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holders, is how much did each pay for the stock which he now bolds.
“ To answer this I have compared the amount of the sums funded in the different stocks with that of the stock so created, and I find by this comparison, the average rate of funding in the three per cents. during the war to have been about 591. per cent. that of the four per cents. about 801. 10s, and that of the five cents. 911. per cent. In estimating the rate of interest at which money might have been raised by the government during the war without granting an increase of capital, I have been guided by the average rate of funding in the five per cents. because the increase of capital granted in this stock being smaller than in any other, the field for speculation was more contracted, and any wide difference as to its value was less likely to arise. Taking then the average rate of funding in the five per cents. at 911. we find that the average rate of interest already received by the holders of that stock is 51. 9s. Ild. per cent. and that the increased capital to be hereafter claimed is 91. Without pretending to fix the precise value of this remote benefit at the time of funding, I think we shall do no injustice to the funders in assuming that they would have been willing to commute it for an additional interest of a quarter per cent, which would have made the whole interest on the money advanced 5l. 14s. 11d.; or, to use round numbers, 51. 15s. per cent. This therefore I fix as the average rate at which money might have been raised during the war, by funding without increase of capital, and which should now be made good to the fundholders."
The author next proceeds to ascertain the number of years for which the additional interest of a quarter per cent. here spoken of ought to be paid. He fixes this compensation at fourteen years, allowing compound interest on it during that period; and to make the whole arrangement as favourable as possible to the public creditor, he grants a small addition to the rate at which the several stocks were originally funded. He estimates, the 3 per cents. at 601. instead of 591., the 4 per cents. at 811., and the 5 per cents. at 921. instead of 911. The claims therefore of the proprietors of the respective funds would in 18:22 have stood as follows.
FOR THE THREE per cent.
860 0 0
£3 9 0
3 0 0
VOL. XIX. APRIL, 1823.
Additional interest to be allowed £0 90
£8 16 4
per cent, is
Making the whole claim on go
vernment for every 1001.
... £97 14 3
aware that the 5 per cents. are no longer in existence; and also that were the three and a half per cents. and the long and life annuities' added to the following list of sums, the increased amount would present a more accurate expression of the national debt, which still exceeds eight hundred and thirty millions, as realized in thc different funds. Stock to be Reduced.
Stock to be Created. £500,000,000, 3 per cents. at 69 per
cent. will produce.... €372,600,000 75,000,000, 4 per cents. at 94 per
cent. will produce.... 70,500,000 155,000,000, 5 per cents. at 98 per
cent. will produce..... 151,900,000
€595,000,000 That such a plan as this, if acceded to, would materially lessen the nominal capital of the public debt, and thereby create a facility for future redemption, will be admitted by every one who is able to form an opinion on the subject; but that it would not, at the outset, diminish in the smallest degree the weight of the annual load which is inflicted upon the country by the demands of the national annuitants, must be equally obvious to every novice in money transactions. The interest on the above “ Stocks to be reduced” is, according to our arithmetic
£25,750,000 Whereas the interest on the “ Stock to be created” is not less than ...
29,750,000 Making a balance against the proposed measure, of.....
£. 4,000,000 Now it appears to us, that four millions a year is much too great a price wherewith to purchase the eventual and perhaps very remote advantage of having it in our power to redeem the national pledges at their real value. The author indeed flatters himself with the expectation that in the course of a year or two, the interest of the new stock would fall to four per cent., and thereby create a great saving to the country. Were this to take place, the relief afforded to our finances would, it is obvious, arise from the reduction of the interest, and not from the mere commutation of the stock. But be this as it may, it is undeniable that the whole amount of the benefit expected to result from the measure in question would be obtained at the expense of the fundholders; and if these annuitants are to be deprived of a part of their income, it must make very little difference whether
they resign their property under the form of three per cents, or in that of five
per cents. Instead of such a bonus as that which, in the shape of accumulated arrears, this author recommends to be used as an inducement with the public creditors to relinquish a part of their capital, we should prefer the suggestion of Mr. Brick wood to make the new stock irredeemable for a certain number of years; an arrangement wbich would give to it a larger share of that speculative or imaginary value, which at present belongs to the three per cents. The main objection to both plans, however, is that an inducement of some kind or other must be employed, to prevail upon the fundowners to yield their assent to the proposed commutation of their capital : and it is by no means probable, as long as the interest of money remains at its present rate, that men so well versed in pecuniary transactions will accede to any terms by which they would lose, or the nation gain, any material advantage.
It is not indeed to be expected, that the holders of Government obligations will give up a preferable stock, on the mere condition of receiving an equal annuity from one of less marketable value; and, as no conversion of the public funds can take place without the consent of the owners, our simple financiers would soon discover, that they had omitted in their calculation, the main elenient of their liypothesis, or, to use plainer language, that they had counted without their host. The national creditor has the power of saying to his great debtor, either give me up my principal, or pay me that rate of interest on the promise of which I advanced my money: and if our rulers refuse to do the one or the other, they will be guilty of an egregious breach of faith towards a large and important class of our fellow subjects. But our rulers have all along scorned such a dishonest proposal. They have on all occasions presented to the fandholders the alternative of receiving the full capital which had been borrowed, or of accepting on it a lower rate of interest; and it has never, we trust, entered into their heads tò iinagine, that those wbo advanced their property to the nation in the time of need, will sit down satisfied with a reduced principal, and a diminished annuity.
There is, however, one topic in these pamphlets which, whatever may become of the scheme at Jarge, ought to be deeply pondered by statesmen ;-the doubtful expediency, we mean, of funding any longer by an increase of capital. In private life it would be counted madness to borrow 601. at legal interest, to be repaid with a 1001. at some future time. The addition of capital to the extent of 401. on every 1001, cannot but be regarded as a most extravagant premium, and could not fail, were the transaction to take place between an individual borrower and lender, to excite a just suspicion, that the former never meant to make good his engagement. But Government have long acted upon this questionable ground. They have borrowed in the Three per Cents a sum which, when reduced to sterling money, amounts to 295,000,0001. for which, besides paying an interest of more than five per cent. they have bound themselves to repay to the holders of their bonds, the immense sum of 500,000,0001.
Even the late reduction of the Navy Five per Cents into Four per Cents, was not accomplished without an increase of capital of about seven millions. The Chancellor of the Exchequer offered for every 1001. of Five per Cents, 1051, of the New Four per Cents; a measure which yielded to the subscribers an interest of 41. 4s. per. cent. and converted 148,000,0001. of the former denomination of stock, into 155,000,0001. of the latter. There was, no doubt, a considerable saving effected, in point of interest, by this change of denomination ; but it would perhaps have been more politic to allow a trifle additional in the shape of annual rent, than to add seven millions of permanent capital to the public debt.
We conclude by reminding our authors, that their schemes are by no means original, and that the advantages and the disadvantages attending them, have been carefully weighed long since by able writers and practical financiers. Sir James Stewart, more than fifty years ago, proposed that funds of a lower name should be convertible into those of a higher, at the pleasure of the holder, and that a small inducement in point of price should be held out to the subscriber.
• Suppose,” says he, “ that in time of war, the nation's cre. ditors should be allowed, at certain times, to subscribe their capitals in books opened at the Bank for that purpose, at one quarter per cent. above the selling price. Would not this have the good effect of supporting the price of stocks on the one hand, and of reducing the capitul of the national debt upon the other?"
To illustrate his views, he gives the following example: “ Let me suppose that in time of war, the 3 per cents. sell at 741, might 'not Government receive them at 75, and constitute