THE LOAN.
GOVEBITMENT asks for a loan, and lays down the plan upon whioh contractors must propose to give it. The bidders may state the rate of their biddings, but the mode of making them is fixed. The plan is that of the auctioneer, not of the persons who are bidding. It is designed for the convenience of those who are in- terested in the sale, not of the purchasers. If it had been con- ceived with a view to consult public opinion in the country, or even in the City, it would probably have proceeded upon other bases. There were "three courses" open to a Finance Minister asking a loan at the present moment; and indeed there were several other courses, though the three more particularly presented themselves. One was, to arrange for a loan upon Mr. Goulburn's plan of 1844 at a slight advance upon the ordinary rate of Go- vernment interest, or at no advance at all—simply by a sale of Consols in the usual way, at rates to be obtained : we may call that the established plan. The second would have been to propose for the loan in terminable annuities ; a principle liable to many modifications, of which the best would be not to take the amount in a depreciated stock, but to make any terms necessary for gain- ing the exact sum required. A very strong feeling in favour of terminable annuities has displayed itself in the City, and certainly has rooted itself in the opinions of the great majority of per- sons who consider these subjects. The third form, which it was quite possible to unite with the second, would have been, not to offer for a contract in the established mode, but to invite open sub- scription by all who chose to advance money in comparatively small sums. The Government plan consists with neither of those. So far from being an offer of Consols, whether at 3 or 3,1 per cent, in the usual way, it requires the payment of 1001. for every 1001. of stock at 3 per cent; and the ordinary difference between the price of stock at par and the market-price is compounded for in a peculiar manner. Government offers to every purchaser of stock a terminable annuity for thirty years, or rather a premium payable in instalments, besides the 3 per cent interest. Some trouble is foreseen in dealing with this terminable appendage, which, like the tail of the tadpole, is to drop off as the stock ap- proaches maturity. It may become rather troublesome, about the end of the twenty-eighth year, to arrange the quotations of the tail.
For the terminable annuity, as the word is usually understood, the public is evidently prepared. It is the one practicable means of arresting progress in the growth of debt. The representation on behalf of Government is, that the firseobject at the present mo- ment is to accomplish the loan with the least hinderance or dis- turbance ; an argument in which there is much force : but from the expression of opinion in the City and the country—in the con- versation of monied men, as in the public journals of all parts— it is evident that general opinion has been so well prepared, that an offer to accept of 16,000,0001. in terminable annuities would most likely have been concluded without any serious impediment, and probably without any obstructive discussion. There is another kind of argument which has been brought for- ward with an elaborate array of figures, and a real command of facts; although it can be stated in a few sentences and understood without this arithmetical encumbrance. It is this. Every species of accommodation has its price in the money-market. The ex- changeable value of commodities is determined by " the higgling of the market," and with the great experience acquired in our own metropolis it is a work of a few minutes to determine the compa- rative value of different kinds of accommodation. Since ulti- mately they are all expressed in the same denomination of money, it follows, that the equivalent of each in the abstract can be very precisely determined. Whether you take a stock in Three-per- cents or in Five-per-cents, in perpetual annuities or in terminable annuities, or in a mixed form, the relative value of all can be re- duced to an equation. By the higgling of the market, various stocks are practically reduced to such an equation ; and thus, in whatever form you please to state it, the price paid by the coun- try is ultimately the same. If the stock is in a terminable an- nuity, the greater cost draws so much from the resources of the country ; if it is in a perpetual annuity, the less is drawn, and the draught is extended over a longer period. The latter form has also this advantage, that should opportunities arise either of re- duction or paying off, that operation can be effected according to the facilities of the time better than it can be arranged at a day of distant anticipation.
There is also a farther advantage alleged in favour of the usual course, and this is made to apply as much against any higher kind of interest offered by way of preventing the depreciation of the stook as well as from terminable annuities. From habit, from the prac- tice of dealing principally in the Three-per-cent Consols, and from the great facilities which that stock offers as an investment of charitable trusts and securities of various kinds, it is greatly pre- ferred by the commercial world ; it is much more readily transfer- able ; and therefore it has practically acquired an exchangeable value peculiar to itself, and favourably distinguishing it from the species of quotation to which we have referred. This is true. Accurately construed, however, it means that the public is disposed to prefer that kind of stock to whioh it is familiarized, and which in its own conviction it approves. The opinion which has so rapidly developed itself in favour of terminable annuities is al- ready in evidence to show hovi far the favour of the public would be transferred to that species of security. The creation of such a stock would have been the first step to familiarizing the public mind ; and the superstitious fidelity which exists for the Three- per-cents would readily be called into existence for a terminable stock.
Let us answer one other objection. As that kind of stock would expire, it would be easy for trustees to transfer their property into new stock. We are not yet arrived at a point where we may con- template the actual extinction of the National Debt ; but even if such a period were ever to arrive, there is reason to believe that the value of a stock consolidating trust properties would be recog- nized as a thing per se, and then we should have such a stock—a Three-per-cent Consols possibly—existing for the sake of charita- ble public trusts, but distinct from loans for temporary purposes ; which, by their nature, point to a terminable annuity as the proper means of effeeting the accommodation.
It only remains here to consider the prospects of an open loan. This process is now perfectly well known by the example of Franco 'and more recently of Austria, and it is not unknown in our own country. The difference is this. By the established mode, capi- talists are invited to meet the Finance Minister and to undertake a contract for the whole sum. It is evident that Ministers, who have adopted the terminable idea in an extremely fractional form, had also some idea of taking advantage of partial biddings, so far opening the lean. This arrangement, however, while it does not -secure the advantages of a loan nationally subscribed, totally de- stroys the calculations of the great contractor, and in fact stultifies his proceedings. The gentlemen who attended at the Chancellor -of the Exchequer's official residence on Monday very properly pointed out the effect of proceeding in that way ; and Sir Come- Wall Lewis abandoned his reservation.
There are indeed two different states of a country which may dictate the plan for proceeding by open loan or by contract. Sar- dinia affords us a good example of a country upon which it was incumbent to proceed by contract. It is a state whose actual -means and true credit are greater than the vulgar have any oppor- tunity of appreciating. If Sardinia had gone into the open market, from a want of political and financial knowledge and experience, -those who might have advanced the money would have over-priced their own risk, and would have entailed a burden upon the state greater than it was bound to undertake. Sardinia adopted the ex- actly reverse course—a course more restricted than that of contract —and obtained the loan through the instrumentality of the British -Government.
France offers us the opposite example. The loan was proposed upon fixed terms, necessary to prevent confusion in the biddings. It was to be offered at two different rates-92 at 41 per cent and -65.25 at 3 per cent; the preference to be given to the subscriptions in the smaller sums, down as low as 10 francs. The whole amount was subscribed in sums not exceeding 500 francs ; and something like twice beyond the amount required was offered. It was this ex- periment, suocessfully repeated after a former year, that Austria copied in her last loan. This was partly in its nature compulsory, but the amount subscribed exceeded the amount required ; a fact the more remarkable, since the credit of Austria had been such as to pre- -dude her obtaining a loan some months previously. Meanwhile, the knowledge of her material improvements and infinitely better man- agement at head-quarters had produced a change in the general confidence. Nor is the case unknown in our own country. In December 1796, Mr. Pitt's Ministry, very hard pressed for money, having already applied a severe drain to the peo- ple, sought to obtain 18,000,0001., and invited the public to -contribute on the score of " loyalty " : hence this was called " the -Loyalty Loan." For every 1001. the lenders were offered 1121. 10s. at 5 per cent; a heavy interest, but by March 1797 the stock had a discount of 153 per cent. It is this discount which induces Mr. -Newmarch, in his memoir of "The Loans raised by Mr. Pitt during the first French War, 1793-18011' to advance this Loyalty Loan as an instance of the ill success attending open loans. Upon us, however, the story has the very opposite effect. Five days were to be allowed for the bidding; 5,000,000/. was subscribed on the -first day, the 2d of December; on the 5th December the Bank Parlour doors were besieged by subscribers in anxious competition ; orders for subscriptions came from the country; and, as the Annual Register reports, "it is a curious fact well worth stating, that the subscription was completed in fifteen hours and twenty minutes- -namely, two hours on the Thursday, six on Friday, six on Saturday, and one hour and twenty minutes on Monday." The Duke of Bridgewater offered a check on his banker, at sight, for 100,0001.; but be, like an immense number of people, was disappointed. More money in fact was offered than Government had asked. And what was the state of the country at this time P " While either the imprudence of our councils or the adversity of events -involved a necessity of heavy and even severe taxation, other discouraging circumstances accompanied or followed this evil in close succession. Dif- ficulty crowded on difficulty, danger on danger. On the return of Lord Malmesbury, towards the close of 1796, from the unsuccessful negotiation at Paris, the British Funds suffered a greater depression than was experienced at any period of the American War. Insurrections prevailed in many parts of Ireland, discontents in alL An unexampled run on the Bank of England was followed by a suspension of payments in specie. A mutiny of unpre- cedented extent and inveteracy raged in the Navy; symptoms of discontent began to appear in the Army ; the public dissatisfaction and alarm were ex- pressed in petitions from all quarters for a change of measures if not of Ministers ; and the wild and darkening forest threatened to close around us."—Annual Register.
Add to these facts, that although the harvest of 1796 was abundant, there had been a series of deficient harvests and extra- vagant prices of corn, besides incessant drains upon the people, with an amount of trade and property amounting to only a frac- tion of the means we now possess. Yet suck was the response of the English people to an open loan at that day, under those appal- ling circumstances. It appears to us that the tale is full of in- struction.
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