Chapter XXII: Part IV: Of Public Credit (2)

Another injustice here was, that a minister, by borrowing a sum at a very high interest, at a time he wanted to set a value on the capitals, might sink this value. And, in the third place, the greatest injustice of all consisted in this, that the Cardinal had no thoughts of any reimbursement, as we shall see by what follows.

There was, at this time, one class of annuities constituted at 8 _per cent._ These he proposed to reduce to 6 _per cent._ as above, by his preliminary operation. Such annuities sold at that time for five years purchase. These, says the Cardinal, _we must fix at that value_; and by allowing the proprietors to enjoy them for 7½ years, the capital and interest will be paid off.

Other annuities constituted upon the _taille_ sold for six years purchase, which, by the same rule, were to be paid off in 8½ years.

The annuities and other debts charged at this time upon the _taille_ alone, amounted to 26 millions a year; and by this scheme, the whole was to be paid off in 8½ years.

Besides these, there were engagements upon other branches of the revenue, which sold at different prices. All were to be set upon a proportional footing. The annuities which sold the dearest, were at 7½ years purchase, which were to be paid in 11½ years.

Thus, by the Cardinal’s scheme, the debts of France, which at this time bore an interest of about 45 millions, were entirely to be paid off, in about 12 years, without any new imposition; and when that was concluded, the lands were to be discharged of 26 millions of yearly _taille_, near two millions sterling, and the King was to have a clear revenue of 53 millions, or about 4 millions of our money, which with the 26 millions taken off the _taille_, make 79 millions; the total amount of the French revenue at that time.

I shall now point out the characteristic differences between the principles upon which the credit of England and France were established, at the two periods of which we have been speaking.

Had two such writers as Davenant and Richlieu been to be met with in the same age, and at a time when England and France were engaged in contracting debts, the contrast would have been stronger; but as it is, it suits our purpose. The debts contracted in France from 1708, when credit fell, to the end of the war in 1714, were in consequence of rapine and extortion, as in Richlieu’s time: and the operations upon them, after the peace of Utrecht, resemble those of Richlieu in some very material circumstances. Such as, 1_mo_, That all the debts were then, by an act of power, put at 4 _per cent._ without any regard to the original stipulations. 2_do_, That what the Cardinal despaired of accomplishing, the Regent undertook, and executed, at a great expence to the King, and with great injustice to many individuals.

He established a commission, called the _visa_, to inquire into the unfunded debts, which amounted to 600 millions. His intention was, to discover the effective sums which had been paid for the grounds of debt. The most favourable classes of these debts consisted in arrears of pay to the army, indemnities for pillage, and the like, constituted by notes issued from the office called the _extraordinaires des guerres_, which were diminished ⅕; the second class was diminished ⅖; the third class ⅗; and the last of all, sums due to brokers, usurers, &c. were diminished ⅘.

But alas! there was not the least shadow of justice in this operation; because long before the _visa_ was established, most of the grounds of those debts had circulated from hand to hand, under the greatest discredit: so that the real sufferers were then beyond the reach of the indemnity offered; and the usurers and brokers who had bought them up, were those who made fortunes by them. The Cardinal’s plan of paying at the selling price, would have proved, _in this particular case_, more rational, and more according to equity, than any other: so greatly do circumstances influence our decisions in all political matters!

By the _visa_, the 600 millions were reduced to 250 millions, and put at 4 _per cent._ like all the other debts. No plan was proposed at first for paying off the capitals; but a sum was appropriated, though very ill paid, for discharging the interest. We have discussed sufficiently the famous operations of the Missisippi; by which an attempt was made to throw the whole national debt on the company of the Indies; and we have seen how it succeeded.

The distance, therefore, of Richlieu’s time, from Davenant’s, occasions very little deception in comparing the principles of French and English credit: and when we come to examine the present state of that question, I am afraid we shall find, in France, enough of the old system still remaining, to verify my observation, that the French have the advantage in paying their debts; the English, in contracting them. Where the balance of advantage may lie, will be the subject of more speculation.

The first essential difference I find between the credit of France and that of England, in the two periods we are considering, relates to the _coin_. In the first, the value of _it_ had been very well preserved: no considerable alteration had been made upon _it_, from 1602 to 1636, that the Cardinal raised the denomination of the marc of fine silver, from 22 livres to 27 livres 10 sols, as has been said. Whereas from the revolution, until the establishment of the bank in 1695, the _coin_ had suffered in England a debasement, from clipping, of near 50 _per cent._ This circumstance, more than any other, affected the credit of England, and increased the expence of King William’s war. In Richlieu’s time, circulation and trade had made more progress in France than in England at the time Davenant lived. The revenue left by Henry the Fourth was double to that of England at the revolution: and, in general, the income of the Kings of France had far exceeded that of the Kings of England, for many reigns before that of the great Henry. Borrowing also, upon a fixed and permanent interest, had been known in France so far back as Francis the First.

That Prince was the first, I find, who contracted a regular debt, at perpetual interest, upon the town-house of Paris, at about 8 _per cent._ when the legal interest in England, under his contemporary Henry the Eighth, was 10 _per cent._

The predecessor of Francis, Louis XII. had of gross revenue, charged with his debts, which eat up near one half, above 2,500,000_l._ sterling. Dutot, Reflex. Pol. Vol. I. p. 204. Francis I. left to his successor in 1546, a gross revenue of 2,685,314_l._ sterling, and of nett income 2,287,998_l._ according to Dutot and M. de Sulli.

Under Henry II. and Francis II. the gross revenue stood at about 2,618,000_l._ sterling.

Under Charles the IXth, I have not been able to discover any thing which can be relied upon: but his successor Henry III. according to Sulli, had, in 1581, a revenue of 3,250,000_l._ sterling, and left only about 16 millions of livres of debt, which was no great sum.

To this Henry IV. succeeded; and by the capacity and unwearied application of his great minister M. de Sulli, it was raised to above six millions sterling, at the beginning of the reign of Louis XIII. This revenue, by his wars and expences, was left greatly incumbered; but still the taxes were established which brought it in; and so early in the reign of his successor Louis XIV. as the year 1683, his revenue extended to no less than 9,182,914_l._ sterling, according to Dutot. Reflex. Pol. Vol. II. p. 256[22].

Footnote 22:

These sums are all converted into sterling, according to the value of
the French livre at the different periods here mentioned.

Let any man, acquainted in the least with the history of England, examine the fixed revenue there, under Henry VII. and VIII. Edward, Mary, and Elizabeth, and their successors, down to the revolution; and they will evidently see the great disproportion of wealth, proceeding from taxes, in the one and the other kingdom.

From these facts I conclude, that debts and taxes in France were much more familiarly known in Richlieu’s time, than possibly they could be in England when Davenant wrote.

Public credit had long grown up in that kingdom, under the hard influence of regal power: whereas in this it had sprung up lately, under the protection of liberty, and a most limited authority.

To that cause I ascribe the difference we find between the principles of English and French credit; and to an effect similar to the cause I ascribe the gigantic steps by which Britain has outstripped her powerful rival in the establishment of her credit, since the beginning of this century.

It is folly to prophecy, I know; but I may be allowed to conjecture, that the same causes which have raised the credit of this nation to such an amazing height, will either force the French from their old principles, or they will, some time or other, bury her credit in the dust.

Had one half of the acts of power been exerted with us, which have been so familiar in France: had half the liberties been taken, in tampering with the claims of creditors; a total bankruptcy would long ere now have been the consequence: but in Britain credit is young; and has been tenderly reared. In France she is old, and has been accustomed for many ages to rougher usage. But example works wonderful effects, especially when nations live together in this great European society; and the advantages of a security to be depended on will every day more and more engage the money’d interest to prefer this to any violent and precarious profits.

How nicely does not Davenant employ political arithmetic, in order to make true estimates of the taxes to be imposed, and appropriated for a term of years, for extinguishing principal and interest? How exactly has not the account between the state and the bank been carried on from 1695, to this day? How faithfully have not all parliamentary engagements been observed? When, in 1749, a most natural operation was performed, to reduce the interest of the debt of Great Britain, by gentle steps, from 4 to 3 _per cent._ what an outcry did it not make, although an alternative was left to the creditors, either to receive an actual reimbursement, or to accept of the new terms? The credit of Great Britain must have appeared to France in the light of a pettish child, educated in the house of a too indulgent parent: her own is not treated with such gentleness; and when our money-jobbers try their hand at Paris, and meet with disappointments from unexpected acts of council; to prevent the laugh going against them, for trusting to the credit of France, they turn it off by a jest, and pretend that they were only playing as at the Groom-Porter’s, or in Change-Alley.

In a word, what would totally ruin the credit of England, does not equally affect that of France. An act of power there, no doubt, throws a damp upon it for a time; and if that act of power takes place at a critical juncture, it may cost her very dear; as it has lately cost her the continent of North America; which, I think, was sold for 32 millions, withheld from her creditors, for a short time, in the end of 1759. But this act of power, and many others since, have not ruined the credit of France: many trust her still; only those who purchase in her funds, at present, take about 2 _per cent._ off from their interest, as a premium for the insurance of her good faith, until she recovers her mercantile reputation[23].

Footnote 23:

Money invested in the French funds, _anno_ 1766, will bring the
purchaser 6 _per cent._ This I consider as 4 _per cent._ for the
interest, and 2 _per cent._ premium for the risk; and were she now to
borrow any considerable sums, I suppose the insurance would rise in
proportion.

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CHAP. V.
_Of the present state of public Credit in Great Britain._

We have, in a preceeding chapter, given a general view of the state of public credit in England, at the end of the last century. In this, I shall briefly run through the most remarkable revolutions, both in sentiments and events, which have succeeded since that time.

At the revolution the revenue of England was about two millions sterling, affected by two debts. The first was called the bankers debt, contracted by Charles II. and, by letters patent, charged upon his hereditary excise, to the amount of upwards of 1 300 000_l._ This debt was reduced to one half, in the last years of King William, and put at 6 _per cent._ perpetual annuity, to commence from 1706. The other was a debt of 60,000_l._ due to that Prince’s servants, neglected to be paid by his successor, and discharged after the revolution.

At the peace of Ryswick, the national debt amounted to about 20 millions. The branches of taxes subsisting at the revolution, and continued till then, produced no more than about 800,000_l_.; but by additional taxes laid on in the reign of King William, the whole revenue extended to 3 355 499_l._ of which above one million was to cease before 1700, as has been said. This reduced the revenue, at the beginning of Queen Anne’s reign, to nearly what it had been at the revolution: out of which if we deduct the interest of the national debt then subsisting, and the expence of the civil list, we shall discover the extent of the funds prepared for engaging in the war with France; and then by comparing the state of the nation at her succession, with what it was at her death, we shall form a general notion of the progress of credit, debts and taxes in England during that period.

The revenue of England at the accession of
Queen Anne may be stated at about £2 272 000
The debts subsisting on the 31st of
December 1701, were £6 748 780
—————————
Upon which the annual interest was 566 165
Queen Anne’s civil list[24] 600 000
—————————
Which two sums amounting to 1 166 165
Being deducted from the revenue, there will remain ——————————
for the current service of the state 1 105 835

Footnote 24:

The Queen got from parliament 700,000l. for her civil list; but she
immediately ordered 100,000l. to be annually paid to the uses of the
war.

What the exact amount of the revenue of England was at the death of the Queen, I cannot justly say. But as it may be comprehended under the three general branches of customs, excises, and other inland duties, we may form a guess at it, though imperfectly I allow, from the number of articles in each.

At her accession, the customs comprehended fifteen articles; at her death they amounted to thirty-seven: at her accession, the excises comprehended ten articles; at her death, they amounted to twenty-seven: at her accession, the other inland duties comprehended eight articles; at her death, they amounted to sixteen, including the land tax, then become in a manner perpetual, although laid on from year to year.

At her accession, the public debts amounted (as above) to near seven millions, at her death they exceeded fifty millions.

In fourteen years, from the revolution to her accession, the money granted by parliament, partly raised on the subject, and partly borrowed, or taken credit for, according to the custom of the times, amounted to above fifty-five millions. During the 13 years of Queen Anne, the money granted by parliament raised on the subject, or borrowed as above, amounted to upwards of 80 millions.

By this general sketch I do not mean to enter into exact details: facts must be sought for in books which treat of facts; our chief object is to examine the principles upon which the public credit was supported, let the exact sum of money raised be what it will.

The expences of the French war first engaged the nation to revive those taxes which had been suppressed; and to impose many others for a considerable number of years, in proportion to the money borrowed upon them, according to the principles of the former reign.

In 1702, interest was so low, that government got money at 5 _per cent._ It continued so till 1704, when some loans began to be made at 6 _per cent._ and at this rate it stood during the war.

But in 1706, the exigencies of government were far greater than what all the money to be borrowed, or raised on the subject, could supply. This opened a door to the abuse of paying the growing deficiencies upon the taxes with exchequer bills, chargeable on distant funds. These fell constantly to great discount; and the unhappy servants of the state, who received them in payment, were obliged to dispose of them to people who could wait for an usurious reimbursement by parliament.

When those exchequer bills had once got into the hands of the monied people, they had interest with government to engage the bank to circulate them at 6 _per cent._ interest: but as the funds upon which they were secured happened at that time, 1706, to be engaged for discharging debts previously contracted, the bank, during that interval, could receive no payment of this interest of 6 _per cent._ so the expedient fallen upon, was to pay the bank compound interest for all the tallies and bills they were to discount, until the funds appropriated should be relieved.

This expedient, bad as it was, and burdensome to the state in the highest degree, proved of infinite service, both in establishing the credit of exchequer bills, and relieving those who received payment in them.

This operation was quite similar to those of banks of circulation upon mortgage. The bank of England was here employed in converting into money exchequer bills, secured upon the faith of government. Banks upon mortgage convert into money the property of individuals, upon private security. Had, therefore, banks upon mortgage been established in England at this time, all those who had property would have got credits from them, and would have been enabled thereby to pay their taxes, and carry on their industry, without diminishing their consumption. The exchequer would then have had no occasion to issue discredited bills and tallies for making up deficiencies; because taxes would have been productive, and the state would have been relieved of this excessive burden of interest at 6 _per cent._ accumulated quarterly in favour of the bank.

What extraordinary profit must have accrued to the bank by this operation, every one must perceive. They were not here procuring funds to lend at a great expence; all they did was to augment the quantity of their paper upon government security; which they knew well would be suspended in the common circle of payments within the country; and the public borrowings were sufficient to furnish credit for the sums sent out of the country. In this view we may conclude, that almost the whole accumulated interest paid, was pure profit to the bank, and a great augmentation of the national debt.

This operation of the bank in 1706, did not prevent subsequent deficiencies, in the payment of the navy, army, ordnance, and of many other articles. In 1710, they amounted to above nine millions sterling. This was too great a sum to be borrowed; and the bank durst not venture to discount more than what domestic circulation could suspend: so that after this great debt had circulated upon the discredited obligations which had been issued for it, and in that way had fallen again into the hands of monied people, at 30 and 40 _per cent._ below par, the new proprietors of it were all incorporated into one great company, with a governor and directors, who got 6 _per cent._ for the whole capital, with an allowance of 8000_l._ a year for charges of management.

Thus all the real creditors for these deficiencies lost the discount; the monied people gained it, and the public paid for all.

When credit is in this languid state, every expence of government rises in proportion to the discredit of the paper with which they pay, till at last the whole sum, with interest, accumulation, and expence, falls upon the state, as if every farthing of it had been frugally expended in ready money.

This is a general view of the state of credit in Queen Anne’s reign.

Government had not, as in the former war, the inconveniences flowing from the disorder in the coin to combat with. These contributed more than any other circumstance, to raise the capital of the debts at the peace of Ryswick. Circulation, too, was considerably augmented, in consequence of the increase of taxes, public debts, and the operation of the bank in circulating exchequer bills and tallies. Yet money was still scarce, in comparison of what it might have been, had proper methods been contrived to preserve it upon a level with the occasions for it.

The incorporation, also, of nine millions capital in the hands of a corporation, which afterwards was called the South Sea Company, was an assistance to public credit, by increasing a monied interest, the principal view of which was to fill the government loans, on the lucrative conditions offered for them. And last of all, the strictly adhering to the public faith of engagements, without seeking, by acts of power, to indemnify the state for the losses it had been obliged to incur, from the circumstances of the times, laid the solid basis of national credit for the future.

Although the many additional taxes added to the former revenue, did not increase it in any proportion to the load laid upon the subject during this war, they served, however, as a good foundation for improvement, as soon as the effects of peace restored them to their full production. But the charges laid upon them having become every year greater, government was obliged to engage certain funds for thirty two years to come, and sometimes longer; and many branches of taxes, which formerly had been granted for short terms, were then made perpetual. After the peace of Utrecht, the expences of the state were greatly diminished, and money began to regorge: so that in the year 1716, the first foundation of the sinking fund was laid, by opening a subscription for paying off about ten or eleven millions sterling, at that time, charged upon several branches of taxes, the produce of which amounted annually to 724 849_l._ sterling.

The proprietors of these debts were allowed to subscribe into this new fund, at an interest of 5 _per cent._ redeemable by parliament: and in case the whole subscription should not fill at that rate, the bank and South Sea company became bound to make it up, upon receiving a like annuity in proportion to their subscriptions.

The bankers debt, of which we have spoken, the only public debt owing at the revolution, made part of those which were to be subscribed for.

The taxes which had been appropriated for the discharge of those capitals, from temporary, were made perpetual; with a clause added, that when the surplus of the fund, after payment of interest, had discharged the capitals of all the national debt due the 25th of December in that year, the whole produce of the fund itself should remain at the disposal of parliament.

After this first operation in reducing the interest, the bank was satisfied with a reduction to 5 _per cent._ of that paid to them; and they began to circulate exchequer bills at a more moderate interest than formerly.

Public credit was now daily gaining ground. In 1719, the South Sea company, whose capital was then swelled to eleven millions at 5 _per cent._ with a sum of 9397_l._ sterling for the expence of management, enlarged their views; and finding great profits to arise from such a fund under one administration, formed a project of acquiring a large sum of the public debts, which remained outstanding upon the original funds appropriated for them.

For this purpose they proposed to government to acquire, 1. The property of above 16 millions of redeemable debts, bearing then 4 and 5 _per cent._ interest; and to reduce the whole to 4 _per cent._ at midsummer 1727. 2. To acquire a sum of 794 000_l._ of annuities upon lives, and for long terms, as they should agree with the proprietors, at 5 _per cent._ upon the purchase-money, until 1727; and at 4 _per cent._ afterwards. Annuities were then valued at fourteen and twenty years purchase, according to their length: they rose, however, during the operations of the South Sea, to 25 and 30 years purchase. 3. They were to have a sum added to their former allowance for the charge of management, in proportion to this augmentation of their stock. 4. That for the advantage which might follow upon this agreement with government, they were to pay into the exchequer above seven millions sterling, toward discharging other national debts outstanding. And in the last place, they engaged to circulate a considerable sum of exchequer bills, and to pay the interest of 2 pence _per cent. per diem_, which should grow upon them during seven years[25].

Footnote 25:

After the long and particular account I have given of the Missisippi,
I shall not enter into a like detail, concerning a scheme which
proceeded upon the very same principles; to wit, the artificial
raising the value of a stock, by promising dividends, out of funds
which were nowise proportioned to them. I shall therefore, in a very
few words, compare some of the operations of the South Sea scheme,
with those of the Missisippi; and in doing it, point out the principal
differences between them.

The great profits upon the Missisippi were expected from the interest
paid by government for the great loan, the farms of the revenue, and
the profits upon their trade.

Those of the South Sea were, at setting out, 1. The profits upon their
trade: 2. The allowance made them: 3. The difference of receiving 5
_per cent._ for the money they laid out in purchasing the public
debts, when money was at 4 _per cent._ as it was when the scheme was
set on foot: and 4. The surplus money subscribed into the stock above
par, in consequence of the artifices used to enhance the value of it.

The seven millions they were to pay to the state, seemingly for no
value received, were a sort of compensation for receiving the 5 _per
cent._ for 7 years, at a time when money was worth no more than 4 _per
cent._

These advantages raised, at first, the value of the original stock of
eleven millions. The consequence was, that the proprietors of the 16
millions of the redeemable debts, which were to be bought in when they
came to subscribe their capitals into the new stock, transacted them
at a proportional discount; which discount, being good against the
government in favour of the company, served to discharge
proportionally the seven millions the company was to pay. This gave an
additional value to the stock; and so it rose, greatly indeed above
that proportion. Then the company promised a dividend of 10 _per
cent._ for one half year, upon their capital, at midsummer 1720; this
dividend was to be paid in stock, which was constantly rising in its
value; but no information was ever given the public concerning the
funds which were to produce this dividend; so every one concluded that
there were hidden treasures in their hands, which enabled them to
promise such large dividends. Accordingly, stock rose from 300 _per
cent._ to 375; then to 400, and at last to 1000 _per cent._; and in
proportion as it rose, the wealth of the former subscribers augmented
from the surplus above par, paid by the latter, and those who
subscribed last, bore all the loss upon the blowing up of the scheme.

But one great difference between the South Sea and Missisippi, was
this: That in France there was abundance of money in the hands of the
public, for purchasing the actions, at the exorbitant price to which
they rose; but in England there was not: consequently, in France, the
rate of interest fell to 2 _per cent._ and in England, the great
demand for money to borrow, raised it beyond all bounds.

Those who subscribed in money, paid down no more than 10 _per cent._
at subscribing; but became bound to pay up the remainder. But when the
stock tumbled, people were better pleased to lose the 10 _per cent._
they had paid, than to pay up the remaining 90 _per cent._ according
to the terms at subscribing. Those indeed who subscribed their former
capitals at a vast discount, did not labour under the same
inconvenience of want of money; but that discount became as real a
loss to _them_, as the cash subscribed became a loss to the money
subscribers, the moment that those who were in the secret, and who, by
the most infamous chain of artifices, had blown up the public frenzy,
began to realize and sell out, and that the whole was discovered to be
a cheat. So that upon the whole, the English scheme had much less
foundation than the French. The first blew up from an absolute
necessity, and for want of any bottom at all; the last from
misconduct, and rather from folly than knavery. I return to an account
of the scheme.

The original capital of the South Sea company, was 11 750 000_l._: the
redeemable debts they were to purchase in, amounted to 16 750 000_l._;
and the value of the irredeemable, or what were called the _absolute
terms_, was computed at 15 058 000_l._ together 31 808 000_l._
sterling.

The proprietors of this original capital of 11 750 000_l._ consulted
their own advantage only, in purchasing in this large sum of debts,
which were to be converted into additional stock; and therefore
sounded very high the great advantages of such a transformation of
them; 1_mo_, From the profits of the trade, which they were to enjoy
exclusively. And, 2_do_, From the great addition to their wealth, from
the constant rising in the price of their stock. They carried their
views to nothing less than obtaining a majority in the house of
commons, by the weight of their wealth, and of becoming the absolute
rulers of the nation.

The public being from the beginning intoxicated with such ideas,
subscriptions for stock were opened at 200 _per cent._ above par; and
some of the proprietors of the 31 808 000_l._ subscribed at first
their capitals at a proportional discount; that is, they made over a
debt of 100_l._ for 33⅓ in South Sea stock; and successively, the
subscription rose to 1000 _per cent._ These immense profits being
incorporated into the gains of the general stock, were proportionally
shared by the subscribers themselves, who became proprietors; and the
higher the stock rose, the more these gains augmented. This influenced
the infatuation; and the dividends augmenting in proportion to the
price of subscription, there appeared no end of the rising of the
stock.

The first dividend offered, as has been said, was 10 _per cent._
half-yearly, in stock: this was afterwards converted into no less than
30 _per cent._ in money, for that half-year: and when stock rose to
1000, a dividend of no less than 50 _per cent. per annum_, in money,
was promised for twelve years to come.

Had stock risen to 2000 _per cent._ the dividend could have as easily
been carried to 100 _per cent. per annum_, as it had been to 50 _per
cent._ when at 1000.

But whence was this dividend to be paid? The company and the directors
took good care never to give to the public any light as to that
particular.

To prevent, therefore, such abuses in the rising of the South Sea, it
ought to have been provided by parliament, that in taking in
subscriptions, and offering dividends, the directors should have
informed the public, 1_mo_, Of the money owing to them by government.
2_do_, Of the money gained by the subscriptions above par. And 3_tio_,
Of the profits upon their trade. And, on the other hand, of the debts
due by them; and of the nett balance upon their books, in their
favour.

This would have been fair dealing. But to pretend the necessity of
secrecy, in a point where a nation is interested, was in itself a mere
pretext; and had it been otherwise, it might have been answered, that
a company which is obliged to have recourse to such secrets, ought to
be prevented from dealing with those who were to remain ignorant of
_them_, however deeply interested.

From the operations we have been describing, we perceive, that the point of view in England, from the peace of Utrecht, has always been to reduce the interest of the national debt; but never to leave in the hands of the creditors, any part of the savings made; in order to diminish the capital. These savings have constantly been thrown into a sinking fund, _supposed_ to be intended for extinguishing the capital; and were it employed for that purpose for a few years only, and not diverted to other uses, I am persuaded the consequence would be, to reduce interest in England lower than ever perhaps it has been seen in any nation. That interest may be reduced, by making money regorge in the hands of the lenders, is, I think, an uncontroverted principle: that by regorging in France, _anno_ 1720, it reduced interest to 2 _per cent._ is a fact indisputable. I shall not pretend to say positively, that the total appropriation of the sinking fund, and an augmentation upon annual grants, to make up the void, would in Great Britain work this effect in a few years; but I think it is very probable that it would: and if the domestic creditors, in any state, where debts, _due to strangers_, are swelled to such a height as to exceed the whole profits made upon trade, shall by their influence, and from a motive of present advantage, obstruct a scheme of this nature; the consequence will prove, in the first place, to discourage, and then totally to extinguish commerce, and in a little time to occasion an unavoidable bankruptcy; as shall be farther explained in a succeeding chapter. I return to the South Sea company.

The proposal of the South Sea company, mentioned above, was accepted of, and ratified by act of parliament, 6 Geo. I. chap. 4th. But the disaster which befel credit, in consequence of the ambitious views of those who were in the administration of that company, prevented the nation from reaping all the advantages which might have proceeded from it.

The reign of K. George I. though little disturbed by foreign wars, produced not the smallest diminution upon the capital of the public debts; and those which subsisted at the peace of Utrecht, stood, at his death, at 50 354 953_l._ The same taxes subsisted; and every one almost was by this time made perpetual, except indeed the land tax and malt duty, which to this day continue to be annual grants.

But alas! this apparent revenue, arising from a multitude of taxes, was of no use towards defraying the smallest _extraordinary_ expence of government. Every article of it was engaged for debts; and the operations for reducing the interest were calculated only to produce a fund for discharging the capital. The civil list, indeed, that is to say, the expence of civil government, exclusive of army, navy, ordnance, and incidental articles, was paid from the permanent taxes, and considered as a charge upon them. But were not armies and navies then become as regular an expence upon every state in Europe as judges and ambassadors? Undoubtedly they were. Yet after the peace of Utrecht, in laying down the plan which has constantly been followed ever since, for defraying the regular expence of British government, these two great and unavoidable expences were considered as contingent only, and provided for by annual grants: and because armies, in time of peace, in former reigns, had proved dangerous to liberty from the abuse of power, they were still considered in the same light, at a time when liberty and trade were continually threatened from their armed enemies and rivals abroad.

When the continuance of peace, in the reign of George the First, had produced the effect of reducing interest, on many occasions, to 3 _per cent._ the sinking fund began to gather strength. The land tax, from the year 1722, had not exceeded two shillings in the pound; and the _extraordinary_ expence of government, according to the annual grants of the 13 years of his reign, did not exceed 34 800 000_l._ or 2 670 000_l._ a year.

Public tranquillity was very little disturbed during the first twelve years of the succeeding reign; and all the _extraordinary_ expence did not much exceed three millions _per annum_: yet that expence, small as it was, compared with what it has been since, was almost every year made out, by taking one million at least from the sinking fund; and in the years of the least expence, such as 1731 and 1732, the land tax was reduced to one shilling in the pound, at the expence of taking two millions and a half from the sinking fund.

These steps of administration I neither censure, or approve of. I must suppose every statesman to have good reasons for doing what he does, unless I can discover that his motives are bad. May not the landed interest, who composed the parliament, have insisted upon such a diminution of their load? May not the proprietors of the public debts have insisted on their side, that no money out of the sinking fund should be thrown into their hands, while the bank was making loans upon the land and malt duties at 3 _per cent._? Might not the people have been averse to an augmentation of taxes? When three such considerable interests concur in a scheme, which in its ultimate, though distant consequences, must end in the notable prejudice of perpetuating the debts, although opportunities offer to diminish them, what can government do? They must submit; and which is worse, they cannot well avow their reasons.

Such combinations must occur, and frequently too, in every state loaded with debts, where the body of the people, the landlords, and the creditors, find an advantage in the non-payment of the national debt. It is for this reason that I imagine, the best way to obviate the bad consequences of so strong an influence in parliament, would be, to appropriate the amount of all sinking funds in such a manner, as to put it out of a nation’s power to misapply them, and by this force them either to retrench their extraordinary expences, or to impose taxes for defraying them.

The second period of George IId’s reign, was from the breaking out of the Spanish war in 1739, to the peace of Aix-la-Chapelle in 1748. During these ten years, (1748 being included) the extraordinary expence was, upon an average, very near seven millions; and at the end of the year 1738, the public debts amounted to 46 661 767_l._ bearing 1 962 053_l._ interest.

The first expedient for borrowing money during the war, was to continue the duty on salt for seven years; and to mortgage it at once for 1 200 000_l._ according to the old plan. To this was added, the expedient of lotteries, and loans upon indeterminate annuities, according to the current value of money.

An additional excise upon spirituous liquors, brought in wherewithal to compensate these additional sums of interest; and the East India company, for lending one million at 3 _per cent._ upon this occasion, had their charter continued from 1766 to 1780. This operation I also consider as an anticipation; and as it was to commence at the distance of 23 years from the time of the grant, could not fail of being very burdensome to the nation, however convenient it might be at that particular time.

Were the India company now, 1766, to purchase the renewal of their charter for 14 years, what a sum might be expected from it! Yet the value given for the grant they then obtained did not exceed 30 000_l._ because the other annuities of 3 _per cent._ were sold at that time for 97_l._ or, in the language of the funds, at 3_l._ premium for every 100_l._ subscribed; and this so early in the war as 1743.

The practice of borrowing upon premiums had taken place in Queen Anne’s reign, and has of late years been very common. The credit of Great Britain is so firmly established, that in whatever way government inclines to borrow, the money’d men are willing to lend, provided the loan be made at the then rate of interest.

To avoid therefore the establishment of funds at different rates, in proportion to the fluctuations of money, the bargain is made at one determinate interest. Suppose, for an example, 3 _per cent._ Then, according as it is found to rise above that rate in the market, a premium is paid out of the money subscribed; as in this case 3_l._ was paid out of the 100_l._ subscribed; that is, the subscriber retained it, and obtained his 3_l._ annuity, for the payment of 97_l._ so this remained a 3 _per cent._ loan, instead of being, as it really was, at 39⁄97 _per cent._ and was sold and transferred as every other 3 _per cent._ without occasioning any perplexity.

As the war continued, interest rose, from the demand for money, when the supplies became deficient.

The year following, viz. 1744, this manifested itself, by the conditions offered by government, which were: That, of two millions to be borrowed at 3 _per cent._ as before, upon the whole sum, 1 500 000_l._ should be formed into perpetual annuities, and the remaining 500 000_l._ into a lottery, consisting of 50,000 tickets, to be sold at 10_l._ each. The original subscribers to this loan subscribed therefore 10_l._ for the ticket, and 30_l._ for the annuity, in all 40_l._; for which they were to receive 3 _per cent._ But the premium consisted in this; that every subscriber for 10 tickets, that is, 400_l._ of the total fund, had an annuity for life given to him of 4_l._ 10_s._

This made five thousand annuities on lives, of 4_l._ 10_s._ each, or 22 500_l._ a year to be added to the interest of 3 _per cent._ on the two millions, that is, to 60 000_l._ a year of perpetual annuities. So that the whole loan of two millions this year cost government 82 500_l._ of interest, or 4⅛ _per cent._; 22 500_l._ of which was to extinguish with the lives of the subscribers.

Now, if we suppose these life-annuities worth 20 years purchase[26], this was the same thing as if government had given a deduction of 90_l._ out of the 400_l._ subscribed; consequently the remainder, which was 310_l._ produced 12_l._ This makes the rate of interest upon the loan to have been 3.87 _per cent._ And as government inclined that the loan should be made in that way, the lenders were willing that it should be so; and the difference between 3.87 _per cent._ (the then rate of money) and 4⅛ interest, which was paid by government, was a sinking fund, as it were, for the gradual extinction of the capital of the lottery for 500,000_l._ during the lives of the annuitants.

In 1746, perpetual or indeterminate annuities were constituted at 4 _per cent._ and the premium upon the ten lottery tickets was raised to 9_l._ life-annuity.

It would be unnecessary to trace the various methods of contriving the premiums given in the succeeding years of this war. The principle upon which they were regulated was always to proportion them to the rate of interest at the time; and the motive was, I suppose, that by this method of borrowing, a part at least of the debt would become extinguished with the lives of the subscribers. There might perhaps be another, to wit, that by swelling the capital, for value not received, there was an appearance of borrowing at a lower rate of interest than what in reality was the case. Thus in 1747, when 6 300 000_l._ were borrowed, instead of giving not quite 4½ _per cent._ for this sum, they gave 4 _per cent._ upon 6 930 000_l._ which capital, although money should return to 3 _per cent._ was still to stand at its full value; whereas, had 6 300 000_l._ been borrowed at 4½ _per cent._ there would have been a saving of 600 000_l._ upon the capital; and at the peace, the interest of 4½ _per cent._ would equally have come down to 3 _per cent._ with the other funds.

Footnote 26:

This may seem a high valuation, and is, in fact, far beyond what any
of those annuities sold for: but as the interest of money cannot be
estimated, for a constancy, at more than 3 _per cent._ and that
probably the best lives were chosen, the value to government of such
annuities may well be estimated at 20 years purchase. By De Moivre’s
tables, annuities for the most favourable ages, interest being at 3
_per cent._ are valued at 19.87 years purchase; and his valuations are
generally allowed not to be too high.

During this first war of George the Second, the land-tax was constantly at 4_s._ in the pound; and new branches of customs, excise, or other inland duties, were created in proportion to the swelling of the national debts, which, on the 31st of December 1748, amounted to 78 293 313_l._ sterling, bearing 3 005 325_l._ interest; and the sinking fund, or surplus of all permanent taxes then imposed, after paying the civil list, and the interest upon this capital, amounted to 1 060 948_l._ sterling. During this war, the debts were increased above what they were at the end of 1738, by 31 631 546_l._ sterling capital, and by 1 043 272_l._ of interest or annuities.

The war was no sooner over, and the national expence diminished, than money began to regorge in the hands of the monied interest: an infallible consequence of such a violent revolution, when extraneous circumstances, such as occurred after the peace 1763, do not prevent it.

To profit of this conjuncture, government, early in 1749, proposed that all the public creditors upon capitals bearing 4 _per cent._ interest, redeemable by parliament, and amounting to upwards of 57 millions, who should accept of 3 _per cent._ from December 1757, should have their debts made irredeemable until that time; and in the interval should continue to have 4 _per cent._ till December 1750; and 3½ _per cent._ from thence, until the total reduction to _per cent._ in December 1757.

This bold undertaking had the desired effect. Many obstacles were thrown in the way; but the regorging capitals in the hands of many, made every one fear the reimbursement for himself; and the credit of France was then so low, that very few chose its funds as an outlet for their superfluous money.

But an outlet, unfortunately, was not wanting at the end of the last war in 1763, as we shall shew in its proper place.

Here then is a notable instance of the effects of regorging money. A small sum, when compared with a nation’s debt, operates upon the whole capital; as a small balance upon trade affects the whole mass of reciprocal payments.

The reimbursement of 57 millions offered by government, in 1749, was, to the conviction of all the world, an impracticable scheme; but the stockholders seeing a large sum ready to be subscribed, at the interest offered, and feeling the effects which that regorging money must, in all events, have produced, willingly, and wisely perhaps, consented to the offer made them. Had they refused, and had the scheme proposed become abortive thereby, perhaps the nation might have been so far animated against the creditors, from the disappointment, as to have consented to be at the expence of defraying the service of the following years, without encroaching upon the sinking fund. What effect this would have produced upon the rate of interest, in that conjuncture, no man can tell, nor will the real consequence of such a measure ever be known, until the happy trial be made. That it would have brought interest below 3 _per cent._ in December 1757, is, I think, evident: for as matters stood, had the creditors of 57 millions been able to hold out, I must do them the justice to believe, they would not have consented to the proposal made to them; and an addition of all the sinking fund thrown among them annually, at a time they could not dispose of what they had, upon better terms than those offered them, would undoubtedly then, as at all times, operate a very great national relief, in bringing down the interest.

During the tranquillity which continued from the peace of Aix-la-Chapelle, in 1748, to the commencement of hostilities in 1755, the money expended for extraordinary services amounted on an average to above four millions _per annum_. The expence of government was then increased, by supporting the colonies, and by several great and uncommon outgoings at home, for purposes mentioned in the supplies of those years.

A little before the breaking out of the last war, that is to say, on the 5th of January 1755, the national funded debt was reduced to 72 289 674_l._ upon which was paid an annuity of 2 654 500_l._ and the sinking fund amounted to 1 308 814_l_[27]. At the end of 1763, the year of the peace, the funded debt amounted to 130 586 789_l._ 10_s._ besides above 9 millions not provided for. So that at the end of last war the national debt exceeded 140 millions; besides the value of the annuities granted in 1757, 1761, and 1762. Hence it appears, that the war occasioned an augmentation of upwards of 58 297 116_l._ upon the funded national debt; besides the difference between the unfunded debts at the beginning and end of the war; and also the value of those annuities[28].

Footnote 27:

To this funded debt must be added the unfunded debt, which I do not
know exactly; and the value of the annuities granted in 1745, and
1746.

Footnote 28:

The annuities of 1757, are estimated, by the author of the
Considerations on Trade and the Finances, at 472 500_l._ or at 14
years purchase; and the annuities of 1761, 1762, at 6 826 875_l._ or
at 27½ years purchase. But this valuation seems too low, for the
reasons given in the note, p. 394.

I shall, before I conclude this chapter, present a short scheme of the state of the nation at that time: but first let us take a view of the methods used to borrow so large a sum in the short period of eight years.

Until 1757, money was borrowed by government, at a little above 3 _per cent._ but then a loan of 5 millions being necessary, government consented to create annuities of 4½ _per cent._ irredeemable for 24 years. By this expedient the monied people eluded the operation of reducing the interest of this fund, upon the return of peace. How far this expedient was to be preferred to the former, of increasing the capital beyond the money paid; or whether it would not have been still better to have paid for the money wanted, according to the current rate of interest in the market at the time, waiting until a peace might afford a favourable opportunity of reducing it, I shall not take upon me to determine.

I have observed how rash it is for any one to censure acts of administration, when the motives of a statesman’s conduct are unknown. This, however, I have sometimes ventured to do, in speaking of things which happened many years ago; but we ought to be more cautious as we come nearer to our own times, because not having, as in this case, a course of experience to point out the errors, we must entirely rely upon our own sagacity, and reason only from analogy.