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ON THE STOCKS, OR PUBLIC FUNDS.
As I have no doubt of your desire to contribute to the instruction, as well as the amusement, of every individual among your readers, who pays down regularly his half-crown for your monthly bill of fare, I shall make no apology for troubling you with a few remarks on the subject that stands at the head of this paper. There are few topics of conversation perhaps more frequently introduced, and, at the same time, less generally understood, than that of the Public Funds, and I know few subjects on which the uninstructed can derive so little information from books. Systems of political economy, and profound disquisitions on the national debt, are indeed every day issuing from the press; but in none of these that I have met with, not even in the luminous pages of the Edinburgh Review, which, of all other works, is supposed by its admirers to go to the bottom of every subject, will ordinary readers find any explanation of the first simple principles of the Public Funds? It is for the instruction of such readers, then, that I would now beg leave to occupy a page or two of your Magazine; and though I am quite aware, that my observations will cut a very sorry figure beside the nervous declamation of Idoloclastes, or the sarcastic humour of Timothy Tickler, I am nevertheless certain, that I will render a very acceptable service to many, and these not the least respectable of your readers, if I can throw so much light upon the subject as may enable them to understand the prices of the Stocks, as given in the public papers.
terest of 5 per cent. On paying down the money, the lender receives a bill, bond, or acknowledgment, for the amount; by which acknowledgment, he is entitled to draw yearly from the public revenue £5 of interest, but on the express condition, that he is not to demand repayment of the principal, or sum lent, unless government is willing to repay it. The person who thus possesses the bill or acknowledgment, is said to be a holder of £100 of 5 per cent. stock, and the money lent upon that bill constitutes a part of what is called the national debt, because it is in fact borrowed by the nation, and the interest is paid out of the taxes. It is obvious, however, that few persons would be disposed to lend money on the condition of never being allowed to demand repayment, even though they were quite certain of receiving annual interest, and of transmitting the right to that interest to their posterity. To remedy this inconvenience, therefore, the lender who wishes to employ the sum which he lent to government in any other way, though he cannot directly demand repayment, is at liberty to sell his bill to any body who will purchase it, and for any sum that another may be willing to pay for it. In doing so, he merely sells to a second person the right which he himself possessed to the annual interest of £5, and that second person is of course at liberty to dispose of his right to another in the same way. This transaction, in general, is called a transfer of stock; and in the particular case which I have supposed, the one is said to sell, and the other to buy, a £100 of 5 per cent. stock. If 5 per cent. be considered as a fair and equitable interest for money lent, it is obvious, that such a bill as I have now been speaking of, or, in other words, that £100 of 5 per cent. stock, is just worth £100 sterling. It is possible, however, that in certain circumstances, the holder of that bill may receive more, or be obliged to take less for it than £100. If two or three individuals, for example, have each a sum of money which they are anxious to lay out at interest, but find it difficult to do so, a competition will naturally take place among them to become the purchaser of the bill in question, which will always secure to the holder £5 of yearly interest. The possessor of the bill will of course take advantage of this competition, and raise
It is perhaps hardly necessary to remark, that in every war in which this country has been engaged since the Revolution, the amount of the annual taxes has been found inadequate to defray the expenses of government. To supply the deficiency, our rulers have generally had recourse to loans, that is to say, they have borrowed money from such individuals as were able and willing to lend it, giving these individuals a security for the payment of a certain annual interest. To explain the nature of this transaction, I shall take a very simple case. Suppose, then, that £100 is the sum which government wishes to borrow, and that an individual offers to lend that sum at an in
his price, say, to £105. The purchaser, therefore, pays £105 for £100 of 5 per cent. stock, or he lays out his money at an interest of £5 for every £105, which is at the rate of something more than 4 per cent. If, on the other hand, however, the possessor of the bill or stock is anxious to dispose of it, while few are willing to buy it, he will be forced to offer it for less than £100, say, £95. The purchaser, in this case, pays £95 for £100 of 5 per cent. stock, or he lays out his money at an interest of £5 for every £95, which is at the rate of something more than 5 per cent. For simplicity of illustration, I have supposed, that £100 is the sum borrowed by government, and that of course there is just one bill to be disposed of, or transferred by, the lender. If it be supposed, however, as is really the fact, that the loans generally amount to several millions, the necessity which the lenders are under of selling their bills, or, in other words, transferring their stock, will be more apparent. The transaction between government and the lenders, is precisely the same in the case of millions as in that of a hundred, and it is unnecessary, therefore, again to illustrate the general principle of that transaction. It is evident, however, that even the most opulent merchants, who are generally the lenders, cannot be supposed to have such a command of money as to be able to advance ten or twelve millions to government at once. When they contract for a loan, therefore; that is, when they agree to lend to government the sum required, they generally pay the money by instalments, or partial payments, at certain intervals, say one million a-month, till the whole is advanced. In the mean time they sell, or transfer the bills or securities which they receive from government, to those who may have money to lay out at interest, and who of course will be disposed to purchase such bills, so that the sale of the bills of the first instalment may enable them to pay the second. In this way, government securities or bills become articles of commerce, and their price is regulated like that of any other article, according to the supply and demand. If we suppose, as before, that the contractors for the loan, that is, the ori ginal lenders, receive from government a £100 bill for every £100 sterling that they lend, bearing 5 per cent., they
will gain or lose by the transaction, according as they can dispose of these bills, for more or less than £100. If the buyers are numerous, compared with the quantity of bills; that is, if there be a great number who are anxious to have their money laid out at interest, they will be tempted perhaps to give, as was before supposed, £105 for every bill; for though, by doing so, they will have only 4 per cent. for their money, still it may possibly be more than they can draw for it in any other way, while the security is better than if they lent their money to private individuals or companies. In this case, the contractors would gain 5 per cent. upon the loan, or £50,000 on the whole ten millions. If, on the other hand, however, comparatively few persons are found disposed to lay out their money at per cent., the contractors may be obliged to offer their bills for less than £100, say, as before, £95. In this case, the contractors lose 5 per cent. on the loan, or £50,000 on the whole ten millions. It is easy to see, from this view of the subject, how the price of stock is liable to fluctuation, from accidental circumstances. I shall not attempt to enumerate these; but it may be worth while to point out how it is affected by peace and war, as these two states of the country are ge nerally found to have the greatest influence in raising or depressing the value of stock. In the time of war, then, the price of stock is comparatively low, because, in such a state of things, it is likely that government will be under the necessity of borrowing; and as every loan produces new bills, the quantity of those to be disposed of, or, in other words, the supply of the market, will be increased. The price, therefore, will fall, for the same reason that the price of corn falls after a plentiful harvest. In time of peace, again, the price of stock is comparatively high, because, in such a state of things, the taxes are likely to be sufficient to defray the expenses of government without any loans, and consequently no new bills are to be disposed of, or the supply, though not positively diminished, ceases to be augmented. For the same reason, the price of stock in the time of war is materially affected by the nature of the intelligence that comes from the scene of action. If that intelligence be unfavourable, stock will fall, because
there is a prospect either of protracted warfare, or of the necessity of more vigorous exertions on the part of government; in both which cases, new loans may be necessary, and consequently a new supply of bills will be thrown into the money market. On the other hand, should the intelligence be favourable, the price of stock will rise, because the prospect of a successful termination of the war renders it probable that there will be no new loan, and consequently no new supply of stock. It is this variation in the price of stock that gives room for the nefarious practice of stock-jobbing. That practice consists in raising and circulating reports, calculated to raise or depress the price of stock, according to the particular views of the individual. If he wishes, for example, to sell his stock or bills, he endeavours to propagate some report or other, favourable to the issue of the war, and the establishment of peace, in order, if possible, to raise the price of stock; and if he wishes to buy, he propagates reports of a contrary tendency. It is painful to think, that this abominable system is sometimes carried on by men, whose rank and station in society, to say nothing of the obligations of morality and religion, might be expected to place them far above any such disgraceful acts; but, in general, I believe it is confined to men of desperate fortune and little character, who subsist by a species of gambling, to which the finance system of this country has opened a wide and extensive field. I allude to those men who make a practice of buying and selling stock, without actually possessing any; and whose transactions, therefore, are nothing more than wagers about the price of stock on a certain day. To explain the nature of the transaction by an example, I shall suppose, that A sells to B a government bill of £100, or a £100 of 5 per cent. stock, to be delivered on a certain future day, and that the price is fixed at £102. If, when the day arrives, the price of stock shall have fallen to £100, A would be able to purchase the bill in question for £100, while, in consequence of his bargain, B would be obliged to pay him £102 for it, so that A would gain £2. If, however, stock had risen to £104, B would still be obliged to give only £102, so that A would lose £2; but instead of actually buying and sell VOL. III.
ing the stock, the bargain is generally implemented by A paying to B, or receiving from him, the £2, or whatever may be the sum of loss or gain. In such a case as this, it is obviously A's interest that the price of stock should fall, and as obviously B's interest that it should rise, between the day of the bargain and that of settling, and hence the temptation held out to both to circulate reports favourable to their own particular views. B, or the buyer, is usually denominated a Bull, as expressive of his desire to toss up; and A, or seller, a Bear, from his wish to trample upon, or tread down. The law, of course, does not recognise a transaction which proceeds on a principle of gambling; but a sense of honour, or, what is perhaps nearer the truth, self-interest, generally secures the payment of the difference, as the person who refuses to pay his loss, is exhibited in the Stock Exchange under the designation of a lame duck, a disgrace which is considered as the sentence of banishment from that scene of bustle and business.*
I have, in the preceding remarks, for the sake of simplicity, represented the transfer of stock, as carried on in a way somewhat different from that in which it is really conducted. I have considered the securities which government gives to those from whom money is borrowed as consisting of bills, and these bills as uniformly bearing interest at 5 per cent.
Neither of these statements, however, is, strictly speaking, correct, as I shall have occasion more particularly to explain in a future communication; but as my object in this introductory paper was to simplify the subject as much as possible, for the sake of those who are unacquainted with it, I have chosen an illustration that appeared to me most elementary, and which, if well understood, will enable ordinary readers to comprehend with little difficulty, the more intricate parts of the subject, to which I shall take the liberty hereafter to direct their attention. To many, I have no doubt, my observations will appear not only sufficiently simple, but abundantly silly, and as containing nothing but what every body knew before. Now, I do boldly aver, that every body does not know what I have above explained, and I
solemnly protest against the sneers and sarcasms of those who do, because it is not for them I write, nor is it their approbation that I care any thing about. I write for the instruction of plain honest country folks (who, by the way, constitute no inconsiderable portion of your readers), and if I can assist one old lady in judging when it is most advantageous to invest in, or sell out, of the funds, or save one young gentleman from blushing, when he is requested to read and explain the newspaper report of the stocks, I shall not consider my own trouble lost, or the paper of your Magazine wasted. I am, Sir, your obedient servant, 5th Oct. 1818.
RICARDO AND THE EDINBURGH
IN page 81, Edinburgh Review, No 59, on Ricardo's Political Economy, are these words: "It follows from these principles, that the interest of Landlords is always opposed to that of every other class of the community." What are these principles may be seen by those who shall study the book and the review of it. This is the conclusion drawn from them, and sanctioned by the authority of the Reviewer, and of this I shall treat. Were a very long and intricate chain of reasoning to conclude with the inference, that perjury and fraud were lawful in the common transactions of life, I suppose it would not be necessary to follow the chain. Such a conclusion would be considered as equivalent to what mathematicians call Reductio ad absurdum, or a Coroners Inquest, Felo
If any man, or class of men, be of such a nature, or in such a state, that their interest is always opposed to that of every other class of the community, then that man, or class of men, are the natural and necessary enemies of mankind; for the disposition will follow the interest, and the conduct the disposition; and it would be for the interest of mankind that such a class did not exist; in other words, that landlords did not exist, and that there was no such thing as landed property. Yet it is from the land or soil that all the necessaries, conveniences, and material comforts of life are obtained. How these would be produced, in such a case, or what inducement there would be to produce them, or under what new form of so
ciety they would be produced, or what previous steps would be necessary to bring matters to this happy consummation, it is for Mr Ricardo and his Reviewer to explain. As matters now stand, the case is hopeless, for (page 77,) no reduction would take place in the price of corn, although landlords should forego the whole of their rents." In other words, although the present landlords should cease to be landlords, and the present farmers be substituted in their place, still the land must be occupied by somebody, who will have an interest always opposed to every other class of the community, and will therefore be their necessary enemy, at the same time that he would be their necessary friend; for the parties could not subsist without mutual assistance. If all that is meant be, that the interest of landlords is always opposed to that of every other class of the community, because they, like every other trade, wish to make the most of their commodity, by letting their land as high as they can, "We need no ghost to tell us this, Ricardo (or Reviewer)"; although it is to be hoped that there is no ghost or spirit of any description but would have had more candour than to put so very trite an observation into so mischievous a form, and to point against one, and that an absolutely necessary class of men, what is equally applicable to every other. If more is meant than meets the eye, let it be well observed, that were the world to rise en masse, and put the present landlords hors de combat in this interminable warfare, others would rise in their place, and the same wholesome discipline would have to be repeated without end, unless it be proposed that the whole mass of the people should assume the whole mass of the land, and cultivate it, for the mutual benefit, by Committees. Indeed, it is impossible to discover the sense or use of this remark about the opposition of interests, unless it be to make it the foundation of some such scheme as this, which might, by parity of reason, be extended to every other trade or profession. While matters remain on the present footing, and property of all kinds continues to be acknowledged and respected, men will continue, as they have done since the commencement of civilized society, to buy and to sell, to let land and to take it as they best can, those who give
themselves the trouble to think well knowing, and those possessed of any candour acknowledging, that this is not a general and eternal opposition of interests; but that while every man pursues his own interest, and attends to his own affairs, under the restraint of the laws of God and his country, he may leave the general result to Providence, and rest assured, that this is not merely the best, but the only way in which human affairs can be conducted. If political economists chuse to depart from the common use of language, and call this a perpetual opposition of interests, and, consequently, a state of perpetual hostility, let them have the consistency to call it a general opposition of interests; and let the rest of mankind admit that, if in one sense they be mutual enemies, in a more comprehensive view of the matter, they are mutual friends, and cannot do without one another. The landlord, be his rent great or small, cannot enjoy it without communicating it with the merchant upon 'change, the banker in his counting-room, the retailer in his shop, the mariner on the ocean, the weaver at his loom, the smith at his forge, the mason with his mallet, the carpenter with his chisel, the cobler in his stall. Let a man be ever so selfish, if he wishes to enjoy his own, he cannot, for his heart, do it alone. This is equally true of the landholder, the stockholder, the merchant, the capitalist of every description, nay, of the man of no capital, who lives by his daily exertions. He cannot live without making others live also. Nay, it appears to me, that, where there are many great landholders and great capitalists of other descriptions, there the labourers of every description, the manufacturers, the community at large, will be in a much better situation, than where the same capital is divided among a greater number, but none arising to wealth. For the wealthy man has many wants, and none of them can be satisfied without the assistance of the poor. Even when the poor cease, from age and infirmity, to be able to contribute to the other enjoyments of the rich, there is still one remaining to which they can contribute, the indulgence of a benevolent disposition. And whoever has observation and candour, will admit that, in this country at least, riches do not
We do not
harden but rather soften the heart. On the other hand, he was possessed of more than mortal wisdom, who long ago observed," that a poor man, who oppresseth the poor, is like a sweeping-rain which leaveth no food." Whereas, to use a homely but expressive similitude, a rich man, like a wateringpan in the hands of Providence, serves to diffuse more generally and usefully the means of subsistence; while the envious absurdity of the human heart grudges even existence to that which feeds it! as if the flesh of our bodies should rise, in unhallowed insurrection, against the heart. All would be watering-pans, all would be hearts; but this is not the order of nature nor of Providence, which must ultimately prevail. After derangement shall have succeeded to derangement, and revolution to revolution—after having exhausted all the forms of madness, of misery, of murder, and of blood, it is only by returning to the order and subordination of nature, that wretched and weary mortals can escape from anarchy and despotism, and expect to find, if not happiness, at least safety and repose. deny, what we have often felt, that there is such a thing as the proud man's contumely, as well as the insolence of office, and that nothing generates pride, and contumely, and insolence, more (although many things as much) than excessive wealth. But these are among the evils of a secondary kind, inherent in the very nature of society. For the pride of birth, of genius, of talents, of bodily strength and dexterity, is as mortifying to human nature as the pride of wealth. It is only in the dust of death that all visible distinctions shall be levelled, and envy as well as love and hatred disappear. Thus it is that the interests of the rich and the poor, the high and the low, the producer and consumer, however apparently opposed, are, in fact, linked together by an invisible adamantine chain, which no ages nor oceans can interrupt, nor death, nor war, nor the utmost malignity of the human heart, pointed by its utmost ingenuity, destroy. And no wonder; for it is formed and sustained by Him, whose weakness is stronger than man, and whose folly is wiser than man.
He from heaven's height All these their motions vain sees and derides