But what am I doing?—At the moment I am writing this, the possibility of a reconciliation may be lost.—America may have formed an alliance with France—And the die may be cast.
SECT. III.
Of Schemes for raising Money by Public Loans.
The following observations were occasioned by the scheme for the public loan of last year, proposed to the House of Commons at opening the Budget, and afterwards agreed to. I have thought proper, therefore, to introduce these observations here; and, as they appear to me of some importance, I shall endeavour to explain them with as much care and perspicuity as possible.
In order to raise two millions, the Legislature created last year a new capital in the 3 per cent. consolidated annuities, of 2.150,000l. Every share of 77l. 10s. in this new capital was valued at 65l. 17s. 6d. or every 100l. stock at 85l. For the whole new capital, therefore, Government has received in money, 1.827,500l.—The remaining sum, necessary to make up two millions, was a compensation advanced to Government for relinquishing the profits of a Lottery, consisting of 60,000 tickets, each of the same value with 10l. three per cent. stock; and might have been obtained, without annexing the Lottery to the annuities.—This new capital the public may be obliged to redeem at par; in which case, 322,500l. (being the difference between 1.827,500 and 2.150,000l.) that is 17½ per cent. will be paid by the public more than it has received.—In this transaction, therefore, Government has acted as a private person would act, who, in order to raise 850l. on a mortgage, should promise for it 30l. per ann. (or 3½ per cent. interest) and 150l. (that is 17½ per cent. nearly) over and above the principal, when the mortgage came to be discharged.—Such a premium (should the mortgage be discharged soon) would be very extravagant; but, if never to be discharged, would be insignificant: Nor would it be possible to account for such a bargain, except by supposing, that the borrower, instead of meaning to repay the sum he borrowed, chose to continue always paying interest for it, or returning 30l. annually for 850l. once advanced; and to subject his estate, for that purpose, to an eternal incumbrance.
The public, I have said, may be obliged to discharge the new capital, lately created, at par; and, consequently, to suffer a loss by this year’s loan of 322,500l. This will, undoubtedly, happen, should the nation prosper, and the public debts be put into a regular and fixed course of redemption; for the 3 per cents. would then soon rise to par.
The extravagance I have pointed out is the more to be regretted, because it was entirely needless; for the same sum might as well have been borrowed by schemes, which would not have subjected the public to the necessity of paying, when the loan came to be discharged, more money than had been received.—For instance. The sum advanced for the new capital of 2.150,000l. three per cent. annuities, might have been procured by offering 3½ per cent. on a capital equal to the sum advanced; or on 1.827,500l. And the remainder, necessary to make up two millions, might have been obtained by the profits of a Lottery, consisting of 60,000 tickets each worth 10l. in Money. This scheme would have differed but little in value from the other; and the interest, or the annuity payable by the public, would have been 63,962l. at 3½ per cent. on a capital of 1.827,500l.;[99] instead of 64,500l. at 3 per cent. on a capital of 2.150,000l.
When a 100l. stock in the 3 per cent. annuities is sold at 85¾, purchasers get 3½ per cent. interest for their money. When, therefore, the 3 per cents are at this price, 3½ per cents would be at par; and a capital of 1.827,500l. might be redeemed by the public, (without losing any advantage arising from its debts being at a discount,) by paying this sum; or by returning the money borrowed[100]. But in the same circumstances, a capital of 2.150,000l. in the 3 per cent. annuities, for which 85l. per cent. or, in the whole, 1.827,500l. had been received, could not be redeemed without offering 86 or 87 per cent. for it; nor, therefore, without paying more than the original sum borrowed.—When the 3 per cents are near par, there would be a loss of 322,500l. in redeeming the same capital; whereas, the former annuities, for which the same sum had been advanced, might be always discharged by either paying the very sum[101] advanced, or a less sum.—In all possible circumstances, therefore, these annuities would have the advantage.—But we never, when contracting debts, carry our views to the discharge of the principal; and the consequences must prove fatal.
It is necessary I should observe, in justice to our present ministers, that in adapting the scheme on which I have made these remarks, they have only followed the example of former ministers; and that, however needless a waste it occasions of public money, there is reason to fear it will be followed by future ministers; for the increase of difficulty and expence in redeeming the public debts, which such schemes create, being to be felt hereafter, it makes no impression, and is little regarded.
In 1759, the fifth year of the last war, the lenders of 6.600,000l. were granted a capital in the 3 per cents of 7.590,000l. together with the profits of the Lottery. Subtract from the sum advanced, 150,000l. for the profits of the Lottery; and it will appear, that, in this instance, 1.140,000l. was needlessly added to the capital; there being no reason to doubt, but that lenders would then have readily advanced 6.600,000l. for a capital of 6.450,000l. bearing 3½ per cent.[102] interest, provided the profits of a Lottery were annexed; instead of advancing the same sum for a nominal capital near 18 per cent. greater, but bearing 3 per cent. interest.