For this purpose they proposed to government to acquire, 1. The property of above 16 millions of redeemable debts, bearing then 4 and 5 per cent. interest; and to reduce the whole to 4 per cent. at midsummer 1727. 2. To acquire a sum of 794 000l. of annuities upon lives, and for long terms, as they should agree with the proprietors, at 5 per cent. upon the purchase-money, until 1727; and at 4 per cent. afterwards. Annuities were then valued at fourteen and twenty years purchase, according to their length: they rose, however, during the operations of the South Sea, to 25 and 30 years purchase. 3. They were to have a sum added to their former allowance for the charge of management, in proportion to this augmentation of their stock. 4. That for the advantage which might follow upon this agreement with government, they were to pay into the exchequer above seven millions sterling, toward discharging other national debts outstanding. And in the last place, they engaged to circulate a considerable sum of exchequer bills, and to pay the interest of 2 pence per cent. per diem, which should grow upon them during seven years[[25]].
[25]. After the long and particular account I have given of the Missisippi, I shall not enter into a like detail, concerning a scheme which proceeded upon the very same principles; to wit, the artificial raising the value of a stock, by promising dividends, out of funds which were nowise proportioned to them. I shall therefore, in a very few words, compare some of the operations of the South Sea scheme, with those of the Missisippi; and in doing it, point out the principal differences between them.
The great profits upon the Missisippi were expected from the interest paid by government for the great loan, the farms of the revenue, and the profits upon their trade.
Those of the South Sea were, at setting out, 1. The profits upon their trade: 2. The allowance made them: 3. The difference of receiving 5 per cent. for the money they laid out in purchasing the public debts, when money was at 4 per cent. as it was when the scheme was set on foot: and 4. The surplus money subscribed into the stock above par, in consequence of the artifices used to enhance the value of it.
The seven millions they were to pay to the state, seemingly for no value received, were a sort of compensation for receiving the 5 per cent. for 7 years, at a time when money was worth no more than 4 per cent.
These advantages raised, at first, the value of the original stock of eleven millions. The consequence was, that the proprietors of the 16 millions of the redeemable debts, which were to be bought in when they came to subscribe their capitals into the new stock, transacted them at a proportional discount; which discount, being good against the government in favour of the company, served to discharge proportionally the seven millions the company was to pay. This gave an additional value to the stock; and so it rose, greatly indeed above that proportion. Then the company promised a dividend of 10 per cent. for one half year, upon their capital, at midsummer 1720; this dividend was to be paid in stock, which was constantly rising in its value; but no information was ever given the public concerning the funds which were to produce this dividend; so every one concluded that there were hidden treasures in their hands, which enabled them to promise such large dividends. Accordingly, stock rose from 300 per cent. to 375; then to 400, and at last to 1000 per cent.; and in proportion as it rose, the wealth of the former subscribers augmented from the surplus above par, paid by the latter, and those who subscribed last, bore all the loss upon the blowing up of the scheme.
But one great difference between the South Sea and Missisippi, was this: That in France there was abundance of money in the hands of the public, for purchasing the actions, at the exorbitant price to which they rose; but in England there was not: consequently, in France, the rate of interest fell to 2 per cent. and in England, the great demand for money to borrow, raised it beyond all bounds.
Those who subscribed in money, paid down no more than 10 per cent. at subscribing; but became bound to pay up the remainder. But when the stock tumbled, people were better pleased to lose the 10 per cent. they had paid, than to pay up the remaining 90 per cent. according to the terms at subscribing. Those indeed who subscribed their former capitals at a vast discount, did not labour under the same inconvenience of want of money; but that discount became as real a loss to them, as the cash subscribed became a loss to the money subscribers, the moment that those who were in the secret, and who, by the most infamous chain of artifices, had blown up the public frenzy, began to realize and sell out, and that the whole was discovered to be a cheat. So that upon the whole, the English scheme had much less foundation than the French. The first blew up from an absolute necessity, and for want of any bottom at all; the last from misconduct, and rather from folly than knavery. I return to an account of the scheme.
The original capital of the South Sea company, was 11 750 000l.: the redeemable debts they were to purchase in, amounted to 16 750 000l.; and the value of the irredeemable, or what were called the absolute terms, was computed at 15 058 000l. together 31 808 000l. sterling.
The proprietors of this original capital of 11 750 000l. consulted their own advantage only, in purchasing in this large sum of debts, which were to be converted into additional stock; and therefore sounded very high the great advantages of such a transformation of them; 1mo, From the profits of the trade, which they were to enjoy exclusively. And, 2do, From the great addition to their wealth, from the constant rising in the price of their stock. They carried their views to nothing less than obtaining a majority in the house of commons, by the weight of their wealth, and of becoming the absolute rulers of the nation.