Chapter 3-5: Stocks, Commerce

Chap 3: Stocks

  • Soon after the Revolution, the government needed to borrow money from its subjects at a higher rate than common interest.
    • It had to be repaid in a few years.
    • The funds to pay this interest were taxes on certain commodities.
      • These taxes were at first laid on for a certain number of years, according to the term for which the money was borrowed.
  • But these loans became perpetual by various arts of government.
    • The taxes became perpetual.
      • Thus, the funds were mortgaged.
        • They were made perpetual when money could no longer be borrowed on them.
        • But they were still redeemable [248] upon paying the money borrowed.
  • The people would have been most shocked at the thought of the taxes being perpetual.
    • But their progress was so insensible, that it was never murmured at.
    • What shocks initially will soon become easy from custom.
      • Custom sanctifies everything.
  • Thus, the taxes were first laid.
  • When money is lent to a private person, the creditor can come upon the debtor when he pleases for the capital and interest.
    • But when the government borrows money, they give you a right to a perpetual annuity of 3-4%.
      • But it does not to allow you to re-demand your capital.
  • It seems very odd that the creditor should consent that his money should never be paid up.
    • But this is really his advantage.
    • During wartime, the government has an immediate use for money.
      • If you lend to the government £1,000 in wartime, they might be obliged to give you 5% interest.
    • When peace comes, they continue your annuity which you can dispose of.
    • You can often sell the annuity of your £1,000 at £1,100 or more because:
      • your money is perfectly secure, and
      • the government pays interest very punctually.
    • The government finds that these annuities are sold above par.
      • Since the funds were still redeemable, they take the advantage by:
        • paying up the sums borrowed at 5%, and
        • [249] borrowing money at a lower rate.
      • This made the contractors with the government be on their guard.
        • They saw the government’s design.
        • They would not lend the government any more money without some of the interest being irredeemable, perhaps 2% of the 4% they were to receive.
    • Therefore, in every fund there was an irredeemable part.
      • This made them continue to sell above par.

 

  • The funds rose and fell according to the government’s credit, during:
    • the reign of King William
    • the reign Queen Anne
    • the start of the reign of King George I
  • There was still some risk of a revolution then.
    • Recently, there has been no danger of a revolution.
  • But even in peacetime, stocks are sometimes at 10%, 20%, or even 50% below par.
    • Sometimes, it is as much above it.
  • Nobody risks losing that money by a change of government.
    • How then do stocks fluctuate everyday without any visible cause?
    • How does good or bad news influence the rising and falling of stocks?

 

  • Every misfortune in war makes peace farther.
    • Every fortunate occurrence seems to favour the approach of peace.
  • When war continues, government necessities must be supplied:
    • More money must be levied.
    • New subscriptions must be opened.
  • In war, the interest must necessarily rise.
    • Everyone is eager to be in the new subscription.
    • Those who have annuities find it advantageous to sell the old stocks in prospect of a higher interest.
    • Therefore, the number of sellers increases with the prospect of a war.
      • [250] Consequently, stocks fall.
  • On the other hand, whenever there is a prospect of peace, there are no expectations that new subscriptions will be opened.
    • Those who have annuities are not fond of selling them.
    • Therefore, the number of sellers decreases and stocks rise.
  • In wartime, everyone who has any stock runs to have it in the hands of the government, since it cannot be advantageously employed anywhere else.
    • They get interest at 7% or 8%.
    • 2% or 3% of this is perhaps [ir]redeemable.
    • This is frequently a lottery ticket into the bargain.
  • A person who has an annuity only at 3% will do all he can to sell it so that he may employ his stock more advantageously.
    • This is why he will often sell it below par.
    • Consequently, stocks fall.
  • But in wartime, even the new subscriptions sell below par because of the following.

 

  • Many big stockholders are merchants.
    • They keep their stocks in the government so that they can:
      • be ready to sell out on any sudden demand, and
      • take the advantage of a good bargain when it casts up.
    • These chances occur most frequently in wartime.
  • They often have occasion to sell out.
    • Thus, more stock runs to the market.
    • The new subscriptions sink below par.
  • But in wartime, stock cannot be so advantageously employed.
    • Everybody is tempted to subscribe.
  • Even those whose circumstances are very inconsiderable, subscribe for great sums in the hopes that stocks will rise.
    • They may sell out before the time of delivery, to great advantage.
    • But they are often obliged to sell below par when:
      • things do not answer their expectations, and
      • they are forced to sell out one way or another to support their credit.
  • In this way, the new subscriptions may fall.
    • Stock-jobbers are well acquainted with their business.
      • They observe when a number of indigent persons [251] are in the subscriptions.
      • Those persons are soon obliged to sell out.
        • Stocks consequently fall.
        • It is then their proper time to buy them.

 


Chap 4: Stock-jobbing

  • The practice of stock-jobbing is the buying stocks by time.
    • It also has a very big influence on the rise and fall of stocks.
  • A man who only has £1,000 subscribes for £100,000, which is delivered:
    • at several fixed times, and
    • in certain portions.
  • He hopes to sell these portions at profit by the rising of the stocks before they fall.
    • But since his worth would go down if the stocks fall, he does everything to make them rise.
    • He spreads reports at Change Alley that:
      • victories are gained,
      • peace is to be concluded, etc.1
  • On the other hand, those who want to buy a stock want it to fall.
    • They propagate reports that will sink the stocks as low as possible, such as:
      • the continuation of war
      • the planning of new subscriptions, etc.
  • Because of this, our newspapers during wartime are filled with invasions and schemes that never were thought of.
  • In the language of Change Alley, the buyer is called the bull2, and the seller the bear3.
    • Stocks rise or fall as the bulls or bears predominate[252].
  • This practice of buying stocks by time is banned by government.
    • Accordingly, though they should not deliver up the stocks they have engaged for, the law gives no redress1.
    • There is no natural reason why £1,000 in the stocks should not be delivered, or the delivery of it enforced, as well as £1,000 worth of goods.
  • But after the South Sea Scheme, this was thought on as an expedient to prevent such practices, though it proved ineffective.
    • In the same way, all laws against gaming never hinder it.
    • There is no redress for a sum above £52, yet all the great sums that are lost are punctually paid.
  • Persons who game must keep their credit or else nobody will deal with them.
  • It is the same in stock-jobbing.
    • Those who do not keep their credit will soon be:
      • turned out, and
      • called lame duck3 in the language of Change Alley.
  • It is unnecessary to give any account of particular funds, as they are all of:
    • the same nature, and
    • equal security.
  • If the interest is not paid by the funds allotted for that purpose, it is paid out of the sinking fund.
    • The sinking fund is the surplus fund of all the rest.
    • There is perhaps some small difference in the facility of payment.
      • But it:
        • is not considerable, and
        • does not merit our attention.

Chap 5: the Influence of Commerce on Manners

  • We now show the influence of commerce on the people’s manners.
  • Whenever commerce is introduced into any country, probity and punctuality always accompany it.
    • These virtues are almost unknown in a rude and barbarous country.
  • Of all the European nations, the Dutch are:
    • the most commercial, and
    • the most faithful to their word.
  • The English are more so than the Scotch, but much inferior to the Dutch.
    • In the remote parts of Britain, they are far less so than in its commercial parts.
    • This is not at all to be imputed to national character, as some pretend.
    • There is no natural reason why an Englishman or a Scotchman should not be as punctual in performing agreements as a Dutchman.
  • It is far more reducible to self-interest.
    • It is the general principle which:
      • regulates every man’s actions,
      • leads men to act in a certain way from views of advantage, and
      • is as deeply implanted in an Englishman as a Dutchman.
  • A dealer is afraid of losing his character [254].
    • He is scrupulous in observing every engagement.
    • When a person makes perhaps 20 contracts in a day, he cannot gain so much by trying to impose on his neighbours.
    • The very appearance of a cheat would make him lose.
  • When people seldom deal with one another, they are somewhat disposed to cheat.
    • Because they can gain more by a smart trick than they can lose by the injury to their character.

 

  • Politicians are not the most remarkable men in the world for probity and punctuality.
    • Ambassadors from different nations are still less so.
      • They are praised for any little advantage they can take.
      • They pique themselves a good deal on this degree of refinement.
  • This is because nations treat with each other not more than twice or thrice in a century.
    • They may gain more by one piece of fraud, than they lose by having a bad character.
  • France has had this character with us ever since Lewis XIV’s reign.
    • Yet it has never hurt France’s interest or splendour.
  • But if states were obliged to treat once or twice a day as merchants do, it would be necessary to be more precise, in order to preserve their character.
    • Wherever dealings are frequent, a man does not expect to gain so much by any one contract, as by probity and punctuality in the whole [255].
    • A prudent dealer, who is sensible of his real interest, would rather lose what he has a right to, than give any ground for suspicion.
  • Everything of this kind is odious as it is rare.
  • When most of the people are merchants, they always bring probity and punctuality into fashion.
    • Therefore, these are the principal virtues of a commercial nation.

 

  • However, there are some inconveniences arising from a commercial spirit.
  1. It confines the views of men.
    • When the division of labour is perfected, every man only has a simple operation to perform.
      • His whole attention is confined to this.
      • Only the few ideas that are immediately connected with it pass in his mind.
    • When the mind is employed on various objects, it is expanded and enlarged.
    • A country artist generally has a range of thoughts much above a city artist.
      • A country artist is perhaps a:
        • joiner,
        • house carpenter, and
        • cabinet-maker all in one.
      • His attention must be employed in many different kinds of objects.
    • A city artists is perhaps only a cabinet-maker.
      • That kind of work employs all his thoughts.
      • He does not have an opportunity of comparing many objects.
        • His views of things beyond his own trade are not as extensive as those of the country artist.
    • This is much more the case when a person’s whole attention is bestowed on the 1/17 part of a pin or the 1/80 part of a button.
      • These manufactures are so divided [256].
    • It is remarkable that in every commercial nation, the low people are exceedingly stupid.
      • The Dutch vulgar are eminently so.
      • The English are more so than the Scotch.
    • The rule is general.
      • In towns, they are not so intelligent as in the country, nor in a rich country as in a poor one.

 

  1. Education is greatly neglected.
    • In rich and commercial nations, the division of labour reduces all trades to very simple operations.
    • Children can be employed  very young.
    • In Britain, the division of labour is not far advanced.
      • Here, even the meanest porter can read and write because education is cheap.
    • A parent cannot employ his child at six or seven years old.
      • However, this is not the case in the commercial parts of England.
      • A six or seven year-old boy at Birmingham can gain his 3-pence or 6-pence a day.
        • Parents find it to be their interest to set them soon to work.
        • Thus, their education is neglected.
    • The education received by the children of low people is not considerable.
      • However, it does them an immense deal of service.
      • The lack of it is certainly one of their greatest misfortunes.
      • They learn to read through education.
        • This gives them the benefit of religion.
        • Religion is a great advantage:
          • in a pious sense and
          • in affording them a subject for thought and speculation.
      • From this, we may observe the benefit of country schools.
        • We must acknowledge them to be an excellent institution, however much neglected.
    • Besides this lack of education, there is another great loss which attends putting boys to work too soon.
    • The boy begins to find that his father is obliged to him.
      • He therefore throws [257] off his father’s authority.
      • When he is grown up, he has no ideas to amuse himself.
      • When he is away from his work, he falls to drunkenness and riot.
    • Accordingly, in the commercial parts of England, the tradesmen are mostly in this despicable condition.
      • Their work through half the week is sufficient to maintain them.
      • Through a lack of education, they have no amusement for the other half, but riot and debauchery.
      • We may very justly say that the people who clothe the whole world are in rags themselves.

 

  1. Another bad effect of commerce is that it sinks human courage and tends to extinguish martial spirit.
    • In all commercial countries, the division of labour is infinite.
      • Everyone’s thoughts are employed at one thing.
    • For example, in great trading towns, the linen merchants are of several kinds because the dealing in Hamburg and Irish linens are distinct professions.
      • Some of the lawyers attend at King’s Bench.
        • Some are at the court of Common Pleas.
        • Others at the Chancery.
      • Each of them is unacquainted with his neighbour’s business.
    • In the same way, war comes to be a trade also.
      • A man has then time to study only one branch of business.
      • It would be a great disadvantage to oblige everyone:
        • to learn the military art and
        • to keep practicing it.
    • The country’s defence is committed to men who have nothing else ado.
      • The [258] people’s military courage diminishes.
        • By having their minds constantly employed on the arts of luxury, they grow effeminate and dastardly.

 

  • This is confirmed by universal experience.
    • In 1745, 5,000 naked unarmed Highlanders took the improved parts of Scotland without any opposition.
      • They penetrated into England and alarmed the whole nation.
      • Had they not been opposed by a standing army, they would have seized the throne with little difficulty.
  • 200 years ago, such an attempt would have roused the nation’s spirit.
    • Our ancestors were brave and warlike.
    • Their minds were not enervated by cultivating arts and commerce.
    • They were all ready with spirit and vigour to resist the most formidable foe.
  • For the same reason:
    • an army of 500 Europeans have often penetrated into India, and
    • the Mongols were able to overthrow the huge Chinese armies.
  • In those countries, the division of labour and luxury have arrived at a very high pitch.
    • They have no standing army.
    • The people are all intent on the arts of peace.
  • If Holland’s barriers were removed, it would be an easy prey.
    • In the start of the 18th century, the Dutch standing army was beaten.
    • Instead of defending themselves, the rest of the inhabitants planned to  desert their country and settle in the East Indies.
  • A commercial country may be formidable abroad.
    • It might defend itself by fleets and standing armies.
    • But the conquest is easy when:
      • they [259] are overcome, and
      • the enemy penetrates into the country.
  • The happened with respect to Rome and Carthage.
    • The Carthaginians were often victorious abroad.
    • But when the war was carried into their own country, they had no share with the Romans.
  • These are the disadvantages of a commercial spirit.
    1. The minds of men are contracted and rendered incapable of elevation.
    2. Education is despised, or at least neglected.
    3. Heroic spirit is almost utterly extinguished.
  • To remedy these defects would be an object worthy of serious attention.

 

  • We have finished the three first great objects of law:
    • justice,
    • police, and
    • revenue.
  • We proceed to arms
    • It is the fourth part of the general division of jurisprudence.

Words: 2,773