An inquiry into the nature and causes of the wealth of

758

The Wealth of Nations

upon annuities for terms of thirty-two, of eighty-nine, of ninety-

eight, and of ninety-nine years. In 1719, the proprietors of the

annuities for thirty-two 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 £666,821: 8:3½ a-

year. On the 5th of January 1775, the remainder of them, or what

was not subscribed at that time, amounted only to £136,453:12:8d.

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 ninety-eight or ninety-nine

years, however, is worth nearly as much 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 pro-

vide for remote futurity, buy into the public stocks, would not

care to purchase into one of which the value was continually di-

minishing; 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 pos-

sible, 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 the

subscribers of a new loan, over and above the redeemable annuity or

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 differ-

ent 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 ev-

ery 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;

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759

Adam Smith

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 some-

thing 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 con-

sists in annuities for lives than in England. According to a memoir

presented by the parliament of Bourdeaux to the king, in 1764,

the whole public debt of France is estimated at twenty-four hun-

dred millions of livres; of which the capital, for which annuities

for lives had been granted, is supposed to amount to three hun-

dred millions, the eighth part of the whole public debt. The annu-

ities 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. These estimations, I know very well,

are not exact; but having been presented by so very respectable a

body as approximations to the truth, they may, I apprehend, be

considered as such. 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

modes of borrowing; it arises altogether from the different views

and interests of the lenders.

In England, the seat of government being in the greatest mer-

cantile 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 mercan-

tile 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 pur-

chase, instead of perpetual annuities, annuities for lives only,

whether their own or those of other people, they would not al-

ways 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 of another, whose age and state

of health 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 mo-

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