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 Ј523,454:7:7Ѕ. 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 Ј140,000 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 Ј666,821: 8:3Ѕ a-year. On the 5th of January 1775, the remainder of them, or what was not subscribed at that time, amounted only to Ј136,453:12:8d.
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 of France is estimated at twenty-four 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.