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.