[107] At the time of this loan, the 3 per cents. were above 75; and, therefore, a perpetual annuity of 3l. could not be purchased for 75l. and an annuity of 1l. 2s. 6d. for 99 years, was worth at least 27l. This, therefore, would have been a scheme very profitable to subscribers.
[108] The life-annuity granted in this case could not have been worth so little as 16l. or 14 years purchase; and, therefore, a capital of 100l. in the 3 per cents was sold for 84l; or a capital of three millions, for 2.520,000l.—A premium, therefore, was granted of 480,000l; and this was done without the least reason. For the 3 per cents being at that time at 87 and 88, 2.520,000l. would undoubtedly have been lent at 3½ per cent. interest; and the remaining 480,000l. necessary to make up three millions, would have been given for the life annuities; in which case, the annual charge occasioned by the new capital would have been somewhat less; and 480,000l. would have been saved, together with the additional expence occasioned by the longer time which a given surplus would require to discharge a debt bearing 3 per cent. interest, as explained in the note, [p. 94].
[109] It is a general and certain maxim “that whenever money is borrowed by a lottery which gives a right to stock equal to the sum advanced, there is a loss equal to the sum which might have been received for the profits of the lottery.”—When the 3 per cents. are at 76 or 77, half a million might be borrowed by a lottery, consisting of 50,000 tickets, each of the same value with 10l. three per cent. stock: and hitherto such a method of borrowing has been reckoned advantageous. But it only gives a fallacious appearance of borrowing at 3 per cent. It is the same with selling the profits of a lottery, and at the same time absurdly converting the purchase-money into a debt due to the purchaser.—Since the last war we have had seven of these lotteries, including two in 1763; and above a million has been lost by them.
In Queen Anne’s time, there were several lotteries, consisting of all prizes and no blanks. This is so curious, and most persons may be so much at a loss to conceive of the possibility of it, that I cannot help explaining it.
A capital, equal to the whole money advanced, was distributed equally among all the tickets in the lottery; and, in order to make them prizes of different values, there was farther distributed among them different shares of an additional capital, to which a right was given, though no money had been paid for it.—For example—In 1711, two millions were raised by a lottery of this kind, called a class lottery. The whole sum advanced was divided into 20,000 tickets, each 100l. stock bearing 6 per cent. interest. This capital was increased by a gratuitous capital of 602,200l. bearing the same interest, and divided into shares which were added to the tickets, in order to form prizes.—This was the same with giving near 8 per cent. for money, besides a premium of 30 per cent.—As the interest of money was at this time 6 per cent. the sum borrowed would most certainly have been advanced at 8 per cent. without any premium; but it was, I suppose, reckoned necessary that government should not seem to give such high interest.—In the same year, 1.500,000l. was borrowed by another such lottery, and creating a capital of 1.928,570l. And in 1712, 3.600,000l. was borrowed by two more such lotteries, and creating a capital of 4.683,080l.—The greatest part of the debts contracted by these lotteries (amounting to 9.213,850l. though only 7.100,000l. was advanced) remains at this hour an incumbrance on the public; and the duties constituting the general fund are charged with the interest of it.
In 1714, the national interest was reduced to 5 per cent. But in that very year 1.400,000l. was borrowed by a lottery, which gave a right to a capital of 1.876,000l. bearing 4 per cent. that is, by giving near 5½ per cent. interest, besides a premium of 34 per cent.—Thus have our debts been increased. But even worse has been done. The taxes charged with the interest of the public debts proving often deficient, the shortest way of discharging the arrears has been often taken, by adding them to the principal, and paying compound interest for money.—Is it a wonder, that a nation which has been so careless in contracting debts, should have done so little towards discharging them?
[110] That is, in other words; there is no one who would not be glad to lend to government on any higher interest than that which he can make in the funds. There is no one, for instance, who would not be glad to lend 75l. at 4 per cent. when the 3 per cents. are at 76, and when, therefore, he cannot make 4 per cent. by purchasing them.
[111] The expectation of receiving back some time or other the purchase-money would probably, in private loans, influence a purchaser. But in the cases to which I allude, this certainly was not considered, and did not at all influence. And if it had influenced, the observations I have made as I have gone along, demonstrate that the same loans would have been made without any such expectation.
[112] See the Postscript.
[113] Sixteen Millions have been specified. It will come in my way to mention above Four Millions more in the second section of the next part. Notes 1, 12, 14.—No notice has been here taken of the loans of the war before the last; but losses of the same kind to a great amount were incurred by them.