Chapter XIII: Part III: Sect. I (2)

There are some casual Receipts, not included in the Sinking
Fund, such as Savings in Pay-Office, duties on Gum Senega,
American Revenue, &c. But they are so uncertain and
inconsiderable, that it is scarcely proper to give them as
a part of the permanent Revenue. Add however on this account 50,000
---------
Total of unappropriated Revenue £. 4.460,759

_Produce of the SINKING FUND, reckoned to Christmas in every Year._

1770 £. 2.486,836
1771 2.553,505
1772 2.683,831
1773 2.823,150
1774 2.731,476

The average of these five years is 2.655,759l. or, deducting 45,000l. (as directed in the last page), 2.610,759l.

In 1775, the Sinking Fund was taken for 2.900,000l. including an extraordinary charge of 100,000l. on the _Aggregate_ Fund; but it produced 2.917,869l. The average of six years, including 1775, was 2.654,443l. The average of five years before 1770, was 2.234,780l.

ANNUAL EXPENDITURE.

£.

Peace Establishment, for the Navy and Army, including
all miscellaneous and incidental expences 3.700,000

Annual increase of the Navy and Civil List debts 350,000

Interest at 2 _per cent._ of 3.600,000l. unfunded debt,
which must be paid out of the unappropriated Revenue 72,000

---------
Total 4.122,000
ANNUAL SURPLUS of the Revenue 338,759
---------
Annual income £. 4.460,759

The estimate for the peace establishment, including miscellaneous expences, amounted, in 1775, to 3.703,476l.—But the extraordinary expences, occasioned by the war with America, made it fall very short.—In 1774 it amounted to 3.784,452l. exclusive of 250,000l. raised by Exchequer Bills, towards defraying the expence of calling in the gold coin. And the medium for eleven years, from 1765, has been nearly 3.700,000l.—According to the accounts which I have collected, the expence of the peace establishment (including miscellaneous expences) was in 1765, 1766, and 1767, 3.540,000l. _per ann._—In 1768, 1769, and 1770, it was 3.354,000l. _per ann._—In 1771, 1772, 1773, 1774, and 1775, the average has been nearly four millions _per ann._ exclusive of the expence of calling in the coin.

* * * * *

The parliament votes for the sea service 4l. _per_ month _per_ man, including wages, wear and tear, victuals and ordnance. This allowance is insufficient, and falls short every year more or less, in proportion to the number of men voted. From hence, in a great measure, arises that annual increase of the navy debt, mentioned in the second article of the _National Expenditure_. This increase in 1772 and 1773 was 669,996l. or 335,000l. _per ann._ The number of men voted in those two years, was 20,000. I have supposed them reduced to 16,000, and the annual increase of the Navy Debt to be only 250,000l.—Add 100,000l. for the annual increase of the Civil List Debt, and the total will be 350,000l.

* * * * *

Soon after the publication of the preceding account in _February_ last year, the EARL OF STAIR obliged the public with another account of the same kind, which brings out a conclusion much more unfavourable. According to this account, were lotteries abolished, and the land-tax at 3s. in the pound only, there would be a _deficiency_ in the revenue, instead of such a _surplus_ as I have stated. The following remarks will shew the reason of this difference.

The EARL OF STAIR has taken the annual produce of the _Sinking_ Fund at 2.506,400l. being the average produce of EIGHT years ended at _Lady day_ 1775.—I have taken it at 2.610,759l. being the average of FIVE years ended at _Christmas_ 1775.—The neat produce of the land and malt taxes has been also taken near 50,000l. higher in my account; and I have besides admitted 50,000l. _per ann._ for casual supplies, which his Lordship has not charged.

The annual increase of the Navy Debt, LORD STAIR states at 300,000l. and of the Civil List at 200,000l. I have stated the former at 250,000l. and the latter at 100,000l.—In order also to avoid, as much as possible, all exaggeration, I have thrown out the expence of the new coinage. Lord Stair has admitted it, and given an yearly expence derived from hence of 100,000l.—He has also taken the Peace Establishment for 1774, as a fair medium for common years of peace, because it was lower in that year than in the three years preceding 1775. I have taken the average of _eleven_ years of peace, which is 75,000l. less.

In consequence of these differences, the national PEACE expenditure in _Lord Stair_’s account comes out 325,000l. _per ann. higher_ than in mine; and the national income comes out 204,359l. _lower_; from whence it follows, that without lotteries, and the land being at 3s. in the pound, the kingdom must, according to his Lordship’s calculation, run out at the rate of about 200,000l. every year.

In some of the particulars I have mentioned, this account is probably nearest to the truth; but, I hope, it will be considered, that I have studied to give moderate accounts, and aimed at erring always rather on the favourable than the unfavourable side.

_Second Method of deducing the SURPLUS of the REVENUE._

From the year 1763 to the year 1775, or during a period of 12 years, 10.639,793l. of the public[129] debt was paid off.—The money employed for this purpose must have been derived from the surplus of the _ordinary_ revenue, added to the _extraordinary_ receipts. These receipts have consisted of the following articles.—1st. The land-tax at 4s. in the pound in 1764, 1765, 1766, and 1771; or 1s. in the pound extraordinary for four years, making 1.750,000l.—2. The profits of ten lotteries[130] making (at 150,000l. each lottery) 1.500,000l.—3. A contribution of 400,000l. _per ann._ for five years from the EAST INDIA Company, making 2.000,000l.—4. Savings by debts discharged at a discount,[131] making at least 400,000l.—5. Paid by the Bank in 1764 for the renewal of their charter, 110,000l.—6. Savings on high grants during the war; produce of _French_ prizes taken before the declaration of war; sale of lands in the ceded islands; and composition for maintaining _French_ prisoners,[132] making 2.520,000l.—All these sums amount to 8.280,000l. There remains to make up 10.639,793l. (the whole debt discharged) 2.359,793l. and this, therefore, is the amount of the whole surplus of the _ordinary_ revenue for twelve years; or 196,000l. _per ann._[133]

The Earl of STAIR has also, in this method, calculated the _surplus_ of the Revenue; and makes the total, for eleven years, to be no more than 2.557,378l. even with the assistance of lotteries, and the land-tax at 4s. in the pound for five years; from whence it follows, that _without_ these assistances, there would have been a deficiency of near 60,000l. _per ann._—The reason is, that his Lordship has taken the whole debt paid since 1763, at no more than 7.053,855l. or three millions and a half less than I have made it; and he has taken it so much less, chiefly in consequence of including in the amount of the public debt in 1775, the excess of the expences of that year above the common peace expences. This excess is to be charged to the present war; and, in determining the ordinary peace _surplus_, which is my object, it was proper to exclude it, and to terminate the account at the commencement of the war.—I will only add, that Lord STAIR has also included more in the extraordinary receipts than I have; and, particularly, 700,000l. which he supposes the public gained by the TEA INDEMNITY.—But this was only a compensation made by the _East-India_ Company for the loss which the public sustained by taking off, in 1766, a part (or 1s. _per_ pound) of the duty on tea. In 1772 it was restored; and the excise upon tea has since, if I am rightly informed, produced as much as ever. _Before_ 1766, it produced annually 474,091l. Immediately[134] after 1766, it produced 341,284l.—But in 1775, it produced near half a million.

_Sketch of an Account of the Money drawn from the Public by the Taxes, before the Year 1776._

£.

CUSTOMS in ENGLAND, being the medium of the payments
into the Exchequer, for 3 years ending in 1773[135] 2.528,275

Amount of the EXCISES in ENGLAND, including the malt tax,
being the medium of 3 years ending in 1773 4.649,892

Land Tax at 3s. 1.300,000

Land Tax at 1s. in the pound 450,000

SALT DUTIES, being the medium of the years 1765 and 1766 218,739

Duties on Stamps, Cards, Dice, Advertisements, Bonds, Leases,
Indentures, News-papers, Almanacks, &c. 280,788

Duties on houses and windows, being the medium of 3 years
ending in 1771 385,369

Post Office, Seizures, Wine Licences, Hackney Coaches, Tenths
of the Clergy, &c. 250,000

EXCISES in SCOTLAND, being the medium of 3 years ending in 1773 95,229

CUSTOMS in SCOTLAND, being the medium of 3 years ending in 1773 68,369

Annual profit from Lotteries 150,000

Inland taxes in SCOTLAND, coinage duties, casual revenues, such
as the duties on Gum-Senega, American revenue, &c. 150,000

EXPENCE of collecting the EXCISES in ENGLAND, being the average
of the years 1767 and 1768, when their produce was 4.531,075l.
_per ann._—6 _per cent._ of the gross produce 297,887

EXPENCE of collecting the Excises in SCOTLAND, being the medium
of the years 1772 and 1773, and the difference between the
gross and nett produce—31 _per cent._ of the gross produce 43,254

EXPENCE of collecting the CUSTOMS in ENGLAND, being the average
of 1771 and 1772, bounties included, and 15 _per cent._ of
the gross produce, exclusive of drawbacks and over-entries 468,703

N. B. The bounties for 1771 were 202,840l.—for 1772, 172,468l.

The charges of management for 1771, were 276,434l.

For 1772, 285,764l. or 10 _per cent._ nearly.

Interest of loans on the land tax at 4s. expences of collection,
militia, &c. 250,000

PERQUISITES, &c. to Custom-house officers, &c. supposed 250,000

EXPENCE of collecting the Salt-duties in ENGLAND, 10½ _per cent._ 27,000

Bounties on fish exported 18,000

EXPENCE of collecting the duties on Stamps, Cards, Advertisements,
&c. 5¼ _per cent._ 18,000
----------
Total £. 11.900,505
----------

It must be seen, that this account is imperfect and defective. It is, however, sufficient to prove, that the whole money raised DIRECTLY by the taxes, (exclusive of tithes, county rates, and the taxes which support the poor,) cannot be much less than TWELVE MILLIONS. The _Earl of Stair_ has in his papers made it to be above 400,000l. more, by including in his estimate several articles which I have omitted; particularly, the interest and management on the equivalent to _Scotland_, the Scotch crown Revenues, Dutchy of _Cornwall_ and _Lancaster_ Fines, &c. He has also given an estimate of the fees and perquisites of office of every kind, and reckoned them at half a million; whereas, I have only reckoned the perquisites of office at the _Custom-house_.

I should be inexcusable were I to quit this subject, without taking notice of the particular gratitude due from the public to _Lord Stair_, for publishing his papers; and for stepping forth at this time to draw attention, by the weight of his name and character, to calculations, which, as he justly says, “it becomes every man of property among us to understand; to awaken the nation from the lethargy into which the mockery of paper wealth has plunged it; and to bear his testimony against the present unnatural war.”

POSTSCRIPT.

The following POSTSCRIPT has been published only in a few of the last Editions of the _Observations on Civil Liberty._ It has been often referred to in the preceding work; and, therefore, it is necessary to give it a place here.

_ACCOUNT of Public Debts discharged, Money borrowed, and Annual Interest saved from 1763 to 1775._

Debts paid off since 1763. Annuity decreased.
£. £. _s._
1765 870,888 funded, bearing interest at
4 _per cent._ 34,835 10
1.500,000 unfunded, 4 _per cent._ 60,000 00
1766 0.870,888 funded, 4 _per cent._ 34,835 10
1.200,000 unfunded, 4 — 48,000 00
1767 2.616,777 funded, 4 — 104,671 0
1768 2.625,000 funded, 4 — 105,000 0
1771 1.500,000 funded, 3 _per cent._ 45,000 0
1772 1.500,000 funded, 3 _per cent._ 45,000 0
1773 800,000 unfunded, 3 — 24,000 0
1774 1.000,000 funded, 3 — 30,000 0
1775 1.000,000 funded, 3 — 30,000 0
---------- ----------
Total 15.483,553 Total 561,342 0

In 1764, there was paid off 650,000_l._ navy-debt; but this I have not charged, because scarcely equal to that annual increase of the navy-debt for 1764, 1765, and 1766, which forms a part of the ordinary peace establishment. The same is true of 300,000_l._ navy-debt, paid in 1767; of 400,000_l._ paid in 1769; of 100,200_l._ paid in 1770; 200,000_l._ in 1771; 215,883_l._ in 1772; and 200,000_l._ in 1774.

_Account of money borrowed and debts contracted since 1763._

Annual interest
£ increased.
Borrowed and funded,
at 3 _per cent._ in 1765 1.500,000 45,000
in 1766 1.500,000 45,000
in 1767 1.500,000 45,000
in 1768 1.900,000 57,000
Unfunded in 1774 250,000 7,500
Civil list debt in 1775 500,000[136]
--------- -------
Total 7.150,000 199,500

From 15.483,553_l._ the total of debts discharged, subtract 7.150,000_l._ the total of debts contracted; and the remainder, or 8.333,553_l._ will be the diminution of the public debts since 1763. Also, from 561,342_l._ the total of the decrease of the annual interest, subtract 199,500_l._ (the total of its increase), and the remainder, or 361,842_l._ will be the interest or annuity saved since 1763.—To this must be added 12,537_l._ _per ann._ saved by changing a capital of 1.253,700_l._ (part of 20.240,000_l._) from an interest of 4 to 3 _per cent._ pursuant to an act of the 10th of George III.; also the life-annuities that have fallen in; and 7,500_l._ _per ann._ gained by the falling (in 1771) of 1.500,000_l._ from an interest of 3½ to 3 _per cent._; which will make a saving in the whole of near 400,000_l._ _per annum_: And it is to this saving, together with the increase of luxury, that the increase of the _Sinking-Fund_ for the last ten years has been owing.

To the debts discharged the following additions must be made.

In 1764 there was paid towards discharging the extraordinary expences of the army, 987,434_l._: In 1765, these expences amounted to 404,496_l._: In 1766, to 479,088_l._—Total 1.871,018_l._—This sum is at least a million higher than the extraordinary expences of the army for three years in a time of peace. This excess, being derived from the preceding war, must be reckoned a debt left by the war. And the same is true of 1.106,000_l._ applied, in 1764, 1765, and 1766, towards satisfying _German_ demands.—There are likewise some smaller sums of the same kind; such as subsidies to _Hesse-Cassel_, _Brunswick_, &c. And they may be taken at 200,000_l._—The total of all these sums is 2.306,240_l._; which, added to 8.333,553_l._ makes the whole diminution of the public debt since 1763, to be 10.639,793_l._

Soon after the peace in 1763, an unfunded debt, amounting to 6.983,553_l._ was funded on the _Sinking Fund_, and on new duties on wine and cyder, at 4 _per cent._ There has been since borrowed and funded on coals exported, window-lights, &c. 6.400,000_l._ The funded debt, therefore, has increased since the war 13.383,553_l._ It has decreased (as appears from page 171) 11.983,553_l._; and, consequently, there has been on the whole an addition to it of 1.400,000_l._—During seven years, from 1767 to 1774, 1.415,883_l._ navy-debt was paid off. See page 172. But, as this is a debt arising from constant deficiencies in the peace estimates for the navy, it is a part of the current peace expences.—In 1768 this debt was[137] 1.226,915_l._—In 1774 it was 1.850,000_l._; and consequently, though 1.415,883_l._ was paid off, an addition was made to it, in seven years, of 623,085_l._ It increased, therefore, at the rate of 291,000_l._ _per ann._

The paper from which I have taken the following account, came into my hands after almost the whole of this work had been printed off. It contains a fact of so much importance, that I cannot satisfy myself without laying it before the public.—In a Committee of CONGRESS in _June_ 1775, a declaration was drawn up containing an offer to GREAT BRITAIN, “that the Colonies would not only continue to grant extraordinary aids in time of war, but also, if allowed a free commerce, pay into the SINKING FUND such a sum annually for ONE HUNDRED YEARS, as should be _more_ than sufficient in that time, if faithfully applied, to extinguish all the present debts of BRITAIN. Or, provided this was not accepted, that, to remove the groundless jealousy of _Britain_ that the Colonies aimed at Independence and an abolition of the Navigation Act, which, in truth, they had never intended; and also, to avoid all future disputes about the right of making that and other Acts for regulating their commerce for the general benefit, they would enter into a covenant with _Britain_, that she should fully possess and exercise that right for _one hundred years_ to come.”

At the end of the _Observations on Civil Liberty_, I had the honor of laying before the public the Earl of _Shelburne’s_ plan of Pacification with the Colonies. In that plan, it is particularly proposed, that the Colonies should grant an annual supply to be carried to the Sinking Fund, and unalienably appropriated to the discharge of the public debt.—It must give this excellent Peer great pleasure to learn, from this resolution, that even this part of his plan, as well as all the other parts, would, most probably, have been accepted by the Colonies. For though the resolution only offers the alternative of either a _free_ trade, with extraordinary aids and an annual supply, or an _exclusive_ trade confirmed and extended; yet there can be little reason to doubt, but that to avoid the calamities of the present contest, both would have been consented to; particularly, if, on our part, such a revisal of the laws of trade had been offered as was proposed in Lord Shelburne’s plan.

The preceding resolution was, I have said, drawn up in a Committee of the Congress. But it was not entered in their minutes; a severe Act of Parliament happening to arrive at that time, which determined them not to give the sum proposed in it.

FINIS.

POSTSCRIPT.

The following POSTSCRIPT was published only in a few of the last Editions of the _Observations on Civil Liberty_. It has been often referred to in the preceding work; and therefore, it is necessary to give it a place here.

_ACCOUNT of Public Debts discharged, Money borrowed, and Annual Interest saved from 1763 to 1775._

Debts paid off since 1763. Annuity decreased.
£. £. _s._
1765 876,888 funded, bearing interest at
4 _per cent._ 34,835 10
1.500,000 unfunded, 4 _per cent._ 60,000 00
1766 0.870,888 funded, 4 _per cent._ 34,835 10
1.200,000 unfunded, 4 — 48,000 00
1767 2.616,777 funded, 4 — 104,671 0
1768 2.625,000 funded, 4 — 105,000 0
1771 1.500,000 funded, 3½ _per cent._ 52,500 0
1772 1.500,000 funded, 3 _per cent._ 45,000 0
1773 800,000 unfunded, 3 — 24,000 0
1774 1.000,000 funded, 3 — 30,000 0
1775 1.000,000 funded, 3 — 30,000 0
---------- -----------
Total 15.483,553 Total 568,842 0

In 1764, there was paid off 650,000l. navy-debt; but this I have not charged, because scarcely equal to that annual increase of the navy-debt for 1764, 1765, and 1766, which forms a part of the ordinary peace establishment. The same is true of 300,000l. navy-debt, paid in 1767; of 400,000l. paid in 1769; of 100,200l. paid in 1770; 200,000l. in 1771; 215,883l. in 1772; and 200,000l. in 1774.

_Account of money borrowed and debts contracted since 1763._

Annual interest
£ increased.
Borrowed and funded,
at 3 _per cent._ in 1765 1.500,000 45,000
in 1766 1.500,000 45,000
in 1767 1.500,000 45,000
in 1768 1.900,000 57,000
Unfunded in 1774 250,000 7,500
Civil list debt in 1775 500,000[138]
--------- -------
Total 7.150,000 199,500

From 15.483,553l. the total of debts discharged, subtract 7.150,000l. the total of debts contracted; and the remainder, or 8.333,553l. will be the diminution of the public debts since 1763. Also, from 568,842l. the total of the decrease of the annual interest, subtract 199,500l. (the total of its increase), and the remainder, or 369,342l. will be the interest or annuity saved since 1763.—To this must be added 12,537l _per ann._ saved by changing a capital of 1.253,700l. (part of 20.240,000l.) from an interest of 4 to 3 _per cent._ pursuant to an act of the 10th of George III.; also the life-annuities that have fallen in; which will make a saving in the whole of near 400,000l. _per annum_: And it is to this saving, together with the increase of luxury, that the increase of the _Sinking Fund_ for the last ten years has been owing.

To the debts discharged the following additions must be made.

In 1764 there was paid towards discharging the extraordinary expences of the army, 987,434l. In 1765, these expences amounted to 404,496l. In 1766, to 479,088l.—Total 1.871,018l.—This sum is 1.100,000l. higher than the extraordinary expences of the army for three years in a time of peace. This excess, being derived from the preceding war, must be reckoned a debt left by the war. And the same is true of 1.106,000l. applied, in 1764, 1765, and 1766, towards satisfying _German_ demands.—There are likewise some smaller sums of the same kind; such as subsidies to _Hesse-Cassel_, _Brunswick_, &c. And they may be taken at 200,000l.—The total of all these sums is 2.406,240l. which, added to 8.333,553l. makes the whole diminution of the public debts, or the whole saving of the kingdom, since 1763, to be 10.739,793l.

Soon after the peace in 1763, an unfunded debt, amounting to 6.983,553l. was funded on the _Sinking Fund_, and on new duties on wine and cyder, at 4 _per cent._ There has been since borrowed and funded on coals exported, window-lights, &c. 6.400,000l. The funded debt, therefore, has increased since the war 13.383,553l. It has decreased (as may appear from page 177) 11.983,553l. and, consequently, there has been on the whole an addition to it of 1.400,000l.—During seven years, from 1768 to 1774, 1.115,883l. navy-debt was paid off. See page 178. But, as this is a debt arising from constant deficiencies in the peace estimates for the navy, it is a part of the current peace expences.—On the 31st of December, 1767, this debt was 1.213,072l.—On the 31st of December, 1774, it was 1.850,000l. and consequently, though 1.115,883l. was paid off, an addition was made to it, in seven years, of 673,028l. It increased, therefore, at the rate of 255,558l. _per ann._

SUPPLEMENT TO SECTION III PART II.

_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 4.750,000_l_. carrying (at 4¼ _per cent._) 201,875_l_. _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.

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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.

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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.