Note 25 — PART IV. OF PUBLIC CREDIT.

After the long and particular account I have given of the Missisippi, I shall not enter into a like detail, concerning a scheme which proceeded upon the very same principles; to wit, the artificial raising the value of a stock, by promising dividends, out of funds which were nowise proportioned to them. I shall therefore, in a very few words, compare some of the operations of the South Sea scheme, with those of the Missisippi; and in doing it, point out the principal differences between them.

The great profits upon the Missisippi were expected from the interest paid by government for the great loan, the farms of the revenue, and the profits upon their trade.

Those of the South Sea were, at setting out, 1. The profits upon their trade: 2. The allowance made them: 3. The difference of receiving 5 per cent. for the money they laid out in purchasing the public debts, when money was at 4 per cent. as it was when the scheme was set on foot: and 4. The surplus money subscribed into the stock above par, in consequence of the artifices used to enhance the value of it.

The seven millions they were to pay to the state, seemingly for no value received, were a sort of compensation for receiving the 5 per cent. for 7 years, at a time when money was worth no more than 4 per cent.

These advantages raised, at first, the value of the original stock of eleven millions. The consequence was, that the proprietors of the 16 millions of the redeemable debts, which were to be bought in when they came to subscribe their capitals into the new stock, transacted them at a proportional discount; which discount, being good against the government in favour of the company, served to discharge proportionally the seven millions the company was to pay. This gave an additional value to the stock; and so it rose, greatly indeed above that proportion. Then the company promised a dividend of 10 per cent. for one half year, upon their capital, at midsummer 1720; this dividend was to be paid in stock, which was constantly rising in its value; but no information was ever given the public concerning the funds which were to produce this dividend; so every one concluded that there were hidden treasures in their hands, which enabled them to promise such large dividends. Accordingly, stock rose from 300 per cent. to 375; then to 400, and at last to 1000 per cent.; and in proportion as it rose, the wealth of the former subscribers augmented from the surplus above par, paid by the latter, and those who subscribed last, bore all the loss upon the blowing up of the scheme.

But one great difference between the South Sea and Missisippi, was this: That in France there was abundance of money in the hands of the public, for purchasing the actions, at the exorbitant price to which they rose; but in England there was not: consequently, in France, the rate of interest fell to 2 per cent. and in England, the great demand for money to borrow, raised it beyond all bounds.

Those who subscribed in money, paid down no more than 10 per cent. at subscribing; but became bound to pay up the remainder. But when the stock tumbled, people were better pleased to lose the 10 per cent. they had paid, than to pay up the remaining 90 per cent. according to the terms at subscribing. Those indeed who subscribed their former capitals at a vast discount, did not labour under the same inconvenience of want of money; but that discount became as real a loss to them, as the cash subscribed became a loss to the money subscribers, the moment that those who were in the secret, and who, by the most infamous chain of artifices, had blown up the public frenzy, began to realize and sell out, and that the whole was discovered to be a cheat. So that upon the whole, the English scheme had much less foundation than the French. The first blew up from an absolute necessity, and for want of any bottom at all; the last from misconduct, and rather from folly than knavery. I return to an account of the scheme.

The original capital of the South Sea company, was 11 750 000l.: the redeemable debts they were to purchase in, amounted to 16 750 000l.; and the value of the irredeemable, or what were called the absolute terms, was computed at 15 058 000l. together 31 808 000l. sterling.

The proprietors of this original capital of 11 750 000l. consulted their own advantage only, in purchasing in this large sum of debts, which were to be converted into additional stock; and therefore sounded very high the great advantages of such a transformation of them; 1mo, From the profits of the trade, which they were to enjoy exclusively. And, 2do, From the great addition to their wealth, from the constant rising in the price of their stock. They carried their views to nothing less than obtaining a majority in the house of commons, by the weight of their wealth, and of becoming the absolute rulers of the nation.

The public being from the beginning intoxicated with such ideas, subscriptions for stock were opened at 200 per cent. above par; and some of the proprietors of the 31 808 000l. subscribed at first their capitals at a proportional discount; that is, they made over a debt of 100l. for 33⅓ in South Sea stock; and successively, the subscription rose to 1000 per cent. These immense profits being incorporated into the gains of the general stock, were proportionally shared by the subscribers themselves, who became proprietors; and the higher the stock rose, the more these gains augmented. This influenced the infatuation; and the dividends augmenting in proportion to the price of subscription, there appeared no end of the rising of the stock.

The first dividend offered, as has been said, was 10 per cent. half-yearly, in stock: this was afterwards converted into no less than 30 per cent. in money, for that half-year: and when stock rose to 1000, a dividend of no less than 50 per cent. per annum, in money, was promised for twelve years to come.

Had stock risen to 2000 per cent. the dividend could have as easily been carried to 100 per cent. per annum, as it had been to 50 per cent. when at 1000.

But whence was this dividend to be paid? The company and the directors took good care never to give to the public any light as to that particular.

To prevent, therefore, such abuses in the rising of the South Sea, it ought to have been provided by parliament, that in taking in subscriptions, and offering dividends, the directors should have informed the public, 1mo, Of the money owing to them by government. 2do, Of the money gained by the subscriptions above par. And 3tio, Of the profits upon their trade. And, on the other hand, of the debts due by them; and of the nett balance upon their books, in their favour.

This would have been fair dealing. But to pretend the necessity of secrecy, in a point where a nation is interested, was in itself a mere pretext; and had it been otherwise, it might have been answered, that a company which is obliged to have recourse to such secrets, ought to be prevented from dealing with those who were to remain ignorant of them, however deeply interested.