[§ 3. Of Stocks.]

Soon after the Revolution, on account of the necessities of government, it was necessary to borrow money from subjects, generally at a higher rate than common interest, to be repaid in a few years. The funds allotted for payment of this interest were taxes on certain commodities. These taxes were at first laid on for a certain number of years, according to the term for which the money was borrowed; but when, by various arts of government, these loans came to be perpetual, the taxes came, of course, to be perpetual, and thus the funds were mortgaged. Though they1 were made perpetual when money could no longer be borrowed upon them, yet they were still redeemable Edition: current; Page: [248] upon paying up the money borrowed on them1. When these taxes were laid on, nothing would have shocked people more, than to have thought that they were to be perpetual, but their progress was so insensible, that it was never murmured at. What shocks at first will soon become easy from custom, which sanctifies everything. Thus [the] taxes were first laid on, and thus they came to the situation in which they are at present. When a sum of money is lent to a private person, the creditor can come upon the debtor when he pleases for both capital and interest; but it is not on this footing that the government borrows money; they give you a right to a perpetual annuity of three or four per cent., but not to redemand your capital. It seems very odd at first sight that the creditor should consent to such an inconvenience as that his money should never be paid up2, but this is really his advantage. If you lend to the government a thousand pounds in time of war, as they have immediate use for it, they will perhaps be obliged to give you five per cent. of interest, and when peace comes they continue your annuity. You have it in your power to dispose of your annuity, and as your money is perfectly secure, and interest is paid by no private person with so much punctuality as by the government, you may very often sell the annuity of your £1000 at £1100 or more. The government, finding that these annuities sold above par, and for the same reason that people were much disposed to subscribe to the government funds, they resolved, as the funds were still redeemable, to take the advantage by paying up the sums borrowed at five per cent., and Edition: current; Page: [249] borrowing money at a lower rate1. This made the contractors with the government to be on their guard, and, as they saw their design, they would not lend them any more money, without at least some part of the interest should be irredeemable, perhaps two per cent. of the four they were to receive. In every fund therefore there was a part irredeemable2, which made them continue to sell above par.

In the reigns of King William, Queen Anne, and in the beginning of that of King George I, the funds rose and fell, according to the credit of the government, as there was still some risk of a revolution. Of late, though there be no danger of a revolution, even in the times of peace stocks are sometimes at ten, twenty, or even fifty per cent. below par, and sometimes as much above it3. Nobody can suspect any risk of losing that money by change of government. How then comes it that stocks are thus everyday fluctuating without any visible cause? How comes it that good or bad news have such an influence on the rising and falling of stocks? The real cause is as follows:

Every misfortune in war makes peace to be at a greater distance, and every fortunate occurrence seems to favour its approach. When war continues, the necessities of government must be supplied, more money levied and new subscriptions opened for these purposes. As in war the interest must necessarily rise, every one is eager to be in the new subscription, and they who have annuities find that it will be for their advantage to sell out of the old stocks in prospect of a higher interest. The number of sellers, therefore, increases with the prospect of a war, and Edition: current; Page: [250] consequently stocks fall. On the other hand, whenever there is a prospect of peace, as there are no expectations that new subscriptions will be opened, they who have annuities are not fond of selling them; and therefore, the number of sellers decreasing, stocks must rise. In time of war, every one who has any stock runs to have it in the hands of the government, as it cannot be so advantageously employed anywhere else, as they get interest perhaps at seven or eight per cent., of which two or three perhaps is [ir]redeemable, and frequently a lottery ticket into the bargain. A person who has an annuity only at three per cent. will do all he can to sell it, that he may employ his stock to greater advantage, and for this reason will often sell it below par, and consequently stocks must necessarily fall. But in time of war, for the following reasons, even the new subscriptions come to sell below par.

As there are a great many stock-holders who are merchants, and who keep their stocks in the hands of the government that they may be ready to sell out on any sudden demand, and take the advantage of a good bargain when it casts up1, and as these chances occur most frequently in time of war, they have often occasion to sell out, and thus more stock runs to the market, and the new subscriptions sink2 below par. But further, in time of war, as was observed before, stock cannot be so advantageously employed, and everybody is tempted to subscribe. Even those whose circumstances are but very inconsiderable, subscribe for great sums in hopes that stocks will rise, and that they may sell out before the time of delivery, to great advantage; but when things do not answer their expectations, and they are forced to sell out one way or another to support their credit, they are often obliged to sell below par. In this manner the new subscriptions may fall. Stock-jobbers that are well acquainted with their business, observe particularly when a number of indigent persons Edition: current; Page: [251] are in the subscriptions, and as they are soon obliged to sell out, and consequently stocks fall, it is their proper time to purchase them.