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

METHODS 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 loan of some
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 burro wed in 1855,
£14,520,327; and in 1856, £13,152,489. And the
Sinking fund of £1,506,000, 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 theimprovements 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 moment, 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 effecting 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 Consols, and apply a
'surplus revenue annually to the purchase of Go-
vernment securities, in the same manner in which
any casual surplus that 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
haring, l 0 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 he requires at a reasonable rate. In securities
I of which the quantity treated is small, there is no
such facility. If a dealer contract to supply more
of these than ho 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
probability of success and of failure, is not favour-
able.
If we are compelled to fall back on the two other
species of temporary loans, we have cmclusive
proof that Terminable Annuities are preferable in
this country to Exchequer Bonds. We can, ascer-
tain the worst of Terminable Annuities. AN e raise
them at such terms as Ave 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 Bonßs it is impossible to know
the worst. They may fall due at the most incon-
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