LOAN—WAYS AND MEANS
9 June 1820
The Chancellor of the Exchequer stated the terms of the loan of five millions which had been contracted for on this day: ‘the contractors had taken the loan at nearly 2 per cent above the current price of stock.’
Mr. Ricardo observed, that the present loan was made on very satisfactory terms. It was impossible, he thought, that it could be obtained at a more favourable rate. He however traced those favourable terms to the recommendation of an hon. friend (Mr. Grenfell) who, some years ago, had advised that the commissioners of the national debt should be allowed to subscribe for the loan to the amount of the balances in their hands. This advice was followed on the present occasion; but if the old course had been adopted, and the loan had been for 17,000,000l., the result would have been very different. Another cause which tended to procure terms so favourable was the smallness of the loan. It was within the power of a great number of persons to bid for a loan of 5,000,000l. and therefore the competition for the present loan was much more extensive than usual, and far greater than if it had been for 17,000,000l. In consequence of these circumstances, the right hon. gentleman had certainly obtained such terms as must be highly satisfactory to the country. He conceived that no fairer mode could be devised in forming contracts for the public than by open competition. That system, he hoped, would be generally acted on. An hon. gentleman had, on a former night, asked some questions relative to a large amount of exchequer bills, which had been issued by government at par, when they were at a discount in the market. From the explanation of the right hon. gentleman it seemed that they were given in consequence of a contract for a quantity of silver. Now, it was quite evident that the 7s. or 8s. received by government from the persons with whom the contract was made would be reimbursed by a profit in the price of the silver; they would undoubtedly raise the price to the amount which they were likely to lose. He thought, in this instance too, that the system of competition should have been acted on, and that they should have been purchased in that way. He wished for some explanation with respect to the quantity of exchequer bills relative to which information had been demanded a few evenings ago. A statement had then been made, which his hon. friend, and other gentlemen, declared they did not understand. It appeared to him to be a very mysterious transaction, and he could not make it out. It seemed that a provision had been made for appropriating the growing amount of the consolidated fund. His hon. friend had noticed this, and had observed that the growing amount might be made productive and useful to the public. In consequence of his representation a bill had been brought in some time ago, to enable the public to make use of its growing amount, by which it was provided, however, that they should not borrow more than 6,000,000l. from it. But it so happened that this growing consolidated fund was not equal to the discharge of the advances that had been made on it in the preceding quarter. He would thus explain himself:—Supposing this was the beginning of the quarter, that the public accounts were made up, and that there was a deficiency of 3,000,000l.; the Bank, in the first instance, made this good; and out of the amount of the consolidated fund in the commencing quarter the Bank was repaid those 3,000,000l. Supposing, over and above this sum of 3,000,000l., an equal sum accrued, the public, under the act, would, he understood, have the advantage of those 3,000,000l., since, by its provisions, a sum of 6,000,000l. might be borrowed for the public service. This was the system; but how, he asked, was it possible that the public could have the advantage of any part of this growing fund, when in fact it was in debt? It was exceedingly difficult for him to comprehend this. In April, 1819, there was a sum of 2,027,000l. so issued for the use of the public; and it was stated that from that period to April 1820, the public had the benefit of that money. But how could they have the use or benefit of it out of a growing consolidated fund, on which there was no surplus whatever, but which, on the contrary, was in debt, and that debt amounting to more than the 6,000,000l. which they were by the act of parliament empowered to borrow? As he could not understand this, he would be obliged to the right hon. gentleman to inform the House whether the public had really derived advantage from this 2,027,000l. from April, 1819, to April, 1820.
The Chancellor of the Exchequer explained.
Mr. Ricardo observed, that on the 5th of July, 1819, there was a deficiency of 8,400,000l. “But,” said the right hon. gentleman, “you have, without interest, 2,600,000l., for which exchequer bills have been deposited.” This he denied; and he would contend that the public had not the advantage of that sum.
Later in the debate, Mr. Alderman Heygate opposed the present loan and the issuing of bills to repay the Bank, because those measures would produce a reduction in the circulating medium, which must be attended with increased distress in the country: ‘such a reduction was at present unnecessary, for the price of gold being the same as the mint price, the Bank note was at par.’
Mr. Ricardo thought it quite unnecessary for the Bank of England to reduce its circulating medium any further than it was at present reduced. The worthy alderman had said, that gold was now at the Mint-price; perhaps he might have said that it was a little under it; for he knew that many persons took gold to the Mint at the Mint-price, in order to have it coined; and this they could not do if gold was not, in fact, a little under that price, because some space of time must elapse before they could receive the benefit of the coinage. But the worthy alderman appeared to labour under a mistake in supposing that a reduction of the circulating medium would be a consequence of this loan, or repaying the Bank. The reduction of bank-notes within the last year did not exceed 2,000,000l.; that reduction of 2,000,000l. was all that was necessary to bring about that state of the currency which all had united with the finance committee in desiring to see obtained. Indeed, if the Bank was desirous to follow their own interest, it was a clear and obvious one: if they were to effect a very great reduction in their paper, which he should most sincerely lament, the consequence would be such a rise in paper, and such a fall in gold, that individuals would carry their gold to the Mint, and endeavour to fill up the circulation with it. As to the alarm felt by his hon. friend it was quite groundless, for there could be no fear but that the Bank would keep up a sufficient quantity of notes, as their own advantage depended upon the issue. As to the sinking fund, the argument of himself and his hon. friend had been, “Take away all which tends to delude the country—take away so much of that sinking fund as is not in reality an excess of income over expenditure.” Therefore he entirely concurred in the opinions of the worthy alderman, that they should immediately get rid of so much of the fund as, being nominal, was merely a delusion.