Part II

Supplement to Section III

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 such high interest as may of itself be sufficient to induce lenders to advance the sums that are wanted: And the second is, by offering a low interest, with a gratuity or douceur to 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 a long or short or life annuity, 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 it would have been made if the usual method of borrowing had been followed; and comparing this with the manner in which it was made; and the manner in which, I think, it might have 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 the two following.

First. Interest in the public funds being then near 4 per cent. per ann. an interest of only 3 per cent. would have been offered; or, in other words, for every 100l. in money, 100l. stock carrying 3 per cent. (worth then 78l.) would have been given; but at the same time, as a premium or compensation for accepting such low interest, a life-annuity, or a short annuity would have been offered worth somewhat more than the difference between 100l. and 78l. or about 24l. The whole premium, therefore, in raising five 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 whole premium, the public makes itself, by this mode of borrowing, a debtor for the very thing it gives; and, besides paying the annuity, obliges itself to advance at redemption the whole value of it.—It is proper to add, that this is done unnecessarily, 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 any douceur by 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 3 per cent. funds worth that sum would have been sold, including a funded 10l. lottery ticket. This new capital would have been nearly 127l. three per cent. stock for every 100l. in money, or 6.343,954l. stock for FIVE MILLIONS in money; of which stock 5.718,954l. would have been sold, to encourage subscriptions, at 2 per cent. below the market price, that is, at 76l. ½; and the remaining stock, having a lottery annexed, would have been sold at par. 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 3 per 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 2 per cent. or even 1 per cent. interest; for probably such capitals would bear a better price, in proportion to the rates of interest, than any 3 per 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 return double or triple every 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 3 per cent. capital, a new capital bearing 4 per cent. interest, irredeemable for ten years, was offered at 95l. for every 100l. stock, with two douceurs to raise the value of the stock above 100l. in money; namely, a short annuity of a HALF per 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 a FOUR per cent. instead of a THREE per 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 the first scheme, the artificial capital is 1.200,000l. In the second, 1.343,954l. In this third scheme 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 two douceurs being 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 4 and a quarter interest irredeemable for ten years, with the same short annuity and a lottery ticket annexed.139 In this case, the new capital would have been 4.750,000l. carrying (at 4¼ per 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 4¼ per cent. interest would have been valued nearly at par; 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 2 per 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 a stock been offered bearing 4¼ per cent. interest irredeemable for ten years, one half at 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 have been 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. in money 75l. stock irredeemable for 10 years and carrying 4¼ per cent. interest, might have been offered, together with an annuity for 27 years of 1½ per 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 a quarter of 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 other words; the public would have absolutely secured the redemption of a quarter of 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. stock irredeemable for ten years and bearing 4 per cent. interest, would sell at 17l. more than 100l. stock bearing 3 per 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. four per cent. stock, a half per 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 to par, and at last to 3 per cent. discount.—Various reasons have been assigned for this; but the true reasons were the following.

First. A general fall of near 2 per cent. which took place in the stocks soon after the loan was settled.

Secondly. A lower valuation of the new 4 per cent. stock and the short annuity which took place in the Alley.—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 6 per cent. to 5 per cent. and in 1727, from 5 per cent. to 4 per cent. In 1737 a bill was brought into the House of Commons by Sir John Barnard, for a farther reduction from 4 to 3 per cent. At this time the 3 per cents. were above par; 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 3 per cent.—In such circumstances, it was impossible the public creditors should avoid expecting a third reduction; and this expectation would necessarily link the value of the FOUR PER CENTS. by leading the public to consider them as no more than a THREE per cent. stock having a short annuity of ONE per cent. annexed. Accordingly; before the war the difference of price between the THREE and the FOUR per cent. stocks was about 10 or 11 per cent. After the commencement of the war, a reduction becoming more doubtful and more distant, this difference became greater, and generally kept between 14 and 17 per cent. At the approach of the Peace in 1748, it sunk to 11 per cent. and soon after the Peace, the 3 per cents. having risen considerably above par,142 and an universal expectation of a speedy reduction taking place, it sunk to 6 per cent.—It is evident, therefore, that the price of the FOUR per cents. has been governed by the expectation of their reduction,143 and that, had there been no such expectation, their price, compared with the 3 per 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 the THREE per cents. with the South-Sea FOUR per cent. capitals before their reduction in 1749, at which time they amounted to above 27 millions, and were (as the consolidated three per cent. annuities are now) the grand staple stock of the kingdom. In 1746 and 1747, two new FOUR per cent. capitals were created redeemable at any time, and transferable at the Bank. The price of these new capitals kept for some time after their creation, considerably below the price of the old South-Sea four per 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 3 per cent. and 4 per cent. capitals, the excess of one above the other would never be more than the supposed value of a short annuity of 1l. till reduction.—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 at redemption. The effect of the former is to diminish, and of the latter to increase the value of FOUR per cent. capitals.—In order to understand this it must be remembered, that when the 3 per cents. are at any considerable discount, it becomes practicable to redeem them under par, while debts bearing 4 per cent. interest must be redeemed at par. 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 the three per cents. are sold, the greater or less quantity of stock bearing 4 per 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 4 per cent. interest, consist of a single capital of FIVE MILLIONS redeemable at any time; and that all the rest of the public debts are THREE per cent. capitals sold at a discount of 12 per cent. or at 88l. for every 100l. stock. In these circumstances, there would be a certainty that the small stock bearing 4 per 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 3 per cents. are at 88, to be redeemed under par, its real value would on this account exceed that of the THREE per cents. more or less in proportion as its redemption was more or less distant. And its whole excess of value in these circumstances is to be computed in the following manner.—It would consist of a 3 per cent. capital, for every 100l. of which 100l. in money is to be received; and of an additional annuity of 1 per 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 3 per cents. or 12 per cent. If the capital was not to be redeemed till the end of 7 years, its excess of value would consist of 12 per cent. payable seven years hence, and the present worth of an annuity of 1 per 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 4 per cent.) 9l. 2s. 6d. An annuity of 1l. for seven years is worth (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 3 per 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 4 per cent. stock been supposed double or triple, 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 4 per cent. interest was near 58 millions. The expectation, therefore, of the advantage now explained could not then have 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 their reduction; that is, in other words, the expectation of a sudden redemption of them, as soon as the 3 per cents. got above par, 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 the FOUR per cents. compared with the THREE per 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 4 per cent. capitals.

I have already observed, that during the last war there was reason to expect, that, as soon as peace came, the THREE per cents. would rise above par. 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 of FOUR per cent. capitals have now a prospect of an advantage of 12 or 14 per 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 4 per cent. capitals. In order to such a reduction, government must be able to offer to the proprietors of these capitals their principal, should they not chuse to take lower interest, and consequently to borrow at an interest of 3½ or 3¾ per 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 2 per cent.; and this, when the three per cents. are not higher than 87 or 88, would require the excess of value of such capitals to be estimated at 14 or 15 per cent. whereas it has been lately found, that even FOUR per cent. capitals irredeemable for ten years, will not bear such an excess of value.—A reduction, therefore, of the interest of FOUR per cent. capitals, or a redemption of them by borrowed money, cannot now be reckoned upon; and the only cause that can REASONABLY sink their value compared with the THREE per cents. below the ratio of the rates of interest, is the 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 four per cent. annuities lately created ought to have been near 18 per cent. more than the price of the THREE per 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 3 per cents. will rise to as high a price as they bore during the last peace; and that purchasers are allowed to make FOUR per 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 4 per cents. before their reduction in 1749, (see page 190) must be convinced that the Treasury, at the time the last loan was settled, had good reason for taking the price of the new four per cent. capitals 17 per cent. higher than the price of the three per cents.—It has, however, been found that this was too high a valuation. Instead of being sold at 17l. more for every 100l. stock than the 3 per 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 half per cent. for ten years annexed to the new 4 per 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 4 per cent. compound interest. But it has in general been sold at about 7½ years purchase; which is less than its value, supposing money improved at 5½ per cent. compound interest.145

From this account it appears, that could the caprice of the public have been foreseen, the price of the new four per cents. should not have been reckoned at more than 91l.; (the 3 per 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 3 per cent. and that could their value be raised, it would be greatly benefited.—For example. Could the new FOUR per cents. have been taken at 99l. for every 100l. stock, instead of 95l. the whole expence of the short annuity in the scheme of the last loan, and of a quarter per cent. perpetual interest, in the corrected schemes, (page 186), &c. might have been saved. But had the value of the 4 per cents. been raised in proportion to the rate of interest, or nearly in that proportion, a farther saving might have been made, in all the schemes, of the profits of the lottery, and, consequently, of 6000l. per annum in 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 4 per cents. was the expectation of their being reduced; and that now this cause is the expectation of their being soon redeemed. 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 to suffer 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 3 per cent. would have consisted of capitals bearing some of them 3½, some 4, and some 4½ and 5 per cent. interest, which (supposing them all at a medium to bear 4 per cent.) a million per ann. would have redeemed in six years less time, and at twenty-one millions less expence.—In short; reducing of interest is one of those unhappy TEMPORARY EXPEDIENTS to which statesmen are apt to betake themselves; and by which present relief is gained at the expence of future safety, 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 3 per cent. capitals; and, at the same time, all the immense expence of douceurs and fictitious capitals would 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 appears from 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 a quick redemption will operate in the same manner on its price with the expectation of a reduction; and in this case, therefore, it will become necessary, in order to avoid the inconveniences I have described, to POSTPONE REDEMPTION; and one of the best methods of doing this will be, by ordering, that such a debt shall be redeemed after some 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 of FIVE MILLIONS.—During the last 60 years, or from the first establishment of the sinking fund to the year 1777, no more than about FIFTEEN MILLIONS of the public funded debts have been paid. An order, therefore, that the capital of five millions bearing 4 per cent. created by the last loan, should not be discharged unless a capital of twenty-five or thirty millions in the three per cents. shall have been first discharged, would have carried its redemption to so distant a period, as might probably have raised it to the same comparative value with any 3 per cent. capitals.

Let it, however, be supposed to advance its price only to 102l. when the 3 per 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 4 per 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 3 per 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 a MILLION AND A QUARTER for 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 the ORDER of 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 an equal, or any larger sum, 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, that EIGHT MILLIONS will 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 4 per cent. interest. Were the interest in this case made irreducible, and the capital incapable of being redeemed without at the same time redeeming four times as much of the 3 per ct. or some other stocks, an increase of value would be communicated to it which would render all Douceurs unnecessary. For it would be a capital, the redemption of which could not be completed without discharging in all FORTY 150 MILLIONS of the public debts.—I cannot doubt but that, in these circumstances (supposing the price of the 3 per 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 MILLIONS might this year be borrowed (supposing the 3 per cents. not lower than 78 or 77) probably at an interest of 4 per cent., but certainly at an interest an EIGHTH or a QUARTER higher, without offering any premiums. Whereas, if no such regulations are established, either an artificial debt of near 151 two millions and a half must be created; or 5 per 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 3 per 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 3½ per cent. interest, be offered, in exchange for every 100l. of the 3 per cent. stocks; and let the new 3½ per cent. flock be capable of being redeemed at any time, but never under par, unless when the price of the 3 per cents. happens to be below 85l.—By this scheme the public would procure 20l. from the conversion of every 100l. 3 per cent. stock into 110l. stock carrying 3½ per cent.; or FIVE MILLIONS from the conversion of TWENTY-FIVE MILLIONS. The new additional capital would be only TWO MILLIONS AND A HALF, (or 10 per cent. of the old capital); and the additional interest would be 17s. (that is, a half per cent. added to 7s. the interest of 10l. at 3½ per cent.) for every 20l. advanced; or 4¼ per cent. for the whole loan.

That such a scheme would afford ample encouragement to subscriptions, supposing the 3 per cents. at or near 78, will appear from considering, that the interest offered is above a quarter 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 a THREE AND A HALF per cent. capital, is incapable of reduction, and therefore nearly on an equal footing with the interest of any 3 per cent. capital.—But to be a little more explicit.

The new capital of 110l. bearing 3½ per cent. interest would be better than the 100l. THREE per 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 9½ per cent.) less than its true value, compared with the price of the 3 per cent. annuities.

Secondly. The 3 per cents. when peace comes, will probably be capable of being redeemed at 88l.152 But this stock, in the same circumstances, must be redeemed at par. 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 redemption will 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 3 per cents. will be selected for redemption before them; and therefore its price will be so much the more likely always to keep near par.—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 carrying THREE AND A HALF per cent. for 100l. carrying THREE per 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 4 per 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 3 per cents. be at 74 or 75, the value might be easily increased near nine per cent. by making the substituted stock 112l. instead of 110l. in which case, the interest for the 20l. advanced would become 18s. 5d. per ann., or a little more than four and a half per cent. instead of four 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 a fixed course 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 escaping a public bankruptcy, the time must come when we shall wish all our debts bore a high interest.154

Secondly. A capital of TWO MILLIONS AND A HALF would be saved in raising FIVE MILLIONS. That is; the nation in procuring five millions would incur a debt of only half that sum; and instead of having a QUARTER or a THIRD more to pay at redemption than had been received, it would have ONE HALF less to pay.

Thirdly. Such a scheme would keep up public credit; and, by its necessary operation, contribute to carry itself into execution. For the advantages attending it being grounded entirely upon the old 3 per 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 unspeakably important, 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 in one trial 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 creating any new capitals, or making any addition to the public debts. I fancy, for instance, that few, when the 3 per cents. are about 78, would scruple to pay 25l. for the conversion of 100l. THREE per cent. stock into a 100l. FOUR per cent. stock, provided this last stock was not to become redeemable till THIRTY or FORTY MILLIONS of our present debts have been discharged: And supposing this true, money for public services would be raised at 4 per 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 4¼ per cent. for money) the gain, if our debts are ever to be redeemed, would abundantly overbalance the increased expence of interest.

Footnotes

48 See Observations on Civil Liberty, page 74.

49 Of all the writers against this war, the learned Dr. Tucker is the severest. For if, as he maintains, contrary to repeated declarations from the throne, a separation from the Colonies would be an advantage to us, the attempt to keep them, by invasion and bloodshed, deserves a harsher censure than words can convey.

50 See Observations on Civil Liberty, Part I. sect. 1.

51 See Observations, Part I. sect. 2.

52 The greatest part of Mr. Goodricke’s remarks are founded on this misunderstanding. He is so candid that I know he did not mean to misrepresent me; and yet I cannot help thinking it hard, after repeated declarations of my preference of such a constitution as our own, to be considered as an advocate for a pure Democracy. See Observations on Dr. Price’s Theory and Principles of Civil Liberty and Government, by Mr. Goodricke.

53 One of the best plans of this kind has been with much ability, described by Mr. De Lolme, in his account of the Constitution of England.

54 “As in a free state, every man who is supposed a free agent, ought to be his own governor; so the legislative power should reside in the whole body of the people.” Spirit of Laws, Book XI. chap. vi. See likewise Justice Blackstone’s Commentaries on the Laws of England, page 158. 1st Vol. oct. edition.—Demosthenes speaking in his first Philippic, sect. 3d. of certain free states, calls them their own legislators, αυτονομουμηνα καὶ ελευθερα.

55 See Remarks, printed for Mr. Cadell, on a pamphlet published by Dr. Price. In a letter from a gentleman in the country to a member of parliament, page 10.

56 Rom. vii.

57 Dr. Priestly, in his Essay on the first principles of Government, makes a distinction between civil Liberty and political Liberty; the former of which he defines to be “the power which the members of a state ought to enjoy over their actions;” and the latter, “their power of arriving at public offices, or, at least, of having votes in the nomination of those who fill them.”—This distinction forms a very proper subdivision of the liberty of the citizen here mentioned; and it may be accommodated to all I have said on this subject, by only giving some less general name to that which Dr. Priestly calls civil Liberty.

58 See on this Subject an excellent Sermon entitled, The Principles of the Revolution vindicated. By Dr. Watson, Regius Professor of Divinity, at Cambridge.

59 Some who maintain this doctrine concerning government, overthrow their own system by acknowledging the right of resistance in certain cases. For, if there is such a right, the people must be judges when it ought to be exercised; a right to resist only when civil governors think there is reason, being a gross absurdity and nullity.—The right of resistance, therefore, cannot mean less than a right in the people, whenever they think it necessary, to change their governors, and to limit their power. And from the moment this is done, government becomes the work of the people, and governors become their trustees or agents.

60 It has been commonly reckoned, that it is the end of civil government and civil laws to protect the property and rights of men; but, according to this writer, civil government and civil laws create property and rights. It follows therefore, that, antecedently to civil laws, men could have no property or rights; and that civil governors, being the makers of civil laws, it is a contradiction to suppose, that mankind can have any property or rights which are valid against the claims of their governors. See Three Letters to Dr. Price, p. 21, &c. And Remarks on the principal Acts of the 13th Parliament of Great-Britain, p. 58, &c. and p. 191.

61 This has been done in a lower instance. Parents have been furnished with a particular affection for their children, in order to prevent any abuse of their power over them.

62 “In ages of darkness, and too often also in those of greater knowledge, by the perfidious arts of designing princes, and by the base servility of too many ecclesiastics, who managed the superstition of the populace, by the violent restraints put upon divulging any juster sentiments about the rights of mankind, the natural notions of polity were erased out of the minds of men; and they were filled with some confused imaginations of something adorable in monarchs, some representation of the Divinity; and that even in the worst of them; and of some certain Divine claims in certain families.—No wonder this! that millions thus look upon themselves as a piece of property to one of their fellows as silly and worthless as the meanest of them; when the like arts of superstition have made millions, nay the very artificers themselves, fall down before the block or stone they had set up; or adore monkies, cats, and crocodiles, as the sovereign disposers of their fortunes.” See Dr. Hutcheson’s System of Moral Philosophy. Vol. ii. p. 280.

63 “Let not, therefore, these pretended masters of the people be allowed even to do good against the general consent.—Let it be considered, that the condition of rulers is exactly the same as that of the Cacique, who being asked whether he had any slaves, answered; Slaves? I know but one slave in all my district, and that is myself.” See the Philosophical and Political History of the Settlements and Trade of the Europeans in the East and West Indies. Translated from the French of the Abbe Raynal, by Mr. Justamond. Vol. v. page 414.

64 See Obs. p. 25. “The rights of mankind are so sacred that no prescription of tyranny or arbitrary power can have authority enough to abolish them.” Mr. Hume’s Essays, vol. iii. Essay on the Coalition of Parties.

65 “Mankind have been generally a great deal too tractable; and hence so many wretched forms of power have always enslaved nine tenths of the nations of the world, where they have the fullest right to make all efforts for a change.” Dr. Hutcheson’s Moral Philosophy. Vol. ii. p. 280.

66 See Remarks on the Acts of the Thirteenth Parliament of Great Britain. P. 34, &c.—“Is not the same reasoning applicable to taxes paid for the support of civil government? Are not these too the property of the civil magistrate?” Ibid. p. 56.—If I understand this writer, his meaning is, not only that the taxes which the civil magistrate has imposed are his property; but also, any which he shall please to impose.

67 Matth. xxiii. 8-12.—John xiii. 14.

68 Luke xxii. 25, &c.

69 1 Pet. v. 3.—2 Cor. i. 24.

70 He who wants to be convinced of the practicability, even in this country, of a complete representation, should read a pamphlet lately published, the title of which is, Take your Choice.

71 “A free subject of a free state” is a contradiction in terms. See the Proclamation for a Fast.

72 Mr. Hume’s Essays. Vol. i. Essay iv. p. 31.

73 Spirit of Laws. Book xix. ch. 27.

74 Introduction to the Commentaries on the Laws of England, p. 48. See also Book i. ch. 8.

75 In 1692 King William rejected a bill for triennial Parliaments, after it had passed both Houses. But in a following year he thought proper to give his assent to it.

76 Spirit of Laws. Book xix. ch. 27.

77 History of Civil Society. Part vi. sect. 5.

78 Political Discourses. Essay xii. p. 301.

79 History of Civil Society. Part iv. sect. 5.

80 See Mr. Hume’s Essays. Vol. i. p. 91.

81 See the conclusion of the Third Part.

82 This was confirmed by the account of the noble Lord at opening the last Budget.

83 I have mentioned this sum at random. It is not of great consequence whether it is half a million too little or half a million too much.

84 The quantity of coin within all equal degrees of deficiency would be equal, were equal quantities issued every year, and were there also no cause which diminished or destroyed it, except the uniform operation of time in wearing it. Any cause, therefore, which destroys it more, or diminishes it faster at first than at last, must render the quantity less in the first degrees of deficiency. And the same must be the consequence of a greater proportion issued formerly, in any given time, than of late.—The causes of diminution never probably operated so much on the gold coin as they did for about twelve years before 1773; and this will balance the greater proportion coined during that time. The very reason of the increase of coinage in those years was, a necessity created by the loss of the new coin, and never before felt in an equal degree. The coinage, however, in those years, was not so much more than usual as some may imagine. In ten years before 1770, eight millions and a half were coined; and in twelve years after the Accession, the same quantity was coined; and in twenty-seven years after the Accession, more was coined than in twenty-seven years before 1770. See Considerations on Money, Bullion, &c. p. 2.—The whole quantity of gold coined from the Accession to 1770, was near 29 millions; more than one half of which must have been melted and exported; and, the greatest part of the remainder must have been precipitated in its progress towards deficiency by being clipped and sweated.

85 When the silver specie was recoined in King William’s time, it appeared, that a great treasure had been hoarded before the Revolution, in consequence of the danger of public liberty at that time. See Davenant’s Works, Vol. I. p. 439, &c.
In Russia it is reckoned, that as much money lies buried under ground, as exists above ground.

86 In these sums is included all the coin which the late Proclamations have brought in from Holland and other foreign countries; and which, I think, ought not to be deemed a part of the resting stock of the kingdom.

87 Or deducting a million for the Irish coin, seventeen or eighteen millions.

88 This is said on the supposition, that the last call would bring in no more than was expected, or about three millions. Its having brought in above double this sum makes little difference. For it proves, that the whole quantity of gold coin must have been (according to Lord North’s method of computing) 21 or 22 millions; and the quantity deficient more than a grain about 15 millions; and, consequently, six or seven millions (that is, near a third) will still remain to be the quantity deficient less than a grain.

89 It has been thought very strange, that a piece of metal should bear a higher price, merely because it wants the stamp of the mint. But the reason is, that bullion alone being exportable in any considerable quantity, the price of it must vary as the demand for it varies; or, in other words, as the balance of payment between us and the rest of the world is favourable or unfavourable.—This will be explained at the beginning of the Third Part, where it will appear that, in consequence of the increase of luxury and the national debt, this balance has been generally against us ever since the end of the last war.

90 The coin brought in last Summer, added to near 14 millions coined from the beginning of 1772 to the time of the last call, amounts to about 20 millions and a half; but only 16 millions and a half have been brought in, including the coin from Ireland and foreign countries.

91 Or EIGHTEEN MILLIONS AND A HALF. See Dr. Davenant’s Works, Vol. i. p. 363, &c. 443, &c. A great part of this specie was carried out of the nation in King William’s wars; and the consequence was, that the taxes became unproductive; and that Government fell under great difficulties, from which it was afterwards relieved by the establishment of the Bank and the increase of trade. See the beginning of the Third Part.

92 The paper currency of the Colonies is one of the greatest disadvantages under which they labour; but it is of a more safe and permanent nature than ours. Were it not so, it could not have been of the least use to them for the last year and a half. He who doubts this, need only consider what our paper would be worth were we now invaded as they are.
This difference depends chiefly, on the following circumstances.—Their paper is not payable on demand.—It is a legal tender.—It represents fixed property which is mortgaged for it.—It does not support such a monstrous debt as ours.—And when public emergencies require any extraordinary emissions, they are generally sunk by taxes in four or five years.—It is the first of these circumstances that gives our paper its currency; and it is also this circumstance that creates the danger attending it, by rendering it incapable of sustaining any great shock or panic.—The possession of securities equal in nominal value to the amount of the paper emitted, or the debts contracted, is of little consequence when the value of these securities depends on the paper, and is created by it; that is, in other words, when the debts themselves are the very cash which must pay the debts.—Nothing can be more unnatural than such a state of things; and it may hereafter be a curious object of enquiry, how it could be ever possible that it should subsist any long time.
In page 78 of the Observations on Civil Liberty, I have said, “that the kingdom of France has no such dependence as we have on paper-credit; and that its specie amounts to 67 millions sterling.” In mentioning this sum I took the lowest of different accounts which I had then received from different authorities. I have since received accounts which make it 87 millions and a half; or 2000 millions of livres. This, in particular, is the account of an author whom all know to be likely to be well informed on this subject; I mean the author of the Treatise on the Legislation and Commerce of Corn, Part I. chap. v.—In the same treatise it is said, (Part I. chap. viii,) that it appears, from the returns made by the intendants of the different Provinces, that the number of annual deaths in the whole kingdom of France, for three years ended in 1772, was 780,040. I have been informed by the ingenious author, that this account may be depended on; and if so, France must contain 26 millions of inhabitants; for the best observations prove, that no more than a thirty-third part of a whole kingdom dies annually. See Observations on Reversionary Payments, page 200.—In Sweden, though a nineteenth part die in the capital every year, only a thirty-fifth part die in the whole kingdom. See Philosophical Transactions, Vol. lxv. for 1775, p. 426. The particulars now mentioned, added to the nature of the debts of France as mentioned in page 78 of the Observations on Civil Liberty, form a striking contrast between the state of that kingdom and ours. Nothing gives us our superiority but the advantages we derive from our Religion and our Liberty. Even in these respects, however, they seem to be improving, while we are declining. Montesquieu, Abbe Raynal, and others of their most admired writers, inculcate principles of government, and breathe a spirit of Liberty, which, to the shame of this country, are become offensive in it.

93 See the proposals and observations in a pamphlet lately published by Lord Viscount Mahon on this subject.

94 “There is something (says a great writer) so unnatural in supposing a large society, sufficient for all the good purposes of an independent political union, remaining subject to the direction and government of a distant body of men who know not sufficiently the circumstances and exigencies of this society; or in supposing this society obliged to be governed solely for the benefit of a distant country; that it is not easy to imagine there can be any foundation for it in justice or equity. The insisting on old claims and tacit conventions, to extend civil power over distant nations, and form grand unwieldy empires, without regard to the obvious maxims of humanity, has been one great source of human misery.” System of Moral Philosophy, by Dr. Hutcheson, vol. ii. p. 309. In the section from whence this quotation is taken, Dr. Hutcheson discusses the question, “When colonies have a right to be released from the dominion of the parent state?” And his general sentiment seems to be, that they acquire such a right, “Whenever they are so increased in numbers and strength, as to be sufficient by themselves for all the good ends of a political union.”—Such a decision given by a wise man, long before we had any disputes with the colonies, deserves, I think, particular notice.

95 See Common Sense, and Plain Truth, p. 44. Published for Mr. Almon.

96 The Colonies, I am assured, were not perfectly unanimous till they saw this answer.

97 I am sorry to differ from those respectable persons who have proposed placing America on the same ground with Ireland. If the same ground of Law is meant, it is already done; for our laws give us the same power over Ireland, that we claim over America. If the same ground of Practice is meant; it has been most unfortunate for Ireland, and would be equally so for America.

98 See the Abbe Raynal’s Reflections on this subject at the end of the 18th book of his History of the European Settlements in the East and West-Indies.—“Is it not likely, says this writer, that the distrust and hatred which have of late taken place of that regard and attachment which the English Colonies felt for the parent country, may hasten their separation from one another? Every thing conspires to produce this great disruption; the æra of which it is impossible to know.—Every thing tends to this point: The progress of good in the new hemisphere, and the progress of evil in the old.—In proportion as our people are weakened, and resign themselves to each other’s dominion, population and agriculture will flourish in America; and the arts make a rapid progress: And that country rising out nothing, will be fired with the ambition of appearing with glory in its turn on the face of the globe—O posterity! ye, peradventure, will be more happy than your unfortunate and contemptible ancestors.”—Mr. Justamond’s Translation.

99 Had this interest been insufficient, it might have been increased a 16th or even an 8th per cent. without any material difference; or, (which would have been better) 3½ per cent. might have been offered for four fifths of the sum borrowed, and 4 per cent. for the remainder; in which case, the annuity payable by the public would have been 65,790l.

100 It should be remembered here, that tho’ Government, when its debts are at a discount, may be able, with the consent of the creditors, to redeem a given capital by paying a less sum than that capital; yet it can never be obliged to pay more.—In other words; a 100l. capital in the 3 per cents; 3½ per cents; or 4, or 5 per cents, Government is always at liberty to redeem by paying 100l. whatever the market price of it may be, and whether the creditors will consent or not.

101 There is another very great advantage which would attend these annuities.—One and the same surplus would discharge a given capital in less time. For example. A surplus of a million per ann. invariably applied, and the first payment to be made immediately, would discharge a capital of a hundred millions bearing 3 per cent. interest in 46 years. But if the same capital bore 3½ per cent. interest, it would be discharged in 43½ years; if 4 per cent. in 40 years; if 5 per cent. in 37¼ years.—A capital less than a 100 millions, in the same proportion that the interest is more than 3 per cent. and for which, therefore, the same annuity is paid, (as in the present case) the same surplus would discharge in 39 years, if the interest is 3½; in 34¼ years, if the interest is 4 per cent. in 27¼ years if the interest is 5 per cent.—Supposing, therefore, 75 millions borrowed in the manner of our Government, by creating a capital of a 100 millions bearing 3 per cent. (that is, by selling 3 per cent. stock for 75l. in money) which might have been borrowed by creating a capital of only 75 millions bearing 4 per cent. (that is by selling 4 per cent. stock at 100) there will not only be a loss of 25 millions by a needless increase of the capital; but also a loss of 14 millions, by an increase of the time in which one and the same saving will discharge the two capitals.—This may be proved in the following manner.—A million, per ann. will, in 34 years and a quarter, very nearly discharge a debt of 75 millions bearing interest at 4 per cent.; but the same saving will, in the same time, discharge only a capital of 61 millions, if it bears interest at 3 per cent. When, therefore, such a saving has compleated the redemption of the one capital, there will remain unpaid of the other, 39 millions.—What has been now applied to a large sum holds true in proportion of any smaller sums.
It appears from hence to be a very wrong observation which some have made; “that provided the annual charge is the same, it signifies little what the principal of the public debt is.”—As there is no way of removing the annual charge but by paying the principal, it is of just as much consequence what it is, as whether it is practicable or impracticable, to remove a burden which weakens and cripples, and must in time sink the public. An annuity of Six Millions, if the principal is Hundred Millions borrowed at 6 per cent. might be redeemed in 33 years with a million per ann. surplus. But if the principal is Two Hundred Millions bearing 3 per cent. the same surplus would, in the same time, pay off only 56 millions; and but little more than a quarter of the annuity would be redeemed. If, therefore, the same sum might as well have been obtained by creating a principal of a hundred millions bearing 6 per cent. as by creating a capital of two hundred millions bearing 3 per cent. there will be a needless expence, in discharging the debt, of 144 millions.

102 The price of the 3 per cents at the time of this loan (in the beginning of Feb. 1759) was 88½ and 89.

103 The 3 per cents just before this loan were at 69l. and, consequently, 5 per cent. interest, (or 3l. per ann. for 60l.) would have afforded subscribers a profit of 9l. for every 60l. advanced. The long annuity was worth, as the stocks then stood, 21 years purchase, and the short annuity, 13 years purchase. Upon the whole loan, therefore, the profit would have been 3 per cent.

104 That is, the difference between 12 millions, and the sum bearing interest at 3 per cent. which a million per ann. would pay off, in five years and a quarter.

105 The 3 per cents being at this time at 80l. an annuity of 3l. purchased for 75l. would have produced a profit of 5l. Therefore these schemes are of exactly the same value. But they are too narrow; and the subscription this year fell immediately to one per cent. discount. But in the scheme I have proposed this might have been prevented by only offering 4 per cent. for 77l. or 78l. (instead of 75l.) of every 100l.

106 It is plain, that this capital, as well as the former, might have been a quarter (or 60,000l.) less, which would have made the whole saving of capital 2.060,000l.

107 At the time of this loan, the 3 per cents. were above 75; and, therefore, a perpetual annuity of 3l. could not be purchased for 75l. and an annuity of 1l. 2s. 6d. for 99 years, was worth at least 27l. This, therefore, would have been a scheme very profitable to subscribers.

108 The life-annuity granted in this case could not have been worth so little as 16l. or 14 years purchase; and, therefore, a capital of 100l. in the 3 per cents was sold for 84l; or a capital of three millions, for 2.520,000l.—A premium, therefore, was granted of 480,000l; and this was done without the least reason. For the 3 per cents being at that time at 87 and 88, 2.520,000l. would undoubtedly have been lent at 3½ per cent. interest; and the remaining 480,000l. necessary to make up three millions, would have been given for the life annuities; in which case, the annual charge occasioned by the new capital would have been somewhat less; and 480,000l. would have been saved, together with the additional expence occasioned by the longer time which a given surplus would require to discharge a debt bearing 3 per cent. interest, as explained in the note, p. 94.

109 It is a general and certain maxim “that whenever money is borrowed by a lottery which gives a right to stock equal to the sum advanced, there is a loss equal to the sum which might have been received for the profits of the lottery.”—When the 3 per cents. are at 76 or 77, half a million might be borrowed by a lottery, consisting of 50,000 tickets, each of the same value with 10l. three per cent. stock: and hitherto such a method of borrowing has been reckoned advantageous. But it only gives a fallacious appearance of borrowing at 3 per cent. It is the same with selling the profits of a lottery, and at the same time absurdly converting the purchase-money into a debt due to the purchaser.—Since the last war we have had seven of these lotteries, including two in 1763; and above a million has been lost by them.
In Queen Anne’s time, there were several lotteries, consisting of all prizes and no blanks. This is so curious, and most persons may be so much at a loss to conceive of the possibility of it, that I cannot help explaining it.
A capital, equal to the whole money advanced, was distributed equally among all the tickets in the lottery; and, in order to make them prizes of different values, there was farther distributed among them different shares of an additional capital, to which a right was given, though no money had been paid for it.—For example—In 1711, two millions were raised by a lottery of this kind, called a class lottery. The whole sum advanced was divided into 20,000 tickets, each 100l. stock bearing 6 per cent. interest. This capital was increased by a gratuitous capital of 602,200l. bearing the same interest, and divided into shares which were added to the tickets, in order to form prizes.—This was the same with giving near 8 per cent. for money, besides a premium of 30 per cent.—As the interest of money was at this time 6 per cent. the sum borrowed would most certainly have been advanced at 8 per cent. without any premium; but it was, I suppose, reckoned necessary that government should not seem to give such high interest.—In the same year, 1.500,000l. was borrowed by another such lottery, and creating a capital of 1.928,570l. And in 1712, 3.600,000l. was borrowed by two more such lotteries, and creating a capital of 4.683,080l.—The greatest part of the debts contracted by these lotteries (amounting to 9.213,850l. though only 7.100,000l. was advanced) remains at this hour an incumbrance on the public; and the duties constituting the general fund are charged with the interest of it.
In 1714, the national interest was reduced to 5 per cent. But in that very year 1.400,000l. was borrowed by a lottery, which gave a right to a capital of 1.876,000l. bearing 4 per cent. that is, by giving near 5½ per cent. interest, besides a premium of 34 per cent.—Thus have our debts been increased. But even worse has been done. The taxes charged with the interest of the public debts proving often deficient, the shortest way of discharging the arrears has been often taken, by adding them to the principal, and paying compound interest for money.—Is it a wonder, that a nation which has been so careless in contracting debts, should have done so little towards discharging them?

110 That is, in other words; there is no one who would not be glad to lend to government on any higher interest than that which he can make in the funds. There is no one, for instance, who would not be glad to lend 75l. at 4 per cent. when the 3 per cents. are at 76, and when, therefore, he cannot make 4 per cent. by purchasing them.

111 The expectation of receiving back some time or other the purchase-money would probably, in private loans, influence a purchaser. But in the cases to which I allude, this certainly was not considered, and did not at all influence. And if it had influenced, the observations I have made as I have gone along, demonstrate that the same loans would have been made without any such expectation.

112 See the Postscript.

113 Sixteen Millions have been specified. It will come in my way to mention above Four Millions more in the second section of the next part. Notes 1, 12, 14.—No notice has been here taken of the loans of the war before the last; but losses of the same kind to a great amount were incurred by them.

114 In the exports, as delivered to the House of Commons, is included bullion exported. If this, as well as the other sums I have mentioned, is deducted, there will be still a balance left in favour of Britain during this period. Since 1764, it does not appear, from the accounts laid before the House of Commons, as published by Sir Charles Whitworth, that any bullion has been entered for exportation.

115 The 3 per cent. annuities were then at 105; and, during the first five years of the war which began in 1755, they were higher than they have generally been since the war.

116 These duties were appropriated to the payment of the interest at 4 per cent. of a capital of 4.400,000l. created in 1747, for which four millions only had been advanced. It is now a part of the capital of the reduced 3 per cent. annuities.

117 The whole of this sum, (except 16.437,821l. consisting of the old Bank capital, the consolidated 3 per cents, the South-Sea 3 per cent. annuities 1751, the Civil List million, and the East-India annuity) that is, 54.413,433l. was reduced by 23 Geo. II. 1749. from an interest of 4 per cent. to 3½ till 1757, and afterwards to 3 per cent.—The proprietors of a capital of 3.290,042l. refused to consent to this reduction, which, therefore, was paid off; 1.190,042l. with Exchequer Bills (afterwards cancelled); and 2.100,000l. with money borrowed at 3 per cent. and added to the capital of the South-Sea annuities. The whole sum, therefore, reduced and paid off, was 57.703,475l. which produced a saving to the public, and an addition to the Sinking Fund after 1757, of 612,735l. per ann.
The Salt Duties in 1753 had been for some time mortgaged to pay the principal and interest of a million borrowed in 1745. In 1757, after clearing the mortgage, they became free, and were carried into the Sinking Fund, of which they have ever since formed a part. This produced a farther addition to the Sinking Fund, after 1757, of about 220,000l. per ann.
I have not included the million now mentioned in the account given above of the public debts in 1753, because it was in a fixed course of redemption; nor have I included 499,600l. in Exchequer Bills charged on the duty on sweets, because these Exchequer Bills were paid off in 1754.

118 Having met with no account of the Navy Debt at this time, I have chosen, rather than omit it, to suppose it nearly the same that it was at the commencement of the last war; which, probably, is reckoning it too high.

119 In this account I have omitted a million borrowed in 1734, because the redemption of it was near being completed by the Salt Duties. I have also omitted Short Annuities amounting to 24,334l. being the remainder of 9 per cent. annuities for 32 years created in 1710, because the term for which they were created was near expiring.

120 The author of the Considerations on the Trade and Finances of this Kingdom makes this debt 1.318,000l. more than the sum at which I have here stated it. See page 22; and State of the Nation by the same author, page 15, quarto editions.—The reason of this difference is, that this writer has included in the unfunded debt left by the war the deficiencies of grants and funds in 1763 and 1764, and the whole army debt not provided for in those years; whereas I have excluded the former entirely; and admitted only as much of the latter as exceeded the army debts common in subsequent years. See the Postscript.

121 In 1751 there was applied to the payment of Navy debts 200,000l. and in 1752, the sum of 900,000l. But I have not reckoned these sums, because they did little more than make up the constant deficiency in the Peace Establishment for the Navy.

122 See the Postscript.

123 “Either the nation (Mr. Hume says) must destroy public credit, or public credit will destroy the nation.” Political Essays, page 135.

124 The number of inhabitants in France is 26 millions. In Britain it cannot exceed six or seven millions. See p. 66. And Observations on Reversionary Payments, page 185, third edition.

125 Near one half of all this importation is made into Bourdeaux only; and the rest into Rochelle, Marseilles, Nantz, Havre, and Honfleur.

126 In order to defray the expence of coinage, a duty of 10s. per ton has been laid on wines imported; and, as far as this duty happens to fall short of 15,000 l. the deficiency is made good out of the supplies.

127 I am not able to give the exact amount of this part of the appropriated revenue. I have, therefore, reckoned it at such a round sum, as, I think, cannot much exceed or fall short of it.

128 The Land-tax at 3s. is given by Parliament for 1.500,000l.; and the Malt-tax for 750,000l. but they are always greatly deficient.—Both these taxes (and also sometimes the income of the Sinking Fund) are borrowed of the Bank, and spent long before they come into the Exchequer; and therefore, are debts constantly due to the Bank, for which interest is paid.

129 The account given by Lord North at opening the Budget in 1775, was, that the public debt had been diminished since 1763, near nine millions and a half. The grounds on which I have stated this diminution at 10.639,793l. may be seen in the Postscript, (p. 171).

130 Four of these lotteries have been annexed to annuities; but it would be a great mistake to think that they have not been equally profitable with the other lotteries. For instance; in 1767, a million and a half was borrowed on an annuity of 45,000l. with a lottery of 60,000 tickets annexed. In the same year, 2.616,777l. was paid off; but, had it not been for the lottery, only 1.350,000l. could have been raised on the annuity; and 150,000l. less must have been paid off.

131 The discounts on a million and a half paid off in 1772, and two millions paid off in 1774 and 1775, amounted nearly to this sum.

132 The particular sums may be found in a pamphlet, entitled, The Present State of the Nation, p. 28, quarto edition. But I have not included all the sums there enumerated; nor have I admitted the Army savings in 1772, and some other smaller sums.

133 This surplus, being the medium for the whole 12 years of peace, is less than that in p. 160, which is the medium at the end of this period, when the Sinking-Fund produced above a quarter more than it did at the beginning of it.

134 I have here taken the average of two years before and after 1766.

135 The annual medium of the payments into the Exchequer from the Customs in England, for the last five years, has been 2.521,769l.—In 1774 the payment into the Exchequer was 2.547,717l.—In 1775, it was 2.476,302l.—The produce of the Customs, therefore, has been given rather too high.
The produce of the Excises in England has been higher, in 1772 and 1775, than in any two years before 1776; but the average of any three successive years, or of all the five years since 1770, will not differ much from the sum I have given.—In 1754, or the year before the last war, the Customs produced only 1.558,254l.—The Excises, exclusive of the Malt-tax, produced 2.819,702l,—And the whole revenue, exclusive of the Malt-tax and Land-tax at 2s. was 5.097,617l.—In 1753 the whole revenue was 5.189,745l. And the appropriation or annual charge upon it, (consisting of the Civil List, 834,443l. interest of the national debt, exclusive of navy debt, 2.628,087l. expences of management, 43,691l. 4½ per cent. from the Leeward Islands 27,378l. annuity to the late Duke of Cumberland 25,000l. first-fruits and tenths of the Clergy 13,597l. &c. &c.) was 3.733,713l. The Sinking-Fund, therefore, produced 1.456,000l.; which, added to 1.500,000l. (the neat produce, at that time, of Land at 2s. and Malt-tax) made the unappropriated revenue 2.956,032l.—The expence of the peace establishment, consisting of 10,000 seamen, and 18,857 landmen, was, in 1753 and 1754, (including an allowance for the increase of the Navy-debt) 2.400,000l. nearly; which left an annual surplus in the national income of 556,000l. without lotteries, and land at 2s. This surplus (with land at 3s.) has of late scarcely exceeded 300,000l.; and, therefore, has not been a THIRD of what it was in the last peace, and before the reduction of interest to 3 per cent. was compleated.

136 This article was omitted in the former editions of this Postscript; and its insertion here makes the diminution of the public debts, since 1763, half a million less than the sum at which it is taken in p. 104 and ¹⁰⁸.—It might have been proper also to add, the excess of Navy debts contracted above the Navy debts discharged, from 1763 to 1775; and had this been done, the surplus in p. 165, would have been reduced to 150,000l.

137 See The Present State of the Nation, page 26.

138 This article was omitted in the first editions of this Postscript.—It might have been proper to add, the excess of Navy debts contracted above the Navy debts discharged, from 1763 to 1775; and had this been done, the surplus in p. 166, would have been reduced to 150,000l. per ann.

139 Or, for every 105l. contributed, 100l. STOCK irredeemable for 10 years might have been given, carrying 4¼ per cent. interest, with the same short annuity and a lottery ticket annexed; and then the new capital would have been 4.762,000l. carrying (at 4¼ per cent.) 202,385l. per ann. interest. The amount of the short annuity would have been 23,810l. and the number of lottery tickets 47,620.

140 211,375l. the interest at 4½ of 4.750,000l. and 12,500l. a short annuity of a QUARTER per cent. annexed to every 100l. contributed, make 223,875l. This last sum, therefore, would have been the annual charge for 10 years; and the first sum the annual charge after ten years till redemption.

141 Ten payments of 9,650l. and seventeen payments of 34,375l. make 680,875l.

142 It may be worth observing, that during this whole war they never fell below 82, except for a few months during the rebellion in 1745; that after the Peace in 1748 they rose to 105, and in the succeeding war never fell so low as they are now, except in the two last years; that after the Peace in 1763 it was expected they would again rise above par; but that, instead of this, they have in general during the whole peace kept 12 or 13 per cent. below par, and 15 or 16 per cent. below the price they bore before the two last wars.—One of the reasons of the great alteration which has taken place since the last war is, I think, pointed out in the 3d Section of the 3d Part of this Tract.

143 Since the reduction in 1749 there has been no FOUR per cent. capital created except that of the last year.

144 What is here said has been verified, in the particular instance of a million and a half borrowed in 1756, which was to carry 3½ per cent. interest till 1771, and then to become redeemable.—During the last war, and for about three years after the commencement of peace, there was a general expectation that the THREE per cents. would rise above par as they had done in the former peace; and while this expectation continued, this stock reckoned no better than a THREE per cent. stock with a short annuity of a half per cent. annexed; and for this reason it bore, during that period, a lower price than another stock of 4 millions and a half which was to bear the same interest till 1782, and then to become redeemable, and to sink to an interest of 3 per cent.—In the latter end of 1767 and beginning of 1768 the price of the former stock rose above that of the latter, and continued not far from par from that time to the time of its redemption in 1771. The reason must have been, that being a small stock bearing a higher interest than the other stocks, it was expected, that it would be paid off at par, and therefore with a considerable profit, as soon as it became redeemable; which accordingly happened. See Postscript, (page 177).

145 Nothing has been more undervalued in the Alley than Annuities on lives. They have been always granted, very unreasonably, without any limitation of age; and their value has been taken at no more than 12 or 13 years purchase; tho’ really worth one with another 16 or 17 years purchase. This is a strong reason for preferring short annuities to them in all schemes for raising money. Short annuities for 21 years will be taken for as much as life-annuities; and yet experience has proved that in this time not a quarter of the life-annuities will drop; and the whole expence brought by them on the public will not be removed in less than 70 or 80 years. See Note 15, (Page 134).

146 I would except here the first reduction in 1717. This was then necessary to gain a fund for sinking the public debts; and had the fund thus gained been applied, as the laws required, invariably to this purpose, and all farther reductions been avoided, we should now have been burthened with no debts.

147 That is; never capable of being redeemed by substituting one debt for another; or of being saved from redemption by accepting lower interest.

148 Supposing the 3 per cents. sold at 76½, the capital necessary to produce 4.850,000l. in money would be 6.339,869l. the interest of which at 3 per cent. is 190,195l.

149 When the amount of interest, payable for a sum obtained by selling a 4 per cent. capital, is the same with the amount of interest, payable for an equal sum obtained by selling a 3 per cent. capital, which is nearly the present case, postponing, in the manner I have proposed, the redemption of the former, becomes as indifferent as it would be to postpone in the same manner the redemption of any 3 per cents.

150 In this case only a FIFTH of the surplus to be at any time employed in redeeming debts could be applied to the redemption of this particular loan. The rest after nine years might be employed in redeeming the 4 per cent. stock created last year; or jointly with it, such parts of future loans bearing high interest, as, in borrowing on the same plan, might be left redeemable. And thus no obligation would arise from this mode of borrowing to prefer the redemption of 3 per cents. to the redemption of capitals bearing higher interest. In particular; had this been the plan of borrowing through the last war, all surplus monies might have been ever since employed intirely in paying off 4, 4½ and 5 per cent. capitals preferably to any others; and at the same time, no douceurs would have been granted in order to procure the loans, no artificial debt contracted, or extraordinary charge incurred.

151 Should this be disregarded, and a long annuity offered, as a douceur, of 1½ per cent. for 90 or 100 years, eight millions might perhaps be borrowed at an interest, including the long annuity, of 4½ per cent. even though the 3 per cents. should fall as low as 73.—And this, probably, would be the very scheme a minister would prefer, who, minding chiefly present ease, did not care how much he burdened the nation hereafter.

152 In 1774, a million of the 3 per cents. was redeemed at this price; and in 1772, a million and a half at 90.

153 I mean such a course of redemption as should not be liable to interruption by a WAR; or, as would be the effect of the establishment of such an unalienable sinking fund as has been described in the Appeal to the Public on the Subject of the National Debt, and the Observations on reversionary Payments.—Nothing can save us from bankruptcy but such a fund; and were it established, the 3 per cents., when they came to be redeemed, would soon rise to par; and, consequently, the obligation implied in this scheme to pay a part of them at par would occasion no additional expence. It is, however, so little to be expected, that such a fund will be ever established, that it would have been folly to have made the calculation given above, on any supposition less favourable, than that the 3 per cents. will bear the same price after the present war, that they bore after the last; and that we shall go on as we have hitherto done, paying off a million, or a million and a half, now and then in a time of peace.

154 The conversion of a 3 per cent. stock into a 3½ per cent. stock gives the same advantage in redeeming it, that the power of redeeming it at 85¾ for every 100l. would give.—A million per ann. surplus would redeem 114 millions and a quarter of the latter stock in the same time, and therefore at the same expence, that it would redeem 100 millions of the former. I suppose here the 3 per cents. paid at par; and this I have before observed will be found to be necessary should a time (scarcely the object of hope) ever come when government will set itself in earnest and with any effect to pay the public debts.

← Back to Two Tracts on Civil Liberty