Jan

13

 from:

Practical Hints for Investing Money
Francis Playford, Sworn Broker
Smith, Elder & Co., London, 1855
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p. 36

THE NATIONAL DEBT POLITICALLY CONSIDERED.

The National Debt, which has previously been stated as amounting to between seven and eight hundred millions sterling, is considered by a great number of persons as a great national evil, and not without good grounds; as a proof of which, the payment of the Interest or Dividends consumes, at ordinary times, more than half the national revenue. The whole amount of the revenue is estimated at £52,000,000 a year, of which £27,000,000 are consumed in payment of Dividends, leaving only about £25,000,000 available for the remaining expenses of the Government;—thus clearly showing that as our necessary taxation is more than doubled by the payments required by the National Debt, it is an undoubted evil, involving the country in the necessity of supporting a very heavy annual burden in the way of taxes on the many leading requisites of civilised life.

On the other hand, however, it must be remembered, that a very large portion of the Debt was incurred during the administration of the late Mr. Pitt, and under subsequent Ministers in the course of the long struggle with revolutionary France, for the purpose of enabling our country to oppose the grasping ambition of the first Napoleon, which would otherwise, in all probability, have united nearly all the Powers of continental Europe in one overwhelming descent on our shores, and reduced, most probably, free England, to a mere Gallic province. From this extent of misery we are happily spared; and, however great the cost, we cannot but feel that we did not make the sacrifice in vain.

As respects the reason for having raised it by means of Loan rather than Taxation to the required amount, this will be self-evident from the vastness of the sum found necessary for empowering us to resist the enormous forces arrayed against us. In a word, it would have been simply impossible.

On the other hand, it is advanced by some,—a statement, the bare supposition of which will, no doubt, startle some of our readers,—that this Debt, notwithstanding the serious evils which were mentioned, is so thoroughly incorporated with our National habits and institutions, that, from being an evil, it has, in fact, become a Public advantage; inasmuch as, without its existence, numerous persons, who now live in comfort and a perfect sense of security, would have no means for safely investing their Capital. Widows and children, almost innumerable, now derive their sole and entire support from this source; and even the poorest, who have saved the amount of a few pounds, as a provision for their old age, hasten to invest it in the secure Asylum of the Public Funds, or, in vulgar parlance, "put it in the Bank." By such procedure, it can scarcely be denied that Trade benefits largely; for persons living on Dividends, it will be seen, are customers, without being rivals and competitors for a share of the profits; though, no doubt, it may be argued on the other side, that Trade is thus deprived of large sums that would otherwise be devoted to it, and thereby much limited in its operations. Vast sums are also yearly brought into the country and invested in the English Stocks by foreigners, availing themselves of the far higher character for security possessed by our Funds over those of other countries.

Thus, therefore, in this vast Debt, both evil and good are the indisputable result. That it has done good, we know by the evils which it enabled us to avoid in past times; and we are also sure that a numerous portion of all classes has been benefitted; though the very great increase of Railways and other undertakings paying fair Dividends, supplying the Public with a more extensive field for Investments, and gradually acquiring more and more of the Public favour and confidence, will, in this more speculative age, detract from any such plea for the necessity of maintaining so enormous a burden upon the country. In brief, it seems doubtful whether in any other country in the world the result of so enormous a Debt could, by any possibility, have appeared so beneficial.

That warfare of any magnitude cannot possibly be carried on by the Nation from its ordinary revenue, has been fully borne out by the results of the last few months; and experience proves that a lack of resources at the onset is most disastrous. This being the case, it is necessary that ample funds should be obtained in the most popular and expeditious way: though, nevertheless, we must not lose sight of the injustice inflicted on posterity by an unscrupulous resort to, or abuse of, the numerous facilities provided by a great mercantile community for contracting Government loans. Our Financial Reforms, too, have in late years done much to alleviate the burdens of the State, and the reduction of the National Debt has made great progress, operating alike beneficially on the value of, as well as the Public demand for, all classes of Government securities.

CAUSE OF FLUCTUATIONS.

The variation in the price of Funds—a subject so vitally interesting to a large portion of the Public—is due to several causes which mutually affect each other. The first of these is undoubtedly supply and demand, which is the criterion of price respecting every kind of property whatever. Next is to be considered the price of Bullion and the state of Exchange with foreign countries. The Funds are also very powerfully affected by the rate of Discount fixed by the Bank of England, which varies considerably at different times added to which, they are powerfully influenced by the actual or supposed stability of the Government, and its consequent power of keeping faith with the Public creditor. To exemplify the confidence with which the Public treat the British Funds, the fact is worth noting that Consols and the price of good Freehold Land in England generally move pari passu, yielding nearly the same rate of interest for investments, and at thirty-three and one-third years' purchase, being equal to Consols at par. Land, therefore, at twenty-five years' purchase, is equal to Consols at 75, and in like proportion.

All the Government Securities, in fact, and Consols more particularly, are vastly influenced by a constantly increasing demand, owing to the vast number of Trust accounts continually arising from the deaths of Capitalists, Deeds of Settlement, &c, which generally compel Trustees to invest the Capital or Funds committed to their charge in Government Securities; the result of which is, that enormous amounts are sometimes locked up for many years. Sums of money, also, pending the decision of Chancery suits, are invested in this manner. Now, as this process of absorption of Stock out of the market has long gone on, and still continues to increase, it must in time become an important feature for consideration; particularly, when it is remembered that in all cases of reduction of Interest or Conversion of Stocks, the Act of Parliament authorising such conversion or reduction, usually holds Trustees, &c, harmless from liability for submitting to the same.

Some parts of the surplus Capital of our great Joint-Stock Banking and Assurance Companies, as well as the accumulations of Savings' Banks, are also invested in the Funds; but as the latter are only temporary investments, when anything causing an unusual demand for money occurs (as, for instance, convulsions of trade or a bad harvest), these large companies, as well as the Savings' Banks, become extensive sellers in the market, and create for a time what is called "a panic,"—that is, a great and sudden fall in prices.


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