An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

capital, but the interest only, of the money which had been

borrowed upon them by different successive anticipations.

Had money never been raised but by anticipation, the course of a

few years would have liberated the public revenue, without any

other attention of government besides that of not overloading the

fund, by charging it with more debt than it could pay within the

limited term, and not of anticipating a second time before the

expiration of the first anticipation. But the greater part of

European governments have been incapable of those attentions.

They have frequently overloaded the fund, even upon the first

anticipation; and when this happened not to be the case, they

have generally taken care to overload it, by anticipating a

second and a third time, before the expiration of the first

anticipation. The fund becoming in this manner altogether

insufficient for paying both principal and interest of the money

borrowed upon it, it became necessary to charge it with the

interest only, or a perpetual annuity equal to the interest ; and

such improvident anticipations necessarily gave birth to the more

ruinous practice of perpetual funding. But though this practice

necessarily puts off the liberation of the public revenue from a

fixed period, to one so indefinite that it is not very likely

ever to arrive ; yet, as a greater sum can, in all cases, be

raised by this new practice than by the old one of anticipation,

the former, when men have once become familiar with it, has, in

the great exigencies of the state, been universally preferred to

the latter. To relieve the present exigency, is always the object

which principally interests those immediately concerned in the

administration of public affairs. The future liberation of the

public revenue they leave to the care of posterity.

During the reign of queen Anne, the market rate of interest had

fallen from six to five per cent.; and, in the twelfth year of

her reign, five per cent. was declared to be the highest rate

which could lawfully be taken for money borrowed upon private

security. Soon after the greater part of the temporary taxes of

Great Britain had been rendered perpetual, and distributed into

the aggregate, South-sea, and general funds, the creditors of the

public, like those of private persons, were induced to accept of

five per cent. for the interest of their money, which occasioned

a saving of one per cent. upon the capital of the greater part or

the debts which had been thus funded for perpetuity, or of

one-sixth of the greater part of the annuities which were paid

out of the three great funds above mentioned. This saving left a

considerable surplus in the produce of the different taxes which

had been accumulated into those funds, over and above what was

necessary for paying the annuities which were now charged upon

them, and laid the foundation of what has since been called the

sinking fund. In 1717, it amounted to �523,454:7:7�. In 1727, the

interest of the greater part of the public debts was still

further reduced to four per cent.; and, in 1753 and 1757, to

three and a-half, and three per cent., which reductions still

further augmented the sinking fund.

A sinking fund, though instituted for the payment of old,

facilitates very much the contracting of new debts. It is a

subsidiary fund, always at hand, to be mortgaged in aid of any

other doubtful fund, upon which money is proposed to be raised in

any exigency of the state. Whether the sinking fund of Great

Britain has been more frequently applied to the one or to other

of those two purposes, will sufficiently appear by and by.

Besides those two methods of borrowing, by anticipations and by a

perpetual funding, there are two other methods, which hold a sort

of middle place between them ; these are, that of borrowing upon

annuities for terms of years, and that of borrowing upon

annuities for lives.

During the reigns of king William and queen Anne, large sums were

frequently borrowed upon annuities for terms of years, which were

sometimes longer and sometimes shorter. In 1695, an act was

passed for borrowing one million upon an annuity of fourteen per

cent., or �140,000 a-year, for sixteen years. In 1691, an act was

passed for borrowing a million upon annuities for lives, upon

terms which, in the present times, would appear very

advantageous; but the subscription was not filled up. In the

following year, the deficiency was made good, by borrowing upon

annuities for lives, at fourteen per cent. or a little more than

seven years purchase. In 1695, the persons who had purchased

those annuities were allowed to exchange them for others of

ninety-six years, upon paying into the exchequer sixty-three

pounds in the hundred ; that is, the difference between fourteen

per cent. for life, and fourteen per cent. for ninety-six years,

was sold for sixty-three pounds, or for four and a-half years

purchase. Such was the supposed instability of government, that

even these terms procured few purchasers. In the reign of queen

Anne, money was, upon different occasions, borrowed both upon

annuities for lives, and upon annuities for terms of thirty-two,

of eighty-nine, of ninety-eight, and of ninety-nine years. In

1719, the proprietors of the annuities for thirty-two years were

induced to accept, in lieu of them, South-sea stock to the amount

of eleven and a-half years purchase of the annuities, together

with an additional quantity of stock, equal to the arrears which

happened then to be due upon them. In 1720, the greater part of

the other annuities for terms of years, both long and short, were

subscribed into the same fund. The long annuities, at that time,

amounted to �666,821: 8:3� a-year. On the 5th of January 1775,

the remainder of them, or what was not subscribed at that time,

amounted only to �136,453:12:8d.

During the two wars which began in 1739 and in 1755, little money

was borrowed, either upon annuities for terms of years, or upon

those for lives. An annuity for ninety-eight or ninety-nine

years, however, is worth nearly as much as a perpetuity, and

should therefore, one might think, be a fund for borrowing nearly

as much. But those who, in order to make family settlements, and

to provide for remote futurity, buy into the public stocks, would

not care to purchase into one of which the value was continually

diminishing ; and such people make a very considerable

proportion, both of the proprietors and purchasers of stock. An

annuity for a long term of years, therefore, though its intrinsic

value may be very nearly the same with that of a perpetual

annuity, will not find nearly the same number of purchasers. The

subscribers to a new loan, who mean generally to sell their

subscription as soon as possible, prefer greatly a perpetual

annuity, redeemable by parliament, to an irredeemable annuity,

for a long term of years, of only equal amount. The value of the

former may be supposed always the same, or very nearly the same;

and it makes, therefore, a more convenient transferable stock

than the latter.

During the two last-mentioned wars, annuities, either for terms

of years or for lives, were seldom granted, but as premiums to

the subscribers of a new loan, over and above the redeemable

annuity or interest, upon the credit of which the loan was

supposed to be made. They were granted, not as the proper fund

upon which the money was borrowed, but as an additional

encouragement to the lender.

Annuities for lives have occasionally been granted in two

different ways ; either upon separate lives, or upon lots of

lives, which, in French, are called tontines, from the name of

their inventor. When annuities are granted upon separate lives,

the death of every individual annuitant disburdens the public

revenue, so far as it was affected by his annuity. When annuities

are granted upon tontines, the liberation of the public revenue

does not commence till the death of all the annuitants

comprehended in one lot, which may sometimes consist of twenty or

thirty persons, of whom the survivors succeed to the annuities of

all those who die before them; the last survivor succeeding to

the annuities of the whole lot. Upon the same revenue, more money

can always be raised by tontines than by annuities for separate

lives. An annuity, with a right of survivorship, is really worth

more than an equal annuity for a separate life ; and, from the

confidence which every man naturally has in his own good fortune,

the principle upon which is founded the success of all lotteries,

such an annuity generally sells for something more than it is

worth. In countries where it is usual for government to raise

money by granting annuities, tontines are, upon this account,

generally preferred to annuities for separate lives. The

expedient which will raise most money, is almost always preferred

to that which is likely to bring about, in the speediest manner,

the liberation of the public revenue.

In France, a much greater proportion of the public debts consists

in annuities for lives than in England. According to a memoir

presented by the parliament of Bourdeaux to the king, in 1764,

the whole public debt ot France is estimated at twentyfour

hundred millions of livres; of which the capital, for which

annuities for lives had been granted, is supposed to amount to

three hundred millions, the eighth part of the whole public debt.

The annuities themselves are computed to amount to thirty

millions a-year, the fourth part of one hundred and twenty

millions, the supposed interest of that whole debt. These

estimations, I know very well, are not exact; but having been

presented by so very respectable a body as approximations to the

truth, they may, I apprehend, be considered as such. It is not

the different degrees of anxiety in the two governments of France

and England for the liberation of the public revenue, which

occasions this difference in their respective modes of borrowing

; it arises altogether from the different views and interests of

the lenders.

In England, the seat of government being in the greatest

mercantile city in the world, the merchants are generally the

people who advance money to government. By advancing it, they do

not mean to diminish, but, on the contrary, to increase their

mercantile capitals; and unless they expected to sell, with some

profit, their share in the subscription for a new loan, they

never would subscribe. But if, by advancing their money, they

were to purchase, instead of perpetual annuities, annuities for

lives only, whether their own or those of other people, they

would not always be so likely to sell them with a profit.

Annuities upon their own lives they would always sell with loss;

because no man will give for an annuity upon the life of another,

whose age and state of health are nearly the same with his own,

the same price which he would give for one upon his own. An

annuity upon the life of a third person, indeed, is, no doubt, of

equal value to the buyer and the seller; but its real value

begins to diminish from the moment it is granted, and continues

to do so, more and more, as long as it subsists. It can never,

therefore, make so convenient a transferable stock as a perpetual

annuity, of which the real value may be supposed always the same,

or very nearly the same.

In France, the seat of government not being in a great mercantile

city, merchants do not make so great a proportion of the people

who advance money to government. The people concerned in the

finances, the farmers-general, the receivers of the taxes which

are not in farm, the court-bankers, etc. make the greater part of

those who advance their money in