An Inquiry into the Principles of Political Oeconomy (Vol. 2 of 2) / Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes

by Sir James Steuart

After the fall of the credit of France towards the end of 1759, Great Britain had the command of all the money to be lent in Europe; and accordingly amazing sums were borrowed in 1760, 1761, and 1762. Of the sums borrowed, a great part, no doubt, was the property of strangers; but they, not being so well acquainted with the affairs of this nation as the English themselves, instead of subscribing to the loans, lent the money to our own country people, who, in hopes of a great rise upon the return of peace, filled the subscriptions with borrowed money.

The consequence was, that no sooner did the funds begin to rise after the peace, than every creditor demanded his money of those who had invested it in the public funds. This obliged the latter to bring their stock to market, and this again had naturally the effect of keeping the funds very low. Some, more prudent than the rest, had borrowed upon a long term of repayment; which had the effect of putting off still longer the settlement of the funds in the hands of the real proprietors, and of taking them out of those who only held them nominally.

Besides this accidental cause of the low price of the funds, other circumstances, no doubt, greatly contributed to produce the same effect.

However great the balance of trade, that is, of exportations above importations, may have been of late in favour of England, still the mighty sums drawn out by strangers have certainly, upon the whole, prevented much money from coming home on the general or grand balance of payments. While that remains the case, it is impossible money should regorge at home in the hands of the natives, and until this happens, there is no hope of seeing the 3 per cents. above par. But then the rise, small as it is, since the peace, may encourage us to hope that that time is not far off: for had the profits of our trade been quite unable to balance the loss upon our foreign debts, the funds would undoubtedly still continue to fall, which is demonstrably not the case from the circumstances of the loan in April 1766, obtained by government, with the assistance of a lottery indeed, at 3 per cent.[^[30]]

[30]. The loan of 1766, was 1 500 000l. at 3 per cent. Every subscriber for 100l. had an annuity of 3 per cent. on 60l. and 4 lottery tickets, valued to them by government at 10l. each, in all 100l. The prizes and blanks in the lottery amount to 600 000l. and bear 3 per cent. paid by government. The annuities amount to 900 000l. and bear also 3 per cent. The number of tickets are 60 000. Hence, at 10l. each, they amount to 600 000l.

The advantage government reaps by this way of borrowing, is, that the desire of gaming, raises the lottery tickets above their value, when thrown into the hands of the public; and this advanced value being a profit to those who receive them in part of their subscription, that profit they share with government. Example. In April 1766, when government borrowed 1 500 000l. at 3 per cent. the 3 per cents. were only at 89: consequently, the difference between 89 and 100, which is 11l. must have been supposed to be the sum which the subscribers, from the propensity of people to game, had a reasonable, or rather a certain expectation of gaining upon the sale of 4 lottery tickets, that is, 2l. 15s. upon every one.

To know therefore the real par of a lottery ticket, you must proceed thus: it costs the subscribers 10l. for which they receive from government 3 per cent. This 10l. as 3 per cents. stood at 89, is worth at that rate no more than 8l. 18s. add to this sum what the public must pay for the liberty to play, which we have stated above at 2l. 15s. and you have the exact par of a lottery ticket at 11l. 13s.

Whatever they sell at above 11l. 13s. is profit to the subscribers, whatever they sell below 11l. 13s. is a loss to them.

This profit, though small in appearance, is greatly increased from another circumstance, viz. That the subscribers may sell their subscriptions at a time when they have really advanced but a small part of it. The first payment is commonly of 15 per cent. on their subscription: when they sell, they make this profit upon the whole capital. Suppose then 15 per cent. paid in: if the profit upon selling be no more than 1 per cent. upon the capital, that 1 per cent. turns out no less than 6⅔ per cent. upon the money they have advanced. Thus a person who is possessed of 1500l. only, may subscribe for 10 000l. in this loan: he pays in his 1500l. and receives his subscription; when he sells he sells 10 000l. subscription, upon which he gains 1 per cent.: 1 per cent. of 10 000l. is 100l. so (in one month suppose) he gains by this means 100l. for the use of 1500l. But as a counterbalance for this profit, he runs the risk of the falling of the subscription, which involves him in a proportional loss if he sells out; or in the inconvenience of advancing more money than he had to employ in that way, in case he should prefer keeping his subscription for a longer time, in hopes of a rise in the public funds. By this mode of borrowing, government profits by the disposition of the people to game. But this propensity has its bounds, and at present it is found by experience not to exceed 60 000 lottery tickets, or 600 000l. Were, therefore, a subscription of 3 millions taken in upon the same plan with the present of 1 500 000l. the regorging number of tickets would so glut the market, that the whole would fall below the par of their supposed value.

Here then was an outlet provided for more money than all that could regorge at home, viz. the payment of those foreign creditors, to whom the stock-holders were indebted. Besides this, the sale by government, of such tracts of land in the new acquired islands in the West Indies, provided another; money was even placed in the funds of France soon after the peace, until the adventurers were checked by the operations of the King’s council, in reducing both capitals and interest upon them, contrary to the original stipulations with the creditors. A lucky circumstance for Great Britain, as it forces, in a manner, all the money of the continent into the English funds, which equally remain a debt upon the nation, whether high or low in the market.