PATER'S CHATS WITH THE BOYS.

Otago Witness, Issue 3314, 19 September 1917, Page 57

PATER'S CHATS WITH THE BOYS.

THE NATIONAL DEBT. Last week I outlined how England's debts were raised and paid before the Kevolution of 1688, and promised this week to touch upon the relation between the establishment of the National Debt and the part the Bank of England played in its establishment. But before I touch upon the founding of the bank, let me briefly refer to THE TALLY SYSTEM. We talk about the Chancellor of the Exchequer ; but who would have thought that the Exchequer accounts were kept by notches on sticks 1 Private lenders lent money to the Exchequer, and received the half of a tally stick made of willow. These sticks were about lin square and 4ft or sft long. " There were notches on one side to express the amount of the debt, and identical descriptions of the payments were written on two of the three vacant sides. The stick was split in half through the notches. One-half was given to the person making payment into the Exchequer; the other half of the counter tally, or counter foil, was kept at the Exchequer as a check. Here, it will be seen, we have at once the modern cheque system of our banks; and in the United S*tates the early spelling of ' check ' is still adhered to. . . . The tally system

was not abolished until 1783, and served the purpose of modern Treasury bills, enabling the Government to borrow small sums for short periods. But the action of Charles II in repudiating the goldsmiths' debt naturally made tallies suspect, and increased the difficulty of borrowing; hence, after the Revolution, the Parliament 01 William II had to find money for foreign wars by other methods." And in this way originated the National Debt; but what a primitive means of recording it! THE BANK OF ENGLAND.

In 1693 tho Government owed £1,200,000 or thereabouts, and William 111 wanted more money; and the brilliant idea of William Peterson, " a clever but speculative Scot," to found a bank. The scheme, commending itself to Montagu, " a Whig statesman of great financial ability," the Government granted the Bank of England, as it was called, a charter. The bank was to lend all its capital to the Government at 8 per cent., the interest being guaranteed out of the national revenues on wine, beer, tobacco, etc, and in return it was to receive (a) not only the agreed interest annually (£96,000), but also (b)

£4OOO a year for management, (c) the right to issue notes to the extent of £1,200,000 (the capital subscribed and lent to the Government), and (d) the right to do banking business. In the next year the Government borrowed another million, and the bank issued another £1,000,00 worth of notes. It becamd jso easy to borrow money for

posterity to pay in whole or part or not at all, providing the debentures were negotiable and interest was paid regularly, that in 1711 the debt amounted to about £20,000,000, and the bank, by getting good interest, a liberal allowance for managing the business in connection with the debt, a note monopoly, and o on, became very prosperous. THE SOUTH SEA BUBBLE.

In 1711 the success of.the Bank of England led to the establishment of the South Sea Company, which competed with the bank for the management of the debt. The company agreed to take 6 per cent, instead of 8 per cent., and pay off the floating debt, which was about half of the £20,0C0,000, provided that it was given a monopoly of the trade with the Pacifio and the east coast of South America, had a monopoly of the slave trade, and the right to send one ship a year to the Spanish colonies, the last two being concessions secured to England by treaty with Spain. In 1720 the National Debt had increased to £31,000,000, and in the meantime the South Sea Company had flourished, according to one authority (Airy's " Text-book of English History"), though, according to. another (Hirst's "The Stock Exchange —"Home University Library"), its commercial ventures met with little success. In any case—and this seems to prove that the company had been successful—" Sir John Blunt, one of the directors, a cunning and plausible scrivener . . . boldly offered to take over the whole National Debt ... if the Government would guarantee 5 per cent, interest for seven years and 4 per cent, thereafter In perpetuity." But the bank did r.ot wish to lose a good thing so competed with the company. Finally, the South Sea Company won, but not until it had agreed to pay £7,500,000 for the privileges. Thus the State got money at 5 per ceijt., and pocketed the £7,500,000. The company received 5 per cent, on the sum lent, bul guaranteed only 4 per cent, to its shareholders, who thus lost 2 per cent, by the transaction. But the profits promised were so enormous that Hie public were willing eventually to lend £IOOO to the company for £IOO stock, giving up a sure £6O for £4, assuming that the profits would give not only the £4 guaranteed, but profits which would make them rich beyond the dreams of avarice. People went mad for South Sea stock—didn't people go crazy in New Zealand a few years ago when the dredging boom was on? Go up the Waipori Creek and see where it was proposed to put a, dredge!— and £IOO stock was actually sold at £2000! Then the bubble burst, "A fierce cry arose; the fortunes, the lives even, of the directors of- the company were clamoured for. One peer demanded that they should be treated like parricides in Rome, stitched up in sacks, and flung into the river." Perhaps one of these days I may give a Chat upon the South Sea Bubble 5 but my text just now is the National Debt.

Walpole, a clear-sighted man, who opposed the project, but who made money by acquiring stock and selling out at the right time, came to the rescue, called in the bank to help to straighten things out, and remained in power for 21 years. So we see the National Debt" commencing with £1,200,000, and the Bank of England coming into existence at the same time—l 693.

I'll conclude my Chat today -with a condensing of a couple of paragraphs from Lingard's History of England, brought up-to-date by a volume written bv Hilaire Belloo:

"But the principle of a lengthy indebtedness by the State to private moneylenders once admitted, the return to older and saner methods was impossible. Ifc was like the breaking of an embankment, the water pouring through which broadens and deepens its own channel until there is no closing it. Hitherto, when money had been needed the Government had had to count the cost; that is, the power of the citizens to pav their way had to be the first consideration. Now that it was possible to effect a mortgage upon the whole society, and with every temptation to extraordinary expenditure, the first recourse was, of course, to a loan. The thing was done, as I have said, in 1693 to the tune of one million (£1,200,000). a sum which could have been paid at a pinch within the 12 months; when four years had passed this million had become} 20 millions; in 20 years it exceeded 60 millions, and though it was reluctantly accepted that such charges should be a permanent feature in the life of a modern State, though it was not until the great wars of the French Revolution that jSoig" land admitted such a charge to be irredeemable, yet the thing in practice was established as a permanency almost from the moment of its first experiment. "The State was always in moment of stress tempted to borrow; the possessors of accumulated wealth were only too glad to get a grip upon that best and ultimate security for the money-lender—the State's power of coercing all its citizens to pay j aiui we have lived to see in our own time loans forced upon reluctant nations by foreign usurers who would subsequently order (through bribed politicians) the armed forces of their own countries to aot as debt collectors for them, and even to occupy the territory of those who would not or could not pay the interest den

dcd." A National Debt does not necessarily mean all that Belloc implies in the tion given, for it is only reasonable tha-i benefits costing large sums and bestowing benefits upon posterity should be paid iii part by posterity. The quotation, however, contains a great deal of truth, and furnishes food for mental digestion. I must give a concluding Chat showing how the debt has increased as time has gone by, how the rate of interest hajfi gradually gone down, how fluctuation! have taken place, and at the same tims draw attention to the tables published week by week, showing the state of tbi< market in connection with Australasian consols.