The Sun.
London, England, 1860-06-18 00:00:00

2111THODS OF BORROWING.

(From the Economist.)
It has now become certain that there must be a
Supply Budget. The Chinese war and the national
defences are both contingencies which were not
provided for by the first. It is also certain that
the Supply Budget will contain a loariof
amount in some form or other ; and it Is, therefore,
a proper time to consider what are the times and
circumstances suited to particular methods of bor-
rowing, and what are not. No one ever thinks of
such subjects except when money is to be raised
by way of loan.
Under ordinary circumstances we should be jus-
tified, we believe, in throwing a share of the cost
of the present outlay on the national defences upon
posterity. They are in the nature of a permanent
improvement. Other generations, as well as ours
will enjoy the benefit of them. If we are, as we
believe, conferring a great benefit upon posterity,
we may throw, as a general principle, some of the
burden upon posterity likewise. There is, how-
ever, one great objection to our doing so. The
National Debt has increased very materially during
the last ten years. We borrowed for the purposes
of the Russian war; we borrowed in 1855,
£14,520,327 ; and in 1856, £13,152,489. And the
sinking fund of £1,500,000, which was to have
been applied annually out of the surplus revenue
to the liquidation of this debt, has been abolished.
The requisite surplus revenue has not been main-
tained, or has been diverted to other purposes.
Now, whatever may be the merits or demerits of
the Russian war, which we need not discuss now,
it certainly was not a war so exceptional in its
nature as to justify our charging posterity for ever
with its cost. Every generation has its own little
wars; it is obliged to engage in contests which do
not menace its existence, which may not confer
more than a temporary benefit, which are essen-
tially "evils of a day." Recent events prove
how exactly the Russian war was of this kind.
How much Turkey is strengthened by what was
then done, how much now remains of the effect
of the achievements before Sebastopol, are, at
the best, doubtful questions. At the best we
cannot believe that the result of our exertions
will last many years longer. As we are throwing
on posterity this charge of more than £27,000,000
sterling, which we are not justified in throwing, we
should be cautious of burdening them with the cost
of the improvements of the national defences, how-
ever much, under other circumstances, we might
have been justified in so doing. As to the cost of
the present Chinese war, this is evidently a war of
the fnoment, from which it would be absurd to ex-
pect consequences that a distant posterity will feel,
and of which, therefore, we who are alive should
bear the burden.

We are, therefore, obliged to ask what are the
best means of borrowing money which we really mean
to pay. There are three modes of effectin g this object,
all of which have been tried within the last few
years,—Exchequer Bonds, a Sinking Fund payable
out of a real surplus, and Terminable Annuities.
It is certain that the most economical course for
the country is to borrow in Consuls, and apply a
surplus revenue annually to the purchase of Go-
vernment securities, in the same manner in which
any casual surplus hat may occur within the year
is already applied. This is the mode in which the
loan is obtained on the best terms. It suits the
dealers better.

The great bulk of our national debt consists of
Consols and other Three per Cent, stocks, and of
these the dealer keeps a constant supply. He is
always ready to sell them at a price, and always
ready to buy them at a price. But if he were to
attempt to keep a supply of miscellaneous Govern-
ment securities—of Terminable Annaities, some
having 10 years to run, some 20, some 30—or of
bonds, some falling due next year, some the year
after that—the capital which his business would
require would be very great, much larger than it
now is, and his profits would be the same. Every
trader knows that it requires a much larger capital
to deal in nine articles than to deal in one ; to be
always able to satisfy his customers with each he
must hold a surplus stock in all. Particular cir-
cumstances in the stock-market make this stronger.
All the great dealers there like to be able at any
time to supply a purchaser with the Government
securities in which they deal. In Consols this is
easily effected. If a dealer contracts to
sell more than he has of his own, the supply in the
general market is so large that he can easily obtain
what lie requires at a reasonable rate. In securities
of which the quantity treated is small, there is no
such facility. If a dealer contract to supply more
of these than he himself has, he will have a diffi-
culty in finding the few holders of the small supply
which exists, and those few holders becoming aware
of the contract he has made may ask very high
prices. On these accounts the dealers of the Stock
Exchange at present discourage all loans except in
Three per Cent. Stocks ; and, as long as circum-
stances are unchanged they are likely to continue
,to do so.

We cannot in England borrow except through
contractors. Middlemen are essential in an ad-
vanced state of commerce. There are not here any
hoarded sums to be drawn forth, as in France from
secret holes and corners. We are dependent on the
dealers, and it is certain, therefore, that borrowing
in any other form than Consols is an expensive
mode.

The difficulty of this plan is the difficulty of
securing the repayment. The creditors of the coun-
try cannot require payment, and the country is not
anxious to pay. We may not discuss now who is to
blame, whether it be the Cabinet, the Parliament,
or the nation, but we all know the circumstances.
It is a very difficult task in this country to main-
tain a surplus revenue for the purpose of repaying
debt. The public do not distinctly feel the obliga-
tion of it. Our Administrations, as a rule are weak,
they covet the popularity which may be obtained
by a reduction of taxation. We cannot say that
this difficulty becomes less. Of late years, on the
contrary, there have been two increasing tenden-
cies. On the one hand, the House of Commons and
the nation press on the executive Government an
increase of expenditure. On the other hand, they
loudly object to taxation—some to direct and some
to indirect taxation, but almost all to taxation of
some sort. Between these two tendencies the attempt
to" muddle away our resources" in paying our debts
is not likely to be successful. We own that we should
like to see the true plan of a real sinking fund again
tried. We never like to give up right principle.
Still, the prospect, the calculation of the relative
i
probability of success and of failure, s not favour-
able.
If we are compelled to fall back on the two other
species of temporary loans,.
we have conclusive
proof that Terminable Annuities are preferable in
this country to Exchequer Bonds. We can ascer-
tain the worst of Terminable Annuities. We raise
them at such terms as we may; and pay them off
by a process that is gradual—that is comparatively
imperceptible. When they cease it is a great relief.
But of Exchequer Bonds it is impossible to know
i
the worst. They may fall due at the most ncon-
venient of all times, exactly when it is impossible
to repay them, and scarcely possible to renew them.
The market for both species of security is limited,
and no large amounts of either could easily be
" placed." It is some time before a new creation,
even of Consols, the most favourite security which
we have, sinks down to the ordinary consumer. The
daily tendency of Terminable Annuities to depre-
ciation is a great objection to them. The holder
has to make a continued reserve to counterbalance
that depreciation, and this is a process and a diffi-
culty. But, on the other hand, the Terminable
Annuities are suitable to a considerable class of
regular investors—viz., insurance offices, who re•
quire a certain sum of money periodically for the
purposes of their business, and prefer, therefore,
that a certain percentage of their loans should be

" 2d. Question 2 asks my opinion of the probable
effects of the, occupation of London by an invading
army,—books, security, and public property having
been previously removed, and private property
being respected by the invader.
" I cannot contemplate or trace to its consequences
such a supposition. My only answer is,—it must
never be. In proportion as a country has advanced
in civilization, and in commercial and manufactur-
ing prosperity, the metropolis of that country be-
comes more and more intimately connected with
all the operations and interests of the whole com-
munity; it becomes the centre, the heart of the
entire social and industrial system. The move-
ments of the central city become connected by an
indefinite number of the most delicate links with
the daily transactions of every town in the empire.
)Mere illa non possunt et non hoc eodern labefactata
nicht concidant.

" An invading army occupying London will be
in possession of the centre of our Governmental
system, the centre of internal communication, the
centre in which a large proportion of the transac-
tions ,nf the whole country is. daily tkijitt:ted, the
-mitt* of our financial system ; anti, as "%—.:
must of course be included in the fate of London,
the enemy will hold the great depot of our military
resources. Can any doubt exist as to the effects of
this ?

" But the enemy will respect private property,
and will endeavour to allay alarm, to restore confi-
dence, to obviate confusion, and to give to his pre-
sence the character of a purely military occupa-
tion. What, it is asked in question 5, will be the
results of this ?

‘: I believe that in the case supposed there would
exist a prevalent feeling that the fatal blow had
been struck; that the deep humiliation had been
sustained; that the means of satisfying his exac-
tions are under the command of the enemy ; that
the means of further and effectual resistance Ate
doubtful, while the calamities attending it are cer-
tain and overwhelming. Under these circumstances,
many, no doubt with a noble spirit, would counsel
determined and persevering resistance at all
hazards and under any sacrifice ; but many would
deem such courage to be recklessness, and would
think the time come for bending under the blow,
and that no rational alternative remains but that
of purchasing the withdrawal of the enemy upon
the best terms that could be obtained. Which of
these conflicting views would prevail I cannot un-
dertake to determine.

" The effects, however, of a country thus humi-
liated, paralysed, dispirited, and divided in opinion
would not, I fear, lead to any satisfactory result.
" The safety of the country, as much as its ho-
nour, require that the integrity of the empire be
defended on the sea, principally, and in the first
instance; and in case of any serious mishap there,
we must be prepared to fight the battle upon the
first inch of ground upon which a foreign foe sets
his hostile foot. Our riches, the complicated nature
of our social and monetary system, the limited ex-
tent of our country, the necessity of internal order
and confidence for the maintenance of our manu-
facturing population, would, I fear, be found to
render a prolonged conflict upon our own soil per-
haps impracticable, at all events fatal to all that
constitutes the power, the wellbeing, and the hap-
piness of the country.
" 3. A serious apprehension of invasion, still
more the actual landing of an invading army in
force, would, I apprehend, necessitate the immediate
suspension of specie payments by the Bank of Eng-
land ; this would be followed by the prevalence of
monetary alarm, partaking more or less, according
to circumstances, of the character of panic. Money
would be withdrawn from savings banks, from
country banks, from all parties holding money at
call. To meet these demands Government securi-
ties must be brought to market in unusual quanti-
ties at a time when the credit of the Government
would be shaken, and the disposition to in-
vest in Governmmt securities would from the same
cause be seriously checked. The consequence is ob-
vious ; a heavy fall in the price of public securities,
a prostration of public credit, and grievous incon-
venience, amounting not improbably to the absolute
suspension of the usual course of monetary opera-
tions.

" In this country the use of money is economised
by various complicated expedients to an extent in-
firthely greater than in any other country. The etli-
:!iency of these expedients depends upon the undis-
turbed state of social or der and public ccnfidence ;
they would he at once paralysed by any serious in-
vasion of the country. More money would be re-
quired for the purposes of circulation when more
money could not be had; and the existing amount
of money would be rapidly secreted for safety.
Money, and the substitute for money, credit, would
disappear simultaneously. To what extent would
this go ? No man can say beforehand. But these re-
sults would be more disastrous in England than in
any other country, on account of the complicated
character of our monetary arrangements, which
renders the whole system peculiarly sensitive to any
movement tending to produce disorder or discredit.

4. The fourth quesztion directs attention to the
effect which an invasion of England may be ex-
pected to produce upon the prosperity of other coun-
tries, and the strong reaction which it is supposed
this might cause against the author of the aggres-
sion.

I cannot doubt that the consequences of any
blow inflicted upon the prosperity of England would
be felt, and seriously felt, through every quarter of
the globe to which trade and commerce have pene-
trated. A large portion of the productive energies
of the world are sustained by British capital and
British credit. Look at our annual exports, amount-
ing to about 100,000,000 of sterling value. This
indicates the extent to which other countries de-
rive the supply of their necessaries or their luxu-
ries from British industry. Look again at our
annual imports, swelling to the same amount, and
thus showing the extent to which other coun-
tries find a market for their products in British
prosperity. The country from which these gigantic
transactions emanate cannot be seriously injured
without disastrous consequences to every country
which directly or indirectly has held intercourse
with her. Such is the beneficent law of interna-
tional commercial intercourse; all trading countries
have a common interest in the progressive pro-
sperity of their neighbours, and no doubt can be
entertained that the effects of a blow which an in-
vasion of England would inflict upon our commer-
cial prosperity must vibrate through. the whole
trading world. Bat these effects will be very
slightly estimated by anticipation ; it is only after
the fatal cccurrence other nations will fully recog-
nise the extent to which their interests are involved
in the well-being of this country. Our safety must
in no degree be left dependent upon the precarious
and tardy sympathy of other countries. The aid
to be derived from this source will arise after the
evil has been consummated. With ourselves alone
must rest the defence of our country.
" We have every inducement to make our system
of national defence complete and effectual,
,because
the calamities and misery which a successful inva-
sion of England must produce would be far more
serious than any of which the world has yet had
experience."