Papers of John Adams, volume 8
My last Letter to Congress, was on the Twenty seventh of last Month Since which an Account of the new Loan is received from London, and as this may perhaps afford to Congress the clearest Proof, of the Weakness of their Ennemies, it is of importance that it should be transmitted to them.
Some Accounts Say the Loan is to be seven Millions, others Eight.1
The Conditions of the Loan are in general, the established Interest of three Per Cent—an Annuity of Three and Three Quarters Per Cent, for twenty nine Years, and Seven Lottery Ticketts for every Thousand Pounds.
In one Account, the Advantages are thus stated
| 100 3 per Cent | £ | 61 | |
| 3:15 Annuity for 29 Years at 12 Years purchase | 45 | ||
| 2/5ths of a Years Interest and Annuity gained by both beginning from the 5 Jany, altho the Money is paid Monthly and not ended untill December | 2: | 14 | |
| 3£ Premium of 7 Lottery Tickett for each £1000—gives for each hundred | 2: | 2 | |
| For each £ 100 paid, there is received | 110: | 162 |
This State for the first Year is pretty accurate—another Account makes it 10 and a Quarter Per Cent for the first Year. The subsequent Years however, it will not be so much. Yet for all the subsequent Years, during the Term of the Annuity, it will be six and three Quarters per Cent. Upon the whole it is generally looked upon, as good as seven and an half Per Cent. In a Country where the highest Interest that is tolerated by the Standing Laws, is five Per Cent, this is a terrible Symptom.
While this System has any Credit, among the Money Lenders in Holland, Switzerland Geneva &c, Congress will perceive, that there is little Hope, of procuring a private Loan for the United States, from 2any of those Places. Whether any may be procured from any State or Prince, Time must discover. I confess, I have no very Sanguine Hopes. I have the Honour to be, with great Respect, sir your most obedient humble servant
Lord North settled with the financial men of London on seven million pounds, although he would have preferred eight (
Parliamentary Hist.
, 20:158).
JA is saying that for each £100 invested, the investor would receive a certificate nominally worth £100 and paying 3 percent interest on that amount, but which was selling below par and thus had a market value of £61; an annuity for 29 years of £3.15 (3.75 percent), which had a market value of £45 at 12 years purchase (12 × £3.15); £2.14 in annuity and interest paid the first year despite the fact that the subscriber was making monthly payments of principal; and the opportunity to receive 7 lottery tickets per thousand pounds invested, which was worth £2.2 per £100 invested, the prizes redeemable in additional certificates paying additional interest. This would result in the investor receiving a share in the loan with a market value, in the first year, of £110.16, but for which he had paid only £100. Since the initial purchasers usually would be doing so for resale, this would give them a clear profit of £10.16 (10.8 percent).
During the Commons' debate on 24 Feb. the opposition attacked the terms of the loan as unnecessarily expensive. North defended the terms as the best that could be obtained. According to him, the investor would receive:
| £. | s. | d. | ||
| 100 £. 3 per cent. consol. val. at 60¼ | 60 | 5 | 0 | |
| 3 £. 15 s. annuity for 29 years, at 11 7–16ths years purchase | 42 | 17 | 9¼ | |
| 7 Lottery Tickets to every 1000 subscribed; which will bring a profit to every 100 of | 2 | 2 | 0 | |
| 105 | 4 | 9¼ | ||
(same, 20:157–174; London Chronicle, 23–25 Feb. 1779). By North's analysis the advantages to investors were significantly lower than by JA's, primarily because JA rounded off his figures and North did not include the two-fifths interest and annuity to be paid the first year.