extended; yet there can be little reason to doubt, but that to avoid the calamities of the present contest, both would have been consented to; particularly, if, on our part, such a revisal of the laws of trade had been offered as was proposed in Lord Shelburne’s plan.
The preceding resolution was, I have said, drawn up in a Committee of the Congress. But it was not entered in their minutes; a severe Act of Parliament happening to arrive at that time, which determined them not to give the sum proposed in it.
FINIS.
The followingPostscriptwas published only in a few of the last Editions of theObservations on Civil Liberty. It has been often referred to in the preceding work; and therefore, it is necessary to give it a place here.
Accountof Public Debts discharged, Money borrowed, and Annual Interest saved from 1763 to 1775.
In 1764, there was paid off 650,000l. navy-debt; but this I have not charged, because scarcely equal to that annual increase of the navy-debt for 1764, 1765, and 1766, which forms a part of the ordinary peace establishment. The same is true of 300,000l. navy-debt, paid in 1767; of 400,000l. paid in 1769; of 100,200l. paid in 1770; 200,000l. in 1771; 215,883l. in 1772; and 200,000l. in 1774.
Account of money borrowed and debts contracted since 1763.
From 15.483,553l. the total of debts discharged, subtract 7.150,000l. the total of debts contracted; and the remainder, or 8.333,553l. will be the diminution of the public debts since 1763. Also, from 568,842l. the total of the decrease of the annual interest, subtract 199,500l. (the total of its increase), and the remainder, or 369,342l. will be the interest or annuity saved since 1763.—To this must be added 12,537lper ann.saved by changing a capital of 1.253,700l. (part of 20.240,000l.) from an interest of 4 to 3per cent.pursuant to an act of the 10th of George III.; also the life-annuities that have fallen in; which will make a saving in the whole of near 400,000l.per annum: And it is to this saving, together with the increase of luxury, that the increase of theSinking Fundfor the last ten years has been owing.
To the debts discharged the following additions must be made.
In 1764 there was paid towards discharging the extraordinary expences of the army, 987,434l. In 1765, these expences amounted to 404,496l. In 1766, to 479,088l.—Total 1.871,018l.—This sum is 1.100,000l. higher than the extraordinary expences of the army for three years in a time of peace. This excess, being derived from the preceding war, must be reckoned a debt left by the war. And the same is true of 1.106,000l. applied, in 1764, 1765, and 1766, towards satisfyingGermandemands.—There are likewise some smaller sums of the same kind; such as subsidies toHesse-Cassel,Brunswick, &c. And they may be taken at 200,000l.—The total of all these sums is 2.406,240l. which, added to 8.333,553l. makes the whole diminution of the public debts, or the whole saving of the kingdom, since 1763, to be 10.739,793l.
Soon after the peace in 1763, an unfunded debt, amounting to 6.983,553l. was funded on theSinking Fund, and on new duties on wine and cyder, at 4per cent.There has been since borrowed and funded on coals exported, window-lights, &c. 6.400,000l. The funded debt, therefore, has increased since the war 13.383,553l. It has decreased (as may appear frompage 177) 11.983,553l. and, consequently, there has been on the whole an addition to it of 1.400,000l.—During seven years, from 1768 to 1774, 1.115,883l. navy-debt was paid off. Seepage 178. But, as this is a debt arising from constant deficiencies in the peace estimates for the navy, it is a part of the current peace expences.—On the 31st of December, 1767, this debt was 1.213,072l.—On the 31st of December, 1774, it was 1.850,000l. and consequently, though 1.115,883l. was paid off, an addition was made to it, in seven years, of 673,028l. It increased, therefore, at the rate of 255,558l.per ann.
Containing additional Observations on Schemes for raising Money by Public Loans.
It is impossible, that any attentive person can reflect without concern, on that monstrous accumulation of artificial debt for which no value has been received, which has been pointed out in different parts of the preceding Tract; and, particularly in the third Section of the second Part. This being a subject which, in the present state of our finances, is highly interesting; I have been induced to return to it in this place; and to offer some further observations and proposals which have occurred to me in reconsidering it, and which I think necessary to explain and confirm those which have been already offered.
There are two methods in which money is capable of being borrowed for public services. The first is, by offering suchhighinterest as may of itself be sufficient to induce lenders to advance the sums that are wanted: And the second is, by offeringalowinterest, with agratuityordouceurto produce the acceptance of it.—The last has been the method in which our government has most commonly borrowed money; and the gratuity offered has been either a right to a greater capital than the sum advanced, or alongorshortorlifeannuity, or the profits of a lottery, or some advantages of trade.—The first without doubt, is the most rational method of borrowing; and the latter is so absurd and extravagant as to be incapable of being adopted in the common transactions of life.—In order to give a just and full idea of this, I shall instance in the last loan; specifying the manner in which itwouldhave been made if the usual method of borrowing had been followed; and comparing this with the manner in which itwasmade; and the manner in which, I think, itmighthave been made to the greatest advantage.
Five millions, it is well known, were borrowed last year; and, had the old plan of borrowing been adopted, this sum would have been borrowed by some such scheme as one of thetwofollowing.
First. Interest in the public funds being then near 4per cent. per ann.an interest of only 3per cent.would have been offered; or, in other words, for every 100l. inmoney, 100l.stockcarrying 3per cent.(worth then 78l.) would have been given; but at the same time, as apremiumorcompensationfor accepting such low interest, a life-annuity, ora short annuity would have been offered worth somewhat more than the difference between 100l. and 78l. or about 24l. The whole premium, therefore, in raisingfive millions, would have been equal in value to about 1.200,000l. and, supposing it to have been either a life-annuity, or a short annuity for 17 years of 2l. worth 12 years purchase, annexed to every 100l. stock, the whole annual charge incurred by the loan would have been 250,000l. for a term of years, and 150,000l. for ever till the capital is redeemed.
It is manifest that the capital including in it according to this account almost the wholepremium, the public makes itself, by this mode of borrowing, adebtorfor the very thing itgives; and, besides paying the annuity, obliges itself to advance at redemption the whole value of it.—It is proper to add, that this is doneunnecessarily, because 1.200,000 might have been procured by selling the annuity, and the remaining 3.800,000l. necessary to make up five millions, might have been procured, as will be shewn presently, without anydouceurby giving higher interest.
But there is another method of borrowing which has been practised by government on former occasions, and which might have been adopted in the last loan.
For every 100l. advanced a new capital in the 3per cent.funds worth that sum would have beensold, including a funded 10l. lottery ticket. This new capital would have been nearly 127l. threeper cent. stockfor every 100l. inmoney, or 6.343,954l. stock forFIVE MILLIONSin money; of which stock 5.718,954l. would have been sold, to encourage subscriptions, at 2per cent.below the market price, that is, at 76l. ½; and the remaining stock, having a lottery annexed, would have been sold atpar. A fictitious or artificial capital, therefore, would have been created, or a debt incurred more than the value received, of 1.343,954l. besides relinquishing about 150,000l. which might have been obtained by the profits of the lottery.
I have been seldom more surprized than at the preference of this scheme, which, at the time of settling the last loan, was expressed by some very respectable members of the House of Commons; nor can this preference be easily accounted for on any other supposition than that they consider the public debts as incumbrances, never to be removed, and, therefore, think it of no consequence with what difficulties the redemption of them is loaded by an increase of capitals bearing low interest. It must be acknowledged indeed that this method of borrowing would have been attended with a small present advantage; for the interest of 6.343,954l. at 3per cent.is 190,318l. and this, together with the interest of 150,000l.or 6000l.per ann.lost by giving up the profits of a lottery, would have been the whole present annual charge it would have brought on the public. But if this be a sufficient reason for preferring such a scheme, it would perhaps be best to create capitals bearing 2per cent.or even 1per cent.interest; for probably such capitals would bear a better price, in proportion to the rates of interest, than any 3per cent.capitals, and consequently, a greater present saving might be made by selling them. No other objection can be made to this than that by lowering interest, and laying the public under an obligation to returndoubleortripleevery sum it receives; the redemption of the public debts might be rendered so expensive and difficult as to be entirely impracticable. But this would be of no consequence if indeed their redemption is already become impracticable; and if, therefore, every new charge they bring on the public is to be considered as laid on for eternity.
With these schemes let us now compare the scheme actually adopted for the last loan.
Instead of a 3per cent.capital, a new capital bearing 4per cent.interest, irredeemable for ten years, was offered at 95l. for every 100l.stock, with twodouceursto raise the value of the stock above 100l. in money; namely, a short annuityof aHALFper cent.for ten years, (reckoned worth 4l. 2s.) and the profit (reckoned at 3l.) of one ticket in a money lottery consisting of 50,000 tickets.
The chief difference between this scheme and the first I have described is, that the new stock created is aFOURper cent.instead of aTHREEper cent.stock. But this is a difference of particular importance, and brings it near to such plans of borrowing as appear to me the best.—In thefirstscheme, the artificial capital is 1.200,000l. In thesecond, 1.343,954l. In thisthirdscheme it is only 250,000l. This scheme, therefore, has evidently great merit; and perhaps, in the present state of the public debts, it does not admit of any great improvement. There is, however, an easy alteration which, I think, would have been an improvement, and which I shall take the liberty to mention.
According to a preceding observation, the twodouceursbeing included in the capital, are granted, and must be paid twice over. This is so absurd and extravagant that it ought to be avoided as far as possible; and it might have been avoided, in a great measure, by offering for every 100l. advanced 95l. stock, carrying 4and a quarterinterest irredeemable for ten years, with the sameshort annuity and a lottery ticket annexed.[139]In this case, the new capital would have been 4.750,000l. carrying (at 4¼per cent.) 201,875l.per ann.interest. There would, therefore, have been a saving of 250,000l. in the capital; and the annual charge would have been nearly the same.
It must be observed that this scheme supposes that a stock bearing 4¼per cent.interest would have been valued nearly atpar; and, according to the principles on which the scheme was calculated, it could not have been valued at much less; or, supposing it valued at 1 or 2per cent.less, the difference might have been made up by only adding two or three years to the duration of the short annuity and the term of irredeemableness.—Had astockbeen offered bearing 4¼per cent.interest irredeemable for ten years, onehalfat least of the short annuity might have been saved. The annual charge for ten years would have been somewhat less;[140]and the excess afterwards would havebeen much more than compensated by the advantages at redemption attending a higher interest and a smaller capital.
But, perhaps, such a scheme as the following would have been preferable to any of those now proposed.
For every 100l. inmoney75l. stock irredeemable for 10 years and carrying 4¼per cent.interest, might have been offered, together with an annuity for 27 years of 1½per cent.(valued cheap at 16 years purchase, or 24l.) and the advantage of a lottery ticket. This scheme would have been as likely to be attended with a profit as that which was adopted. The new capital would have been only 3.750,000l. bearing 159,375l. interest. The short annuity would have been 75,000l. and the whole annual charge (supposing no redemptions of the capital to take place after ten years) 234,375l. for 27 years, and afterwards 159,375l. It appears, therefore, that 1.250,000l. or aquarterof the capital that was actually created, would have been saved; and also a rent charge on the public after 27 years of 40,750l.per ann.for ever.—The additional expence to balance these advantages would have been 9.650l.per ann.for ten years, and 34,375l.per ann.for 17 years. In otherwords; the public would have absolutely secured the redemption of aquarterof the loan, (or of 1.250,000l.) besides an easier redemption of the remainder, at the expence of 680,875l. in the whole,[141]to be paid annually in small sums during the course of 27 years.
All that has been now said has gone on the supposition that, agreeably to the calculations on which the last loan was formed, 100l.stockirredeemable for ten years and bearing 4per cent.interest, would sell at 17l. more than 100l. stock bearing 3per cent.interest; (or at 95l. when the latter stock is at 78l.) and also, that a short annuity for ten years would sell at 8⅟₁₀ years purchase.—But events have shewn that these valuations were too high. The new subscription (including 100l. fourper cent.stock, a halfper cent.short annuity, and the profit of a lottery ticket) should have sold, according to these valuations, at about 102½. But it never bore so high a price; and in a little time it fell topar, and at last to 3per cent.discount.—Various reasons have been assigned for this; but the true reasons were the following.
First. A general fall of near 2per cent.which took place in the stocks soon after the loan was settled.
Secondly. A lower valuation of the new 4per cent.stock and the short annuity which took place in theAlley.—This was the principal reason; and it will be proper particularly to explain it. In doing this, it will be necessary to look back a little to the history of the public funds.
In 1717 the public debts were reduced from an interest of 6per cent.to 5per cent.and in 1727, from 5per cent.to 4per cent.In 1737 a bill was brought into theHouse of Commonsby SirJohn Barnard, for a farther reduction from 4 to 3per cent.At this time the 3per cents.were abovepar; and even, during the three first years of the war which began in 1740, they continued so high that government was able to raise the necessary supplies by borrowing at 3per cent.—In such circumstances, it was impossible the public creditors should avoid expecting athirdreduction; and this expectation would necessarily link the value of theFOUR PER CENTS. by leading the public to consider them as no more than aTHREEper cent.stock having a short annuity ofONEper cent.annexed. Accordingly;beforethe war the difference of price between theTHREEand theFOURper cent.stocks was about 10 or 11per cent.After the commencement of the war, a reduction becoming more doubtful and more distant, this difference became greater, and generally kept between14 and 17per cent.At the approach of thePeacein 1748, it sunk to 11per cent.and soonafterthePeace, the 3per cents.having risen considerably abovepar,[142]and an universal expectation of a speedy reduction taking place, it sunk to 6per cent.—It is evident, therefore, that the price of theFOURper cents.has been governed by the expectation of their reduction,[143]and that, had there been no such expectation, their price, compared with the 3per cents.would have been much higher. It will appear presently to be most probable, that had it not been for this expectation, the prices of these stocks would not have differed much from the proportion of the rates of interest.
In taking this account, I have only compared theTHREEper cents.with theSouth-Sea FOURpercent.capitals before their reduction in 1749, at which time they amounted to above 27 millions, and were (as the consolidated threeper cent.annuities are now) the grand staple stock of the kingdom. In 1746 and 1747, two newFOURper cent.capitals were created redeemable at any time, and transferable at theBank. The price of these new capitals kept for some time after their creation, considerably below the price of the oldSouth-Seafourper cents.the reasons of which were, I suppose, the general reasons which make new funds bear a lower price than old ones; and, particularly, their having less traffic in them, and being small and detached parcels likely to be first selected for the operations of finance.
Were the cause now assigned, or the expectation of a reduction of interest, the only cause that governed the comparative prices of 3per cent.and 4per cent.capitals, the excess of one above the other would never be more than the supposed value of a short annuity of 1l. tillreduction.—But there is another cause which may operate in this instance, and which ought not to be overlooked; I mean, the expectation of a greater payment atredemption. The effect of the former is todiminish, and of the latter toincreasethe value ofFOURper cent.capitals.—In order to understand this it must be remembered, that when the 3per cents.are at anyconsiderable discount, it becomes practicable to redeem them underpar, while debts bearing 4per cent.interest must be redeemed atpar. This will make a difference in favour of the latter, which will be greater or less in proportion to the greater or less discount at which thethree per cents.are sold, the greater or less quantity of stock bearing 4per cent.interest, and the greater or less probability that the whole or a considerable part of it will be soon redeemed[144]—Let us suppose, for instance, that all the public debts bearing 4per cent.interest, consist of a single capital ofFIVE MILLIONSredeemable at any time; and that all the rest of the public debts areTHREEper cent.capitals sold at a discount of 12per cent.or at 88l. for every 100l. stock. In these circumstances, there would be a certainty that the small stock bearing 4per cent.interest would be selected for redemption as soon as possible; and, as a stock carrying such high interest could not be expected, when the 3per cents.are at 88, to be redeemed underpar, its real value would on this account exceed that of theTHREEper cents.more or less in proportion as its redemption was more or less distant. And itswholeexcess of value in these circumstances is to be computed in the following manner.—It would consist of a 3per cent.capital, for every 100l. of which 100l. in money is to be received; and of an additional annuity of 1per cent.till redemption. Its excess of value, therefore, if the whole capital was to be redeemed immediately, would be the same with the discount of the 3per cents.or 12per cent.If the capital was not to be redeemed till the end of 7 years, its excess of value would consist of 12per cent.payable seven years hence, and the present worth of an annuity of 1per cent.for the intermediate term of seven years. 12l. payable at the end of 7 years is worth in present money (allowing compound interest at 4per cent.) 9l. 2s. 6d. An annuity of 1l. for seven years isworth (reckoning the same interest) 6l. The whole excess of value, therefore, will be 15l. 2s. 6d. for every 100l. stock. If the redemption of the capital is to be delayed 15 years, the excess of value computed in the same manner will be 17l. 15s. 6d.—if 20 years, 19l. 1s.—if 30 years, 21l.
If the 3per cents.had been supposed at a greater discount, it is evident that these several values would have been likewise greater; and had the quantity of 4per cent.stock been supposeddoubleortriple, the effect would have been the same with a delay of redemption; and had it been supposed thirty or forty millions, the effect (in consequence of our slow progress in redeeming our debts) would not have fallen very short of an eternal delay of redemption.
Before 1749, the amount of the public debts carrying 4per cent.interest was near 58 millions. The expectation, therefore, of the advantage now explained could notthenhave any effect; and the only cause which could have influenced, in any considerable degree, the comparative prices of these stocks must have been the first I have assigned, or the expectation of theirreduction; that is, in other words, the expectation of asudden redemptionof them, as soon as the 3per cents.got abovepar, by borrowing money at that interest. Had not this been foreseen, or had there been an act of parliament rendering it impracticable,there is no reason to doubt but the price of theFOURper cents.compared with theTHREEper cents.would have approached nearly to the proportion of the rates of interest, agreeably to what is said in (page 191).
The state of the public funds has been much changed since the two last wars; but it is an alteration that has increased the comparative value of 4per cent.capitals.
I have already observed, that during the last war there was reason to expect, that, as soon as peace came, theTHREEper cents.would rise abovepar. No one can now entertain any such expectation. On the contrary; it is most probable, that they will never again rise to that which has been their average price during the last peace from 1763 to 1775, and which, I think, may be stated at 87 or 88.—My reason for this assertion is,
First, that after the present war, should we be so happy as to escape the ruin with which it threatens us, our taxes and expences will be so much increased, and at the same time our resources so much diminished, as necessarily to leave the credit and value of our public securities lower than ever.
Secondly. Though our credit and resources should continue undiminished, yet the great addition which the present war will make to the public debt, is alone likely to sink their value,because every increase of a saleable commodity has always a tendency to lower its price.—It follows from hence, that the purchasers ofFOURper cent.capitals have now a prospect of an advantage of 12 or 14per cent.at redemption, which they could not have had before the last peace.
In connexion with this it must be considered, that it is now highly probable, that it will never be again practicable to reduce the interest of any 4per cent.capitals. In order to such a reduction, government must be able to offer to the proprietors of these capitals theirprincipal, should they not chuse to take lower interest, and consequently to borrow at an interest of 3½ or 3¾per cent.But no sums will be lent on such lower interest, unless it can be depended Upon that capitals bearing that interest, when brought to market, will bear a premium of 1 or 2per cent.; and this, when thethree per cents.are not higher than 87 or 88, would require the excess of value of such capitals to be estimated at 14 or 15per cent.whereas it has been lately found, that evenFOURper cent.capitals irredeemable for ten years, will not bear such an excess of value.—Areduction, therefore, of the interest ofFOURper cent.capitals, or aredemptionof them by borrowed money, cannot now be reckoned upon; and the only cause that canREASONABLYsink their value compared with theTHREEper cents.below the ratio of the rates of interest, isthe probability of a redemption of them by the surplus of the national revenue. I need not say how little is to be expected from hence. Supposing, however, that much may be expected, I have shewn what effect it ought to have; and from the observations I have made, and particularly the computation in (page 194), &c. it appears, I think, that the price of the capital of five millions fourper cent.annuities lately created ought to have been near 18per cent.more than the price of theTHREEper cents.This appears to be true on the supposition that this capital will be redeemed in fifteen years; (that is, in five years after the expiration of the term for which it is made irredeemable) that the 3per cents.will rise to as high a price as they bore during the last peace; and that purchasers are allowed to makeFOURper cent.compound interest of their money.—Were we to suppose this capital discharged even in two years after it becomes redeemable, the value, made out in the same way, would be nearly 17l.
He who will consider all this, and also recollect the general price of the 4per cents.before their reduction in 1749, (seepage 190) must be convinced that theTreasury, at the time the last loan was settled, had good reason for taking the price of the newfour per cent.capitals 17per cent.higher than the price of the threeper cents.—It has, however, been found that this was too high a valuation. Instead of being sold at 17l. more forevery 100l. stock than the 3per cents.they have been sold at only 13l. or 14l. more; and this has been the chief reason of the discount to which the last subscription fell.—It is hard to say, by what principles the money’d men who traffic in the funds have governed themselves in this instance; but certain it is, that they have not been guided by any of the rules of just calculation: And the same must be said of the value at which they have reckoned the short annuity of a halfper cent.for ten years annexed to the new 4per cents.In forming the scheme for the last loan this annuity was, I have said, estimated at 8⅟₁₀ years purchase, agreeably to its real value, supposing the payments yearly, the first payment to be made at the distance of a year, and money improved at 4per cent.compound interest. But it has in general been sold at about 7½ years purchase; which islessthan its value, supposing money improved at 5½per cent.compound interest.[145]
From this account it appears, that could the caprice of the public have been foreseen, the price of the new fourper cents.should not have been reckoned at more than 91l.; (the 3per cents.being at 78l.) and that, consequently, to make up a value which would have produced 102l. for every 100l. advanced, either the term of irredeemableness and of the short annuity should have been lengthened; or, supposing this term the same, the short annuity should have been more than doubled. An artificial capital, indeed, of near half a million would in this case have been created. But this disadvantage might have been avoided, without bringing any additional expence on the public, by such alterations as I have before proposed; and by increasing in the corrected schemes, (page 186), &c. either the term of irredeemableness, or the short annuity, or the rate of interest, or all of them together.
The preceding account will, I fancy, help to shew what is practicable,taking things as they are, in borrowing money for public uses. It proves, that the nation loses greatly by the low price of all capitals bearing a higher interest than 3per cent.and that could their value be raised, it would be greatly benefited.—For example. Could the newFOURper cents.have been taken at 99l. for every 100l. stock, instead of 95l. the whole expenceof the short annuity in the scheme of the last loan, and of aquarter per cent.perpetual interest, in the corrected schemes, (page 186), &c. might have been saved. But had the value of the 4per cents.been raised in proportion to the rate of interest, ornearlyin that proportion, a farther saving might have been made, in all the schemes, of the profits of the lottery, and, consequently, of 6000l.per annumin the annual charge.—My next enquiry, therefore, shall be, in what manner and by what regulations this may be done. I have written in the section on loans, on the supposition that such regulations are practicable; and I have proposed one of them; but I will here be more explicit.
It has been shewn, that before 1749 the cause which depressed the value of the 4per cents.was the expectation of their being reduced; and thatnowthis cause is the expectation of their being soonredeemed. Remove, therefore, these causes in any degree, and their value must rise in the same degree.—With respect to the first, it is in my opinion certain that it would be doing great service to the public to exclude it entirely. Our reductions of interest have proceeded from a policy too narrow; and the nation is likely tosuffer by them much more than it has gained.[146]The savings they produce, being expended on current services, tempt to extravagance; give a fallacious appearance of opulence; and, by making our debts sit lighter, render us less anxious about redeeming them, and less apprehensive of danger from the increase of them. At the same time they render their redemption a work of more difficulty, and oblige government, when under a necessity of contracting new debts, either to give extravagant interest, or to offer extravagant premiums. That accumulation of artificial debts which I have pointed out has been owing principally to this cause; and had it not been, in particular, for the reduction in 1749, the public debts would now have been near 14 millions less; and a debt of above a hundred millions, instead of consisting of capitals bearing interest at 3per cent.would have consisted of capitals bearing some of them 3½, some 4, and some 4½ and 5per cent.interest, which (supposing them all at a medium to bear 4per cent.) a millionper ann.would have redeemed in six years lesstime, and at twenty-one millions less expence.—In short; reducing of interest is one of those unhappyTEMPORARY EXPEDIENTSto which statesmen are apt to betake themselves; and by whichpresentrelief is gained at the expence offuturesafety, and distress postponed by rendering it in the end more unavoidable and dreadful.—There cannot, therefore, be any sufficient reason against making the interest of the new capitals which may be created by any future loans,IRREDUCIBLE.[147]Should this raise the price of capitals bearing high interest in proportion to the increase of interest, government would be enabled to borrow to equal advantage whatever interest it offered; the new loans would not bring any greater annual charge on the nation than would have been necessary had the same sums been obtained by selling 3per cent.capitals; and, at the same time, all the immense expence ofdouceursandfictitious capitalswould be saved, and all the advantages in redeeming the public debts obtained, arising from smaller capitals bearing higher interest.
Such a regulation as that now proposed would be alone sufficient for these purposes, when the amount of the debts bearing high interest and declared irreducible, is considerable, as appearsfrom what is said in (page 195). But when a debt happens to bear a higher interest than any other, and is at the same time small, the probability of aquick redemptionwill operate in the same manner on its price with the expectation of areduction; and in this case, therefore, it will become necessary, in order to avoid the inconveniences I have described, toPOSTPONE REDEMPTION; and one of the best methods of doing this will be, by ordering, that such a debt shall be redeemedaftersome other given part of the funded public debts.—So slow has been our progress in redeeming debts, that this (supposing the part to be first redeemed considerable) would be reckoned, in the present circumstances of the funds, the same with making the debt to be last redeemed, irredeemable for ever. And should such an apprehension prove right, the public would lose nothing, because the debt whose redemption was postponed, would bring no greater annual charge on the public, than if the same sum had been obtained by selling a capital bearing any lower interest. But should it prove false, or should our debts be ever put into a fixed course of redemption, the public would gain greatly by being able, after discharging one part of its debts, to discharge the remainder more expeditiously and easily.
I shall beg leave to illustrate what has been now said by having recourse again to the last loan ofFIVE MILLIONS.—During the last 60 years, or from the first establishment of the sinking fund to the year 1777, no more than aboutFIFTEEN MILLIONSof the public funded debts have been paid. An order, therefore, that the capital of five millions bearing 4per cent.created by the last loan, should not be discharged unless a capital of twenty-five or thirty millions in the threeper cents.shall have beenfirstdischarged, would have carried its redemption to so distant a period, as might probably have raised it to the same comparative value with any 3per cent.capitals.
Let it, however, be supposed to advance its price only to 102l. when the 3per cents.are at 78; that is, when the ratio of the rates of interest required the price to be at 104. In these circumstances, 4.850,000l. of the five millions would have been advanced for an equal capital carrying 194,000l. interest at 4per cent.; and the remaining 150,000l. would have been advanced for the lottery: And thus the whole expence of the short annuity, and 150,000l. capital, would have been saved.—And had the same sum been obtained by selling a 3per cent.capital, the amount of interest, though the least possible, would not have been much less;[148]but, at redemption, there would have been a necessity of paying above aMILLION AND A QUARTERfor which no value had been received.—When such advantages, uncompensated by any loss, can be obtained by so easy and simple a regulation as only changing theORDERof paying the public debts,[149]what possible reason can there be against adopting it?
There is another method by which the value of any stocks bearing high interest might be raised, which would probably be no less effectual; I mean, by ordering that no part of such stocks shall be redeemed, without at the same time redeeming anequal, or anylargersum, in other capitals. This is the regulation proposed in the section on public loans, (page 98); and it will not be amiss here to give an illustration of it, by supposing, thatEIGHT MILLIONSwill be wanted for the necessary supplies of this year; and that this sum will be procured by selling, as was done in the last loan, a capital equal to the sum advanced, bearing 4per cent.interest. Were theinterest in this case made irreducible, and the capital incapable of being redeemed without at the same time redeeming four times as much of the 3per ct.or some other stocks, an increase of value would be communicated to it which would render allDouceursunnecessary. For it would be a capital, the redemption of which could not be completed without discharging in allFORTY[150]MILLIONSof the public debts.—I cannot doubt but that, in these circumstances (supposing the price of the 3per cents.to continue near 78) a 100l. in money would be given for 100l. in such a stock, and the whole extravagant expence of short annuities, lotteries, and artificial capitals would be saved.
In short. With the aid of such regulations as those now proposed,EIGHT MILLIONSmight this year be borrowed (supposing the 3per cents.not lower than 78 or 77)probablyat an interest of 4per cent., butcertainlyat an interest anEIGHTHor aQUARTERhigher, without offering anypremiums. Whereas, if no such regulations are established, either an artificial debt of near[151]two millions and a halfmust be created; or 5per cent.for 15 or 20 years certain, together with the profits of a lottery, must be given; and a new tax laid which will produce 400,000l.per ann.
It may deserve to be added, that an unprosperous state of public affairs, and apprehensions of public danger, would have a tendency, by placing the redemption of our debts at a greater distance, to promote, rather than obstruct the success of schemes attended with such regulations.
There remains one proposal more on this subject which I wish may be attended to.
I have observed, that our reductions of interest have been the effect of too narrow a policy. It seems to me, that one of the best measures that could now be adopted, would be to undo what we have done in this instance, by restoring the 3per cent.capitals to a higher interest, and making this restoration, one of the means of raising the necessary supplies. That this is practicable, and that it would be advantageous, will appear from the following scheme, and observations.
For 20l. in money, let 110l. stock bearing 3½per cent.interest, be offered, in exchange for every 100l. of the 3per cent.stocks; and let the new 3½per cent.flock be capable of being redeemed at any time, but never underpar, unless when the price of the 3per cents.happens to be below 85l.—By this scheme the public would procure 20l. from the conversion of every 100l. 3per cent.stock into 110l. stock carrying 3½per cent.; orFIVE MILLIONSfrom the conversion ofTWENTY-FIVE MILLIONS. The newadditionalcapital would be onlyTWO MILLIONS AND A HALF, (or 10per cent.of the old capital); and theadditionalinterest would be 17s. (that is, a halfper cent.added to 7s. the interest of 10l. at 3½per cent.) for every 20l. advanced; or 4¼per cent.for the whole loan.
That such a scheme would afford ample encouragement to subscriptions, supposing the 3percents.at or near 78, will appear from considering, that the interest offered is above aquarter per cent.more than could be made by purchasing any perpetual annuities, and at the same time, in consequence of forming a part of the interest of aTHREE AND A HALFper cent.capital, is incapable of reduction, and therefore nearly on an equal footing with the interest of any 3per cent.capital.—But to be a little more explicit.
The new capital of 110l. bearing 3½per cent.interest would be better than the 100l.THREEper cent.capitals for which it would be substituted, in the following respects.—1st. It would carry 17s.per ann.more interest; and such an interest, when the price of an annuity of 3l. is 78l., ought to be worth 22l. 2s. The additional interest, therefore, would be disposed of at 2l. 2s. for every sum of 22l. 2s. (or at 9½per cent.) less than its true value, compared with the price of the 3per cent.annuities.
Secondly. The 3per cents.whenpeacecomes, will probably be capable of being redeemed at 88l.[152]But this stock, in the same circumstances, must be redeemed atpar. It will, therefore, produce 12l. more in every 100l. at redemption. Add the 10l. additional stock; and the whole additional sum to be received at redemptionwill be 22l.—There will, therefore, be a profit at redemption of 10l.per cent.of the money advanced; and this profit deserves the more notice, because the stock to which it is annexed, being redeemable at any time, and bearing a higher interest than the 3per cents.will be selected for redemption before them; and therefore its price will be so much the more likely always to keep nearpar.—Setting aside, however, this advantage, and supposing only the 20l. advanced likely to be received at redemption, it may be found by calculating in the manner explained in (p. 194), &c. that the substitution of 110l. flock carryingTHREE AND A HALFper cent.for 100l. carryingTHREEper cent., or, in other words, that 20l. to be received some time hereafter, besides an annuity of 17s. for the intermediate time, is worth in present money more than 20l., reckoning compound interest at 4per cent.
Such a scheme, therefore, in whatever way its value was rightly calculated, would appear to offer an advantageous bargain. Should there, however, be reason to fear that the public might judge otherwise; or should the 3per cents.be at 74 or 75, the value might be easily increased near nineper cent.by making the substituted stock 112l. instead of 110l. in which case, the interest for the 20l. advanced would become18s. 5d.per ann., or a little more than four and a halfper cent.instead offour and a quarter.
The advantages to the public which would arise from such a scheme are—1st. That it would be one of the best preparations for measures that must some time or other be entered into for putting the public debts into afixedcourse of redemption.[153]—In consequence of being raised to a higher interest, a considerable part of them would be made capable of being redeemed with more ease and expedition; and for this reason, it is certain that, if there remains a possibility of our escapinga public bankruptcy, the time must come when we shall wish all our debts bore a high interest.[154]
Secondly. A capital ofTWO MILLIONS AND A HALFwould be saved in raisingFIVE MILLIONS. That is; the nation in procuringfive millionswould incur a debt of onlyhalfthat sum; and instead of having aQUARTERor aTHIRDmoreto pay at redemption than had been received, it would haveONE HALFlessto pay.
Thirdly. Such a scheme would keep up public credit; and, by its necessary operation, contribute to carryitselfinto execution. For the advantages attending it being grounded entirely upon the old 3per cent.stocks, few at such a time would chuse to sell them, but many would be induced to buy, and, consequently, their price would be advanced, contrary to the common effect of public loans.—These seem to me advantages so unspeakablyimportant, that I cannot but think it would be right to go to some extraordinary expence, in making at least one experiment of this kind. If, in consequence of offering high terms inonetrial for a small sum, such an experiment should succeed, it might be renewed on lower terms; and the way might be discovered of managing, in the best manner, larger loans on the same plan.—I cannot help thinking indeed, that it would be found that in this way great sums might be raised without creatinganynew capitals, or making any addition to the public debts. I fancy, for instance, that few, when the 3per cents.are about 78, would scruple to pay 25l. for the conversion of 100l.THREEper cent.stock into a 100l.FOURper cent.stock, provided this last stock was not to become redeemable tillTHIRTYorFORTY MILLIONSof our present debts have been discharged: And supposing this true, money for public services would be raised at 4per cent.or at an interest nearly as low as possible; and, at the same time, a sum equal to the whole money advanced would be saved. But were it necessary to take for such a substitution 24l. or even 23l. (that is, to pay about 4¼per cent.for money) the gain, if our debts are ever to be redeemed, would abundantly overbalance the increased expence of interest.