Front Page Titles (by Subject) Objections to the Annuity-Note Plan, with Answers. - The Works of Jeremy Bentham, vol. 10 (Memoirs Part I and Correspondence)
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Objections to the Annuity-Note Plan, with Answers. - Jeremy Bentham, The Works of Jeremy Bentham, vol. 10 (Memoirs Part I and Correspondence) 
The Works of Jeremy Bentham, published under the Superintendence of his Executor, John Bowring (Edinburgh: William Tait, 1838-1843). 11 vols. Vol. 10.
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Objections to the Annuity-Note Plan, with Answers.
Objection 1st,—We have already a larger proportion of paper circulation than is consistent with our security in times of public alarm.
Answer,—What the objection assumes is, that the object of the plan was to make an addition to the mass of paper in circulation, or, at least, that such would necessarily be the effect. But this was certainly not the object of the plan, nor, if my views of the matter be correct, would it be comprised in the number of its effects; and if I were mistaken in this point, the excess might be, and ought to be, repressed by measures which, in my view of the matter, will be necessary, although no such measure as that proposed should be adopted. In the first page of the Introduction, I state myself as aware of the superabundance of paper in circulation; and as relying upon the plan as a remedy, and such a remedy as cannot be matched by any other for efficacy and security, to the superabundance.
Since then, my suspicions of the existence of a superabundance have every day received stronger and stronger confirmation from subsequent investigation, and the danger resulting from it, has presented itself to me as so serious, that sooner or later, something, in my view of the matter, must be done to repress the growth of the excess, under pain of a most grievous and certain rise of prices, (over and above the amount of any casual rise from bad seasons,) with the addition, sooner or later, of general bankruptcy.
By measures operating in a direct and clear way, in repression of the excess in the mass of existing paper, I do not doubt but that the repression might be effected; all I contend for, under this head, is, that the repression cannot be effected in so smooth and convenient a way, without the proposed Government paper, as with the help of it. The repression of the excess is a point of some delicacy; since bankruptcy might equally ensue from a sudden diminution, as from too sudden an augmentation of the quantity. Among the properties I ascribe to the proposed paper, is that of possessing a sort of amphibious nature, in virtue of which it will, of itself, and without any regulation on purpose, be added to the mass of the circulating medium, or withdrawn from it from time to time as the circumstances of the time may happen to require. This is argued in several passages not yet printed—I believe in the unprinted part of Ch. iv. [vol. iii. p. 118.]
My notion is, moreover, that as this paper advances in the circulation, at the same par, and no greater, will the other papers recede, and withdraw themselves out of it; that this effect is no more than what is likely to take place of itself, without any positive regulation for the purpose; but that if it should fail of taking place in a sufficient degree, measures, operating in a direct way in that view, may be taken with greater safety, after the institution of the proposed paper than without it. These points, too, I have argued at large.
It is among the properties of the proposed paper, to be essentially incapable of excess;—and that as well with reference to rise of prices, as with reference to bankruptcy; it is of the essence of the existing paper, (legislative repression apart,) to be perpetually running on in the career of excess, with reference to both those evils.
True it is, that, according to the proposed plan, the amount of the proposed paper is proposed and expected to swell in time, so as to be equal to, and give its form to, the whole amount of the national debt; but were it, for argument’s sake, to swell to that amount in the compass of the first month, it would not, on that account, contribute anything considerable to rise of prices, much less to the approach of bankruptcy. True it is, again, that at any given point of time, it is, in every part of it, equally capable of being kept in hand like Stock Annuities, in the quality of a permanent source of income, or passed, from hand to hand, like bank paper in exchange for goods or estates; and, accordingly, so far as concerns its exchange for goods, of being employed in such manner, as to contribute to the rise of prices, but it cannot, any part of it, officiate in both these capacities together; it cannot, any part of it, be, at the same time, kept in hand and parted with by the same person. After the conversion of the whole mass of Stock Annuities, into the proposed form of Note Annuities, men will not spend more of their capital in the way of current expenditure—in other words, in the purchase of goods for consumption and other uses, than they do now; but it is only in proportion as the proposed Note Annuities are employed for the purpose of current expenditure that they can add anything to the rise of prices.
As to the existing paper,—one of the properties it may have in common is, that taken in the aggregate, the performance of the engagements entered into by them (viz. for the delivery of so much cash) is physically and constantly impossible.
Another is, that in proportion as the amount of them swells, the amount of the cash so undertaken for swells likewise; and that, whether the amount of the cash capable of being delivered in pursuance of such undertakings increases, remains the same, or decreases.
On the other hand, it is among the properties of the proposed paper to make no addition whatever to (but on the contrary a defalcation from) the aggregate mass of the cash, the delivery of which is undertaken for, by the party from whence it issues; at present the money that Government stands bound for the delivery of, on the score of the national debt, is,—the amount of the interest of it, and that payable in certain fixed proportions, at certain fixed times of the year; and this is all it would stand bound for the delivery of, were the mass of the proposed paper to be equal to the whole amount of the principal of that same debt.
What the mass of existing papers undertakes for, is, the delivering on any day, if demanded on that day, a certain mass of cash, which, if demanded on any one day, would most certainly not be to be found; what the proposed paper undertakes for, is, the delivery at sundry prefixed and foreknown periods,—two or four of them in a year,—each consisting of a number of days, and as distant from one another as possible, a quantity of cash which cannot be greater, but on the contrary, in proportion to the increase of the proposed paper, cannot but be continually less and less than the quantity which Government is already enabled and accustomed, as above, to deliver on the same account. In a word, what I admit, is,—that the paper in circulation exists already in excess. What I am strongly inclined to think, is, that the insecurity resulting from that excess, is,—not merely contingent,—depending upon accidents of a nature to bring on an alarm, but certain; viz., though not certain of happening at any near point of time, yet certain of happening sooner or later, if not prevented by the application of some proper remedy. What I maintain, is, that the proposed paper is not of a nature to add to the excess. What I am again inclined to think, is, that the proposed paper might of itself, be capable of operating as a sufficient remedy.
What I, moreover, maintain, is, that if other, and more direct remedies should be thought fit to be applied, the proposed paper, so far from affording obstruction to their operation, would be auxiliary to it.
I will conclude this head, with giving an exemplification of its amphibious nature, (as above-mentioned,) from which results that regulating power, in virtue of which it is alike calculated to correct any excess or deficiency in regard to the quantity of money of all sorts in circulation,—observing, however, that this supposes the whole, or a considerable part of the existing mass of Stock Annuities to have been already converted into this shape, as per Art. 20, p. 27.
1st. Let money on a sudden become scarce,—a merchant, besides the capital invested in trade, has Government annuities to the value of £10,000 in this paper; the sum he wants, is £5000 for two months; the scarcity is such that he cannot raise it in the usual way, by putting his name to bills, and getting them discounted. Were his annuities in the form of Stock Annuities, as at present, he would then have to sell them for less, by, perhaps, ten or twenty per cent., than what he gave for them. Being in Note Annuities, which it is shown at chap. 4, can never at the supposed period bear either discount or premium to an amount worth regarding, he simply takes the £5000 from his hoard, and passes them on in payment, as he would so much cash, replacing the amount, and recompleting his £10,000 worth of hoarded capital at the two months’ end. The result will of course be the same in the case where, instead of his having the £5000 of his own, a man meets with a friend who is content to supply him with it on those same terms.
2d. Next, let the stock of money in circulation be swelling to excess: that is, increasing at such a rate as, were it not for the sort of drain afforded by the amphibious nature of this part of the mass would be productive of that inconvenience.
Now then, as the quantity of money existing in all hands, taken together, swells, so does that part which is in the hands of those who are laying up money—i. e. for the purpose of deriving income from it without bestowing their labour on the management of the fund, whether in the way of trade or otherwise.
In this case, in proportion as a man betakes himself to what is called laying up money, instead of laying it out in the way of his trade, (which deprives him of the interest,) he keeps it in hand for the sake of the interest, which now comes in lieu of profit on stock, and pro tanto, constitutes his income. But so much of the mass of money as is thus kept up, is, for so long as it continues to be so kept up, withdrawn from the aggregate amount of the mass of money in circulation.
At present, Government annuities are said to be converted into ready money—and vice versâ:—but at present, the conversion is true, in a figurative sense only,—and in each instance the operation is liable to be attended with a loss. In the proposed state of the Government annuities, the conversion is literally true in both instances, and is not exposed to loss in either case.
The same double function is performed by Exchequer Bills, though with inferior advantage:—large, even in their smallest sizes, they are incapable of serving for dealings, on any but the largest scale;—limited in their duration, they are incapable of securing a permanent mass of income;—limited in their aggregate amount, they are incapable of carrying this species of accommodation to the extent to which it may sometimes be required.
For illustration, it was necessary to suppose, in the one case, the deficiency,—in the other, the excess already in existence. But the same cause which, according to that supposition, would operate as a corrective, would, in fact, operate as a promotive; deficiency and excess would respectively be corrected, each in its nascent state,—as they doubtless are already in a certain degree, by Exchequer Bills, especially under the late increased amount of that part of the floating debt. In the present state of things each one of the opposite evils receives, it is true—receives, sooner or later, a remedy of the corrective kind. But how? always by the operation of some new force;—in case of deficiency, by a quantity of fresh matter of some kind or other added to the preëxisting mass: as by the increased issues of Bank notes: and before that, by the increased amount of Bills of Exchange, substituted (as according to Mr Henry Thornton’s evidence) for the cash notes drawn out of the circulation by the distress that took place at different periods, in regard to the paper of the country Banks. In the proposed state of things, the corrective would take place of itself, without the aid of human reason, and without the application of any new force. In the present state of things, the evil continues till the correction is applied; and how soon, if at all, it shall have been applied, and have produced a cure, depends upon a variety of contingencies; in the proposed state of things, all delay and uncertainty are wiped away. In the present state of things, in the case of deficiency, during the operation as well as before the application of the remedy, the price of Government annuities, and other sources of permanent income, remain, more or less, in a state of depression, and great losses are thus experienced; in the proposed state of things, this source of loss is absolutely dried up.
Objection 2.—My subdivision of the unit, or standard note, would be unadvisable: for my interest note is ill calculated to supply the place of metallic money in small payments, as the variation of value would render it perplexing and unintelligible to the common people, and expose them to imposition, notwithstanding any contrivance of tables, &c.
Answer.—This seems to suppose that the notes of magnitude inferior to the proposed standard note, are proposed, all, or a great part of them, to be poured in at once. But by art. 10 and 11, [vol. iii. p. 110,] this supposition is expressly negatived. Two, or at most three, magnitudes are proposed to be issued, by way of experiment. If two be deemed too many, then let the experiment be confined to one. Setting aside possible speculation, the papers will be taken out, in the first instance, by the owners of petty hoards, (as per chap. 4, [vol. iii. p. 118,] &c.) for the sake of obtaining an interest for sums, on which at present no interest is obtainable, on anything like terms of equal security and convenience. Taking them, then one magnitude, at a time, I do not see how they are more liable to expose the common people to imposture than bank notes are. A man who cannot read, is liable to take a one-pound note for a two-pound note. Even a man who can read, is exposed to a danger much more difficult to obviate—the danger of taking a two-pound or five-pound note of a hollow or tottering country bank, for a ditto of the Bank of England. The man who cannot read, applies in such cases to some such person as the country shopkeeper, or alehouse-keeper, whom he deals with. Such a person is seldom without a whole-sheet almanac behind his door, which almanac is never without tables, is, I should say, itself composed of tables of a more complex nature than that proposed. If in a proposed note, a man reads the day of the month wrong, or the sum opposite it wrong, (all the error the table is exposed to,) the utmost of the loss is a minute sum on the score of daily interest. If a man receives a bad one-pound note, or a bad guinea, the loss goes to the whole.
To the columns of which an almanac is composed at present, one for the day of the week, another for the day of the month, a natural addition in case of the emission of the proposed paper, would be another column indicative of the interest due on each day on an Annuity Note. Will it seriously be contended, that the additional column will be unintelligible to those by whom the original ones are understood? As to this point, see further in the answer to the next objection.
Objection 3d.—It would be very difficult at any office to make an actual payment of interest on the small notes, on account of their dispersion and multiplicity.
Answer.—This objection, like the preceding one, seems to turn, in part at least, on the supposition of the suddenness of introduction, instead of the graduality expressly recommended.
So much as to multiplicity. As to dispersion, that is provided for by the dispersion of the offices, at which it is proposed that the sale of the notes and payment of the interest shall be made—viz., the existing post-offices. The plan of payment is delineated in the notes to articles 13, 14, and 15, which I am induced to think had not yet met your eye, since, if it had, it would rather have been expressly referred to as insufficient, than passed by without reference.
In a word, wherever preponderating inconvenience presents itself, there of course will extension stop. The proposed paper is not proposed to be forced into the market, like exchequer bills, &c. &c. It will only be issued in proportion as it is demanded; and it will only be demanded, in proportion as all inconveniences attending it are found, by experience, to be outweighed by the convenience. The dilemma seems impregnable: if inconvenience, no demand; if demand, no inconvenience.
I call every commodity forced, of which the quantity offered to sale is proportioned—not to the demand and pleasure of the purchaser, but to the exigency of the seller. All known government annuities, and other government engagements for money payable in future, being of the forced kind, the mind (I am sensible) has no easy task in squaring itself to the conception of a new species, which, being not of the forced kind, is, in its nature, so essentially different from whatever else we have been used to see under the same name.
Applied, indeed, to the small notes, the objection is a perfectly rational one, and prima facie a conclusive one; especially if all the different magnitudes of the small notes are taken into the account.
But the answer is such as, I cannot but flatter myself, will be found ultimately conclusive on the other side. It is referred to, though not given, (for everything could not be given at once,) in [vol. iii. p. 112,] note 14, art. 16.
Supposing the small notes established in the circulation, (casual whims apart, which, as such, can be but rare,) a man will never apply for the interest at the office, because, as in case of exchequer bills, in proportion as he circulates his notes, the interest will be allowed him in the circulation. It is contrary to the nature of man and things, that a man should take the more troublesome course, for what he can obtain by one less troublesome.
Vansittart referred the correspondence to Dr Beeke, whose observations he communicated to Bentham—they are thus conveyed:—
I have read Mr Bentham’s plan with much interest and attention, and am flattered not only by the manner in which he expresses himself respecting me in his letter to you, but also by the very near agreement of his leading proposition with the different projects which I communicated to you some years ago for Interest Notes, and also with the principle of that respecting Provincial Banks which I communicated, two years ago, to you and to Mr Addington.
“Mr Bentham has studied the subject very profoundly and very accurately: but I am sure he will forgive the freedom I take in saying, that I fear the minuteness of detail in the printed sheets with which I have been favoured (though of infinite use to those who might wish to carry his plan into execution) is not altogether well calculated for a first publication, and might even be an impediment to its favourable reception. The impatience of modern readers is so great, and, I may add, the inattention to the minutiæ of all questions of Political Economy is so general, that such propositions as this of Mr Bentham’s have, I think, but little chance of being well received, unless they are, first of all, enunciated in the simplest form of which they are capable, and are, as much as possible, divested of all practical detail.
“With respect to the plan itself, the important circumstance in which it differs from any of mine, and in which it greatly excels them, is in the manner of converting the public debt into circulating annuities. But, in some other respects, I could wish to submit to Mr Bentham’s judgment, whether his plan may not be liable to serious objections. My proposition was made when the funds were at a much lower value than at present, (3 per cents. below 50,) but I still am inclined to think it, in some respects, preferable. I think the standard note should bear a weekly interest. Mine you know was at the rate of 3d. per week for £20, or £3, 5s. per cent. per annum. There are various reasons which induce me to think that too great a facility of circulating wealth is really a very great evil; and, therefore, I should by no means wish that such a plan should at first be recommended on too extensive a scale: and the more so because I think a near approximation to the requisite quantity of circulating money in any country is a problem of no very difficult solution. The more I have considered the subject, the more I have become persuaded that the disadvantages resulting from the use of paper money of so small value as to be commensurate with any convenient metallic coins very greatly preponderate over the advantages. Of course, I am convinced that one pound notes are really much more injurious than useful; and at any rate, in the first publication of such a plan as Mr Bentham’s, I should greatly wish to suppress any mention of silver or copper notes for two reasons:—First, if such notes could be substituted for metallic money, yet the value wanted for circulation would be too inconsiderable to make such a substitution an object of national importance. Of the aliquot parts of any piece of money, for instance of a sixpence, no more can ever be wanted for all the purposes of circulation than at the rate of about fourpence or, at most, fourpence-halfpenny per head for the population, exclusive of infauts. Say at most, in the whole United Kingdom, fourteen or fifteen millions of groats—or about £250,000 sterling. In the same manner, where (as in this country) the policy adopted has been such as to make gold the only species of metallic treasure—if only guineas were coined, I doubt whether even then more circulating silver money would be wanted, than at the rate of at most about 21s. per family, or a little more than three millions sterling. But, with a sufficient supply of seven-shilling pieces, hardly half this value would be wanted in silver money. Now, I think Mr Bentham will agree with me, that the smaller denominations of paper money would never be hoarded in any considerable quantity.
“A second reason why I would avoid any mention of small paper money bearing interest, is from a recollection, that many more really useful plans have been rendered unpopular by the ridicule of ignorance than by grave opposition to them.
“I am most clearly of opinion, that if such a plan should be adopted no aliquot parts of a standard note of £20 ought, on any account, and even at any future time, to be allowed, excepting notes for £10, £5, and perhaps £13, 6s. 8d., and £6, 13s. 4d.—if the interest were taken at £3, 5s. per cent. per annum, which rate, for many reasons, I should at present prefer. I also think that the aliquot parts of the standard note should only bear a monthly interest.
“I had intended to give my reasons for these remarks more at length, and the intrinsic value of Mr Bentham’s plan would require it from me, if I could find time to do it with any convenience: but a detailed explanation of the circumstances which have induced me to adopt the opinions that I have stated, would fill not a letter only, but a volume. If accident or choice should lead, Mr Bentham into Bond Street, I shall be glad if this letter should lead to our better acquaintance.—I am, dear Sir, yours very faithfully,
“No. 19, Old Bond Street,
Bentham answers the objections in a letter to Vansittart, of 11th May:—