Two Tracts on Civil Liberty, the War with America, and the Debts and Finances of the Kingdom / With a General Introduction and Supplement

by Richard Price

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 4.750,000l. carrying (at 4¼ per cent.) 201,875l. per ann. interest. There would, therefore, have been a saving of 250,000l. in the capital; and the annual charge would have been nearly the same.

It must be observed that this scheme supposes that a stock bearing 4¼ per cent. interest would have been valued nearly at par; and, according to the principles on which the scheme was calculated, it could not have been valued at much less; or, supposing it valued at 1 or 2 per cent. less, the difference might have been made up by only adding two or three years to the duration of the short annuity and the term of irredeemableness.—Had a stock been offered bearing 4¼ per cent. interest irredeemable for ten years, one half at least of the short annuity might have been saved. The annual charge for ten years would have been somewhat less;[140] and the excess afterwards would have been much more than compensated by the advantages at redemption attending a higher interest and a smaller capital.

But, perhaps, such a scheme as the following would have been preferable to any of those now proposed.

For every 100l. in money 75l. stock irredeemable for 10 years and carrying 4¼ per cent. interest, might have been offered, together with an annuity for 27 years of 1½ per cent. (valued cheap at 16 years purchase, or 24l.) and the advantage of a lottery ticket. This scheme would have been as likely to be attended with a profit as that which was adopted. The new capital would have been only 3.750,000l. bearing 159,375l. interest. The short annuity would have been 75,000l. and the whole annual charge (supposing no redemptions of the capital to take place after ten years) 234,375l. for 27 years, and afterwards 159,375l. It appears, therefore, that 1.250,000l. or a quarter of the capital that was actually created, would have been saved; and also a rent charge on the public after 27 years of 40,750l. per ann. for ever.—The additional expence to balance these advantages would have been 9.650l. per ann. for ten years, and 34,375l. per ann. for 17 years. In other words; the public would have absolutely secured the redemption of a quarter of the loan, (or of 1.250,000l.) besides an easier redemption of the remainder, at the expence of 680,875l. in the whole,[141] to be paid annually in small sums during the course of 27 years.

All that has been now said has gone on the supposition that, agreeably to the calculations on which the last loan was formed, 100l. stock irredeemable for ten years and bearing 4 per cent. interest, would sell at 17l. more than 100l. stock bearing 3 per cent. interest; (or at 95l. when the latter stock is at 78l.) and also, that a short annuity for ten years would sell at 8⅟₁₀ years purchase.—But events have shewn that these valuations were too high. The new subscription (including 100l. four per cent. stock, a half per cent. short annuity, and the profit of a lottery ticket) should have sold, according to these valuations, at about 102½. But it never bore so high a price; and in a little time it fell to par, and at last to 3 per cent. discount.—Various reasons have been assigned for this; but the true reasons were the following.

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

Secondly. A lower valuation of the new 4 per cent. stock and the short annuity which took place in the Alley.—This was the principal reason; and it will be proper particularly to explain it. In doing this, it will be necessary to look back a little to the history of the public funds.

In 1717 the public debts were reduced from an interest of 6 per cent. to 5 per cent. and in 1727, from 5 per cent. to 4 per cent. In 1737 a bill was brought into the House of Commons by Sir John Barnard, for a farther reduction from 4 to 3 per cent. At this time the 3 per cents. were above par; and even, during the three first years of the war which began in 1740, they continued so high that government was able to raise the necessary supplies by borrowing at 3 per cent.—In such circumstances, it was impossible the public creditors should avoid expecting a third reduction; and this expectation would necessarily link the value of the FOUR PER CENTS. by leading the public to consider them as no more than a THREE per cent. stock having a short annuity of ONE per cent. annexed. Accordingly; before the war the difference of price between the THREE and the FOUR per cent. stocks was about 10 or 11 per cent. After the commencement of the war, a reduction becoming more doubtful and more distant, this difference became greater, and generally kept between 14 and 17 per cent. At the approach of the Peace in 1748, it sunk to 11 per cent. and soon after the Peace, the 3 per cents. having risen considerably above par,[142] and an universal expectation of a speedy reduction taking place, it sunk to 6 per cent.—It is evident, therefore, that the price of the FOUR per cents. has been governed by the expectation of their reduction,[143] and that, had there been no such expectation, their price, compared with the 3 per cents. would have been much higher. It will appear presently to be most probable, that had it not been for this expectation, the prices of these stocks would not have differed much from the proportion of the rates of interest.

In taking this account, I have only compared the THREE per cents. with the South-Sea FOUR per cent. capitals before their reduction in 1749, at which time they amounted to above 27 millions, and were (as the consolidated three per cent. annuities are now) the grand staple stock of the kingdom. In 1746 and 1747, two new FOUR per cent. capitals were created redeemable at any time, and transferable at the Bank. The price of these new capitals kept for some time after their creation, considerably below the price of the old South-Sea four per cents. the reasons of which were, I suppose, the general reasons which make new funds bear a lower price than old ones; and, particularly, their having less traffic in them, and being small and detached parcels likely to be first selected for the operations of finance.

Were the cause now assigned, or the expectation of a reduction of interest, the only cause that governed the comparative prices of 3 per cent. and 4 per cent. capitals, the excess of one above the other would never be more than the supposed value of a short annuity of 1l. till reduction.—But there is another cause which may operate in this instance, and which ought not to be overlooked; I mean, the expectation of a greater payment at redemption. The effect of the former is to diminish, and of the latter to increase the value of FOUR per cent. capitals.—In order to understand this it must be remembered, that when the 3 per cents. are at any considerable discount, it becomes practicable to redeem them under par, while debts bearing 4 per cent. interest must be redeemed at par. This will make a difference in favour of the latter, which will be greater or less in proportion to the greater or less discount at which the three per cents. are sold, the greater or less quantity of stock bearing 4 per cent. interest, and the greater or less probability that the whole or a considerable part of it will be soon redeemed[144]—Let us suppose, for instance, that all the public debts bearing 4 per cent. interest, consist of a single capital of FIVE MILLIONS redeemable at any time; and that all the rest of the public debts are THREE per cent. capitals sold at a discount of 12 per cent. or at 88l. for every 100l. stock. In these circumstances, there would be a certainty that the small stock bearing 4 per cent. interest would be selected for redemption as soon as possible; and, as a stock carrying such high interest could not be expected, when the 3 per cents. are at 88, to be redeemed under par, its real value would on this account exceed that of the THREE per cents. more or less in proportion as its redemption was more or less distant. And its whole excess of value in these circumstances is to be computed in the following manner.—It would consist of a 3 per cent. capital, for every 100l. of which 100l. in money is to be received; and of an additional annuity of 1 per cent. till redemption. Its excess of value, therefore, if the whole capital was to be redeemed immediately, would be the same with the discount of the 3 per cents. or 12 per cent. If the capital was not to be redeemed till the end of 7 years, its excess of value would consist of 12 per cent. payable seven years hence, and the present worth of an annuity of 1 per cent. for the intermediate term of seven years. 12l. payable at the end of 7 years is worth in present money (allowing compound interest at 4 per cent.) 9l. 2s. 6d. An annuity of 1l. for seven years is worth (reckoning the same interest) 6l. The whole excess of value, therefore, will be 15l. 2s. 6d. for every 100l. stock. If the redemption of the capital is to be delayed 15 years, the excess of value computed in the same manner will be 17l. 15s. 6d.—if 20 years, 19l. 1s.—if 30 years, 21l.

If the 3 per cents. had been supposed at a greater discount, it is evident that these several values would have been likewise greater; and had the quantity of 4 per cent. stock been supposed double or triple, the effect would have been the same with a delay of redemption; and had it been supposed thirty or forty millions, the effect (in consequence of our slow progress in redeeming our debts) would not have fallen very short of an eternal delay of redemption.

Before 1749, the amount of the public debts carrying 4 per cent. interest was near 58 millions. The expectation, therefore, of the advantage now explained could not then have any effect; and the only cause which could have influenced, in any considerable degree, the comparative prices of these stocks must have been the first I have assigned, or the expectation of their reduction; that is, in other words, the expectation of a sudden redemption of them, as soon as the 3 per cents. got above par, by borrowing money at that interest. Had not this been foreseen, or had there been an act of parliament rendering it impracticable, there is no reason to doubt but the price of the FOUR per cents. compared with the THREE per cents. would have approached nearly to the proportion of the rates of interest, agreeably to what is said in ([page 191]).

The state of the public funds has been much changed since the two last wars; but it is an alteration that has increased the comparative value of 4 per cent. capitals.

I have already observed, that during the last war there was reason to expect, that, as soon as peace came, the THREE per cents. would rise above par. No one can now entertain any such expectation. On the contrary; it is most probable, that they will never again rise to that which has been their average price during the last peace from 1763 to 1775, and which, I think, may be stated at 87 or 88.—My reason for this assertion is,

First, that after the present war, should we be so happy as to escape the ruin with which it threatens us, our taxes and expences will be so much increased, and at the same time our resources so much diminished, as necessarily to leave the credit and value of our public securities lower than ever.

Secondly. Though our credit and resources should continue undiminished, yet the great addition which the present war will make to the public debt, is alone likely to sink their value, because every increase of a saleable commodity has always a tendency to lower its price.—It follows from hence, that the purchasers of FOUR per cent. capitals have now a prospect of an advantage of 12 or 14 per cent. at redemption, which they could not have had before the last peace.

In connexion with this it must be considered, that it is now highly probable, that it will never be again practicable to reduce the interest of any 4 per cent. capitals. In order to such a reduction, government must be able to offer to the proprietors of these capitals their principal, should they not chuse to take lower interest, and consequently to borrow at an interest of 3½ or 3¾ per cent. But no sums will be lent on such lower interest, unless it can be depended Upon that capitals bearing that interest, when brought to market, will bear a premium of 1 or 2 per cent.; and this, when the three per cents. are not higher than 87 or 88, would require the excess of value of such capitals to be estimated at 14 or 15 per cent. whereas it has been lately found, that even FOUR per cent. capitals irredeemable for ten years, will not bear such an excess of value.—A reduction, therefore, of the interest of FOUR per cent. capitals, or a redemption of them by borrowed money, cannot now be reckoned upon; and the only cause that can REASONABLY sink their value compared with the THREE per cents. below the ratio of the rates of interest, is the probability of a redemption of them by the surplus of the national revenue. I need not say how little is to be expected from hence. Supposing, however, that much may be expected, I have shewn what effect it ought to have; and from the observations I have made, and particularly the computation in ([page 194]), &c. it appears, I think, that the price of the capital of five millions four per cent. annuities lately created ought to have been near 18 per cent. more than the price of the THREE per cents. This appears to be true on the supposition that this capital will be redeemed in fifteen years; (that is, in five years after the expiration of the term for which it is made irredeemable) that the 3 per cents. will rise to as high a price as they bore during the last peace; and that purchasers are allowed to make FOUR per cent. compound interest of their money.—Were we to suppose this capital discharged even in two years after it becomes redeemable, the value, made out in the same way, would be nearly 17l.

He who will consider all this, and also recollect the general price of the 4 per cents. before their reduction in 1749, (see [page 190]) must be convinced that the Treasury, at the time the last loan was settled, had good reason for taking the price of the new four per cent. capitals 17 per cent. higher than the price of the three per cents.—It has, however, been found that this was too high a valuation. Instead of being sold at 17l. more for every 100l. stock than the 3 per cents. they have been sold at only 13l. or 14l. more; and this has been the chief reason of the discount to which the last subscription fell.—It is hard to say, by what principles the money’d men who traffic in the funds have governed themselves in this instance; but certain it is, that they have not been guided by any of the rules of just calculation: And the same must be said of the value at which they have reckoned the short annuity of a half per cent. for ten years annexed to the new 4 per cents. In forming the scheme for the last loan this annuity was, I have said, estimated at 8⅟₁₀ years purchase, agreeably to its real value, supposing the payments yearly, the first payment to be made at the distance of a year, and money improved at 4 per cent. compound interest. But it has in general been sold at about 7½ years purchase; which is less than its value, supposing money improved at 5½ per cent. compound interest.[145]

From this account it appears, that could the caprice of the public have been foreseen, the price of the new four per cents. should not have been reckoned at more than 91l.; (the 3 per cents. being at 78l.) and that, consequently, to make up a value which would have produced 102l. for every 100l. advanced, either the term of irredeemableness and of the short annuity should have been lengthened; or, supposing this term the same, the short annuity should have been more than doubled. An artificial capital, indeed, of near half a million would in this case have been created. But this disadvantage might have been avoided, without bringing any additional expence on the public, by such alterations as I have before proposed; and by increasing in the corrected schemes, ([page 186]), &c. either the term of irredeemableness, or the short annuity, or the rate of interest, or all of them together.

The preceding account will, I fancy, help to shew what is practicable, taking things as they are, in borrowing money for public uses. It proves, that the nation loses greatly by the low price of all capitals bearing a higher interest than 3 per cent. and that could their value be raised, it would be greatly benefited.—For example. Could the new FOUR per cents. have been taken at 99l. for every 100l. stock, instead of 95l. the whole expence of the short annuity in the scheme of the last loan, and of a quarter per cent. perpetual interest, in the corrected schemes, ([page 186]), &c. might have been saved. But had the value of the 4 per cents. been raised in proportion to the rate of interest, or nearly in that proportion, a farther saving might have been made, in all the schemes, of the profits of the lottery, and, consequently, of 6000l. per annum in the annual charge.—My next enquiry, therefore, shall be, in what manner and by what regulations this may be done. I have written in the section on loans, on the supposition that such regulations are practicable; and I have proposed one of them; but I will here be more explicit.

It has been shewn, that before 1749 the cause which depressed the value of the 4 per cents. was the expectation of their being reduced; and that now this cause is the expectation of their being soon redeemed. Remove, therefore, these causes in any degree, and their value must rise in the same degree.—With respect to the first, it is in my opinion certain that it would be doing great service to the public to exclude it entirely. Our reductions of interest have proceeded from a policy too narrow; and the nation is likely to suffer by them much more than it has gained.[146] The savings they produce, being expended on current services, tempt to extravagance; give a fallacious appearance of opulence; and, by making our debts sit lighter, render us less anxious about redeeming them, and less apprehensive of danger from the increase of them. At the same time they render their redemption a work of more difficulty, and oblige government, when under a necessity of contracting new debts, either to give extravagant interest, or to offer extravagant premiums. That accumulation of artificial debts which I have pointed out has been owing principally to this cause; and had it not been, in particular, for the reduction in 1749, the public debts would now have been near 14 millions less; and a debt of above a hundred millions, instead of consisting of capitals bearing interest at 3 per cent. would have consisted of capitals bearing some of them 3½, some 4, and some 4½ and 5 per cent. interest, which (supposing them all at a medium to bear 4 per cent.) a million per ann. would have redeemed in six years less time, and at twenty-one millions less expence.—In short; reducing of interest is one of those unhappy TEMPORARY EXPEDIENTS to which statesmen are apt to betake themselves; and by which present relief is gained at the expence of future safety, and distress postponed by rendering it in the end more unavoidable and dreadful.—There cannot, therefore, be any sufficient reason against making the interest of the new capitals which may be created by any future loans, IRREDUCIBLE.[147] Should this raise the price of capitals bearing high interest in proportion to the increase of interest, government would be enabled to borrow to equal advantage whatever interest it offered; the new loans would not bring any greater annual charge on the nation than would have been necessary had the same sums been obtained by selling 3 per cent. capitals; and, at the same time, all the immense expence of douceurs and fictitious capitals would be saved, and all the advantages in redeeming the public debts obtained, arising from smaller capitals bearing higher interest.

Such a regulation as that now proposed would be alone sufficient for these purposes, when the amount of the debts bearing high interest and declared irreducible, is considerable, as appears from what is said in ([page 195]). But when a debt happens to bear a higher interest than any other, and is at the same time small, the probability of a quick redemption will operate in the same manner on its price with the expectation of a reduction; and in this case, therefore, it will become necessary, in order to avoid the inconveniences I have described, to POSTPONE REDEMPTION; and one of the best methods of doing this will be, by ordering, that such a debt shall be redeemed after some other given part of the funded public debts.—So slow has been our progress in redeeming debts, that this (supposing the part to be first redeemed considerable) would be reckoned, in the present circumstances of the funds, the same with making the debt to be last redeemed, irredeemable for ever. And should such an apprehension prove right, the public would lose nothing, because the debt whose redemption was postponed, would bring no greater annual charge on the public, than if the same sum had been obtained by selling a capital bearing any lower interest. But should it prove false, or should our debts be ever put into a fixed course of redemption, the public would gain greatly by being able, after discharging one part of its debts, to discharge the remainder more expeditiously and easily.

I shall beg leave to illustrate what has been now said by having recourse again to the last loan of FIVE MILLIONS.—During the last 60 years, or from the first establishment of the sinking fund to the year 1777, no more than about FIFTEEN MILLIONS of the public funded debts have been paid. An order, therefore, that the capital of five millions bearing 4 per cent. created by the last loan, should not be discharged unless a capital of twenty-five or thirty millions in the three per cents. shall have been first discharged, would have carried its redemption to so distant a period, as might probably have raised it to the same comparative value with any 3 per cent. capitals.

Let it, however, be supposed to advance its price only to 102l. when the 3 per cents. are at 78; that is, when the ratio of the rates of interest required the price to be at 104. In these circumstances, 4.850,000l. of the five millions would have been advanced for an equal capital carrying 194,000l. interest at 4 per cent.; and the remaining 150,000l. would have been advanced for the lottery: And thus the whole expence of the short annuity, and 150,000l. capital, would have been saved.—And had the same sum been obtained by selling a 3 per cent. capital, the amount of interest, though the least possible, would not have been much less;[148] but, at redemption, there would have been a necessity of paying above a MILLION AND A QUARTER for which no value had been received.—When such advantages, uncompensated by any loss, can be obtained by so easy and simple a regulation as only changing the ORDER of paying the public debts,[149] what possible reason can there be against adopting it?

There is another method by which the value of any stocks bearing high interest might be raised, which would probably be no less effectual; I mean, by ordering that no part of such stocks shall be redeemed, without at the same time redeeming an equal, or any larger sum, in other capitals. This is the regulation proposed in the section on public loans, ([page 98]); and it will not be amiss here to give an illustration of it, by supposing, that EIGHT MILLIONS will be wanted for the necessary supplies of this year; and that this sum will be procured by selling, as was done in the last loan, a capital equal to the sum advanced, bearing 4 per cent. interest. Were the interest in this case made irreducible, and the capital incapable of being redeemed without at the same time redeeming four times as much of the 3 per ct. or some other stocks, an increase of value would be communicated to it which would render all Douceurs unnecessary. For it would be a capital, the redemption of which could not be completed without discharging in all FORTY[150] MILLIONS of the public debts.—I cannot doubt but that, in these circumstances (supposing the price of the 3 per cents. to continue near 78) a 100l. in money would be given for 100l. in such a stock, and the whole extravagant expence of short annuities, lotteries, and artificial capitals would be saved.

In short. With the aid of such regulations as those now proposed, EIGHT MILLIONS might this year be borrowed (supposing the 3 per cents. not lower than 78 or 77) probably at an interest of 4 per cent., but certainly at an interest an EIGHTH or a QUARTER higher, without offering any premiums. Whereas, if no such regulations are established, either an artificial debt of near[151] two millions and a half must be created; or 5 per cent. for 15 or 20 years certain, together with the profits of a lottery, must be given; and a new tax laid which will produce 400,000l. per ann.

It may deserve to be added, that an unprosperous state of public affairs, and apprehensions of public danger, would have a tendency, by placing the redemption of our debts at a greater distance, to promote, rather than obstruct the success of schemes attended with such regulations.

There remains one proposal more on this subject which I wish may be attended to.

I have observed, that our reductions of interest have been the effect of too narrow a policy. It seems to me, that one of the best measures that could now be adopted, would be to undo what we have done in this instance, by restoring the 3 per cent. capitals to a higher interest, and making this restoration, one of the means of raising the necessary supplies. That this is practicable, and that it would be advantageous, will appear from the following scheme, and observations.

For 20l. in money, let 110l. stock bearing 3½ per cent. interest, be offered, in exchange for every 100l. of the 3 per cent. stocks; and let the new 3½ per cent. flock be capable of being redeemed at any time, but never under par, unless when the price of the 3 per cents. happens to be below 85l.—By this scheme the public would procure 20l. from the conversion of every 100l. 3 per cent. stock into 110l. stock carrying 3½ per cent.; or FIVE MILLIONS from the conversion of TWENTY-FIVE MILLIONS. The new additional capital would be only TWO MILLIONS AND A HALF, (or 10 per cent. of the old capital); and the additional interest would be 17s. (that is, a half per cent. added to 7s. the interest of 10l. at 3½ per cent.) for every 20l. advanced; or 4¼ per cent. for the whole loan.

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

The new capital of 110l. bearing 3½ per cent. interest would be better than the 100l. THREE per cent. capitals for which it would be substituted, in the following respects.—1st. It would carry 17s. per ann. more interest; and such an interest, when the price of an annuity of 3l. is 78l., ought to be worth 22l. 2s. The additional interest, therefore, would be disposed of at 2l. 2s. for every sum of 22l. 2s. (or at 9½ per cent.) less than its true value, compared with the price of the 3 per cent. annuities.

Secondly. The 3 per cents. when peace comes, will probably be capable of being redeemed at 88l.[152] But this stock, in the same circumstances, must be redeemed at par. It will, therefore, produce 12l. more in every 100l. at redemption. Add the 10l. additional stock; and the whole additional sum to be received at redemption will be 22l.—There will, therefore, be a profit at redemption of 10l. per cent. of the money advanced; and this profit deserves the more notice, because the stock to which it is annexed, being redeemable at any time, and bearing a higher interest than the 3 per cents. will be selected for redemption before them; and therefore its price will be so much the more likely always to keep near par.—Setting aside, however, this advantage, and supposing only the 20l. advanced likely to be received at redemption, it may be found by calculating in the manner explained in ([p. 194]), &c. that the substitution of 110l. flock carrying THREE AND A HALF per cent. for 100l. carrying THREE per cent., or, in other words, that 20l. to be received some time hereafter, besides an annuity of 17s. for the intermediate time, is worth in present money more than 20l., reckoning compound interest at 4 per cent.

Such a scheme, therefore, in whatever way its value was rightly calculated, would appear to offer an advantageous bargain. Should there, however, be reason to fear that the public might judge otherwise; or should the 3 per cents. be at 74 or 75, the value might be easily increased near nine per cent. by making the substituted stock 112l. instead of 110l. in which case, the interest for the 20l. advanced would become 18s. 5d. per ann., or a little more than four and a half per cent. instead of four and a quarter.

The advantages to the public which would arise from such a scheme are—1st. That it would be one of the best preparations for measures that must some time or other be entered into for putting the public debts into a fixed course of redemption.[153]—In consequence of being raised to a higher interest, a considerable part of them would be made capable of being redeemed with more ease and expedition; and for this reason, it is certain that, if there remains a possibility of our escaping a public bankruptcy, the time must come when we shall wish all our debts bore a high interest.[154]

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

Thirdly. Such a scheme would keep up public credit; and, by its necessary operation, contribute to carry itself into execution. For the advantages attending it being grounded entirely upon the old 3 per cent. stocks, few at such a time would chuse to sell them, but many would be induced to buy, and, consequently, their price would be advanced, contrary to the common effect of public loans.—These seem to me advantages so unspeakably important, that I cannot but think it would be right to go to some extraordinary expence, in making at least one experiment of this kind. If, in consequence of offering high terms in one trial for a small sum, such an experiment should succeed, it might be renewed on lower terms; and the way might be discovered of managing, in the best manner, larger loans on the same plan.—I cannot help thinking indeed, that it would be found that in this way great sums might be raised without creating any new capitals, or making any addition to the public debts. I fancy, for instance, that few, when the 3 per cents. are about 78, would scruple to pay 25l. for the conversion of 100l. THREE per cent. stock into a 100l. FOUR per cent. stock, provided this last stock was not to become redeemable till THIRTY or FORTY MILLIONS of our present debts have been discharged: And supposing this true, money for public services would be raised at 4 per cent. or at an interest nearly as low as possible; and, at the same time, a sum equal to the whole money advanced would be saved. But were it necessary to take for such a substitution 24l. or even 23l. (that is, to pay about 4¼ per cent. for money) the gain, if our debts are ever to be redeemed, would abundantly overbalance the increased expence of interest.