Annuities, Borrowing upon; one of the methods employed by government for raising supplies.

Of this there are two methods; that of borrowing upon annuities for terms of years, and that of borrowing upon annuities for lives.

During the reigns of King William and Queen Anne, large sums were frequently borrowed upon annuities for terms of years, which were sometimes longer and sometimes shorter. In 1693, an act was passed for borrowing one million upon an annuity of 14 per cent. or of £140,000, a year for 16 years. In 1691, an act was passed for borrowing a million upon annuities for lives, upon terms which in the present times would appear very advantageous. But the subscription was not filled up. In the following year the deficiency was made good by borrowing upon annuities for lives at 14 per cent. or at a little more than seven years purchase. In 1695, the persons who had purchased those annuities were allowed to exchange them for others of 96 years, upon paying into the exchequer 63 pounds in the hundred; that is, the difference between 14 per cent. for life, and 14 per cent. for 96 years, was sold for 63 pounds, or for four and a half years purchase. Such was the supposed instability of government, that even these terms procured few purchasers. In the reign of Queen Anne, money was upon different occasions borrowed both upon annuities for lives and upon annuities for terms of 32, of 89, of 98, and of 99 years. In 1719, the proprietors of the annuities for 32 years were induced to accept in lieu of them South Sea stock to the amount of eleven and a half years purchase of the annuities, together with an additional quantity of stock equal to the arrears which happened then to be due upon them. In 1720, the greater part of the other annuities for terms of years both long and short were subscribed into the same fund. The long annuities at that time amounted to £666,821l. 8s. 3½d. a-year. On the 5th of January 1775, the remainder of them, or what was not subscribed at that time, amounted only to £136,453l. 12s. 8d.

During the two wars which began in 1739, and in 1755, little money was borrowed either upon annuities for terms of years, or upon those for lives. An annuity for 98 or 99 years, however, is worth nearly as much money as a perpetuity, and should, therefore, one might think, be a fund for borrowing nearly as much. But those who, in order to make family settlements, and to provide for remote futurity, buy into the public stocks, would not care to purchase into one of which the value was continually diminishing; and such people make a very considerable proportion both of the proprietors and purchasers of stock. An annuity for a long term of years, therefore, though its intrinsic value may be very nearly the same with that of a perpetual annuity, will not find nearly the same number of purchasers. The subscribers to a new loan, who mean generally to sell their subscription as soon as possible, prefer greatly a perpetual annuity redeemable by parliament, to an irredeemable annuity for a long term of years of only equal amount. The value of the former may be supposed always the same, or very nearly the same; and it makes, therefore, a more convenient transferable stock than the latter.

During the two last-mentioned wars, annuities, either for terms of years or for lives, were seldom granted but as premiums to subscribers to a new loan, over and above the redeemable annuity to interest upon the credit of which the loan was supposed to be made. They were granted, not as the proper fund upon which the money was borrowed; but as an additional encouragement to the lender.

Annuities for lives have occasionally been granted in two different ways; either upon separate lives, or upon lots of lives, which in French are called Tontines, from the name of their inventor. When annuities are granted upon separate lives, the death of every individual annuitant disburdens the public revenue so far as it was affected by his annuity. When annuities are granted upon tontines, the liberation of the public revenue does not commence till the death of all the annuitants comprehended in one lot, which may sometimes consist of twenty or thirty persons, of whom the survivors succeed to the annuities of all those who die before them; the last survivor succeeding to the annuities of the whole lot. Upon the same revenue more money can always be raised by tontines than by annuities for separate lives. An annuity, with a right of survivorship, is really worth more than an equal annuity for a separate life; and from the confidence which every man naturally has in his own good fortune, the principle upon which is founded the success of all lotteries, such an annuity generally sells for something more than it is worth. In countries where it is usual for government to raise money by granting annuities, tontines are upon this account generally preferred to annuities for separate lives. The expedient which will raise most money, is almost always preferred to that which is likely to bring about in the speediest manner the liberation of the public revenue.

In France a much greater proportion of the public debts consists in annuities for lives than in England. According to a memoir presented by the parliament of Bordeaux to the king in 1764, the whole public debt of France is estimated at twenty-four hundred millions of livres; of which the capital, for which annuities for lives had been granted, is supposed to amount to three hundred millions, the eighth part of the whole public debt. The annuities themselves are computed to amount to thirty millions a-year, the fourth part of one hundred and twenty millions, the supposed interest of that whole debt. It is not the different degrees of anxiety in the two governments of France and England for the liberation of the public revenue, which occasions this difference in their respective mode of borrowing; it arises altogether from the different views and interests of the lenders.

In Britain, the seat of government being in the greatest mercantile city in the world, the merchants are generally the people who advance money to government. By advancing it they do not mean to diminish, but on the contrary, to increase their mercantile capitals; and unless they expected to sell with some profit their share in the subscription for a new loan, they never would subscribe. But if by advancing their money they were to purchase, instead of perpetual annuities, annuities for lives only, whether their own or those of other people, they would not always be so likely to sell them with a profit. Annuities upon their own lives they would always sell with loss; because no man will give for an annuity upon the life Annuities life of another whose age and state are nearly the same with his own, the same price which he would give for one upon his own. An annuity upon the life of a third person, indeed, is no doubt, of equal value to the buyer and the seller; but its real value begins to diminish from the moment it is granted, and continues to do so more and more as long as it subsists. It can never, therefore, make so convenient a transferable stock as a perpetual annuity, of which the real value may be supposed always the same, or very nearly the same.

In France, before the revolution, the seat of government not being in a great mercantile city, merchants did not make so great a proportion of the people who advance money to government. The people concerned in the finances, the farmers general, the receivers of the taxes which were not in farm, the court bankers, &c. made the greater part of those who advance their money in all public exigencies. Such people were commonly men of mean birth, but of great wealth, and frequently of great pride. They were too proud to marry their equals, and women of quality disdained to marry them. They frequently resolved, therefore, to live bachelors; and having neither any family of their own, nor much regard for those of their relations, whom they were not always very fond of acknowledging, they desired only to live in splendour during their own time, and were not unwilling that their fortune should end with themselves. The number of rich people, besides, who were either adverse to marry, or whose condition of life rendered it either improper or inconvenient for them to do so, was much greater in France than in England. To such people, who had little or no care for posterity, nothing could be more convenient than to exchange their capital for a revenue, which is to last just as long, and no longer, than they wish it to do.