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THE ALTERNATIVE OF BORROWING DISADVANTAGEOUSLY, OR
SUSPENDING THE PUBLIC WORKS.* The recent Annual Report of the Canal Commissioners shows that the State has expended towards the construction of the Black River Canal and Erie Canal Feeder, $1,670,097 67.
To complete the said Canal and Feeder requires a further expenditure of $689,000; which sum the State can obtain if it will sell 5 per cent. stock at 74 cents on the dollar. But this is deemed too low; hence the State proposes to delay the completion of the Canal until stock shall sell for a better price. Let us examine whether the State can gain by such a delay.
Nine hundred and thirty-one thousand and eighty-one dol lars of State 5 per cent. stock, if sold at the present market price, 74 cents on the dollar, will bring the sum required to complete the Canal and Feeder, say $689,000.
If the State shall delay the completion a year, the State will lose by the delay, unless the stock shall advance in price enough to pay the year's interest on $1,670,097 67 already expended. This calculation is founded on the presumption that the work, when completed and in operation, will earn enough to pay the interest on the cost of its con
Published in 1842.
struction; and that it will earn nothing till it is completed. The year's interest on $1,670,097 67 at 6 per cent. is $100,205 86. To cover this, stock must advance in price ten cents seven and a half mills on every dollar; and therefore must sell at the end of the year for 841 cents on the dollar, or the delay will be a pecuniary loss to the State.
A like calculation will show, that to avoid loss by a delay of two years, the stock must then bring in market 954 cents on the dollar; on a delay of three years it must bring 106} cents on the dollar ; on a delay of four years it must bring 117 cents on the dollar; and on the delay of five years it must bring 1279 cents on the dollar. The probability which exists for any of these advances in price, must determine whether the delay is prudent or imprudent.
A like calculation is applicable to the Genesee Valley Canal, on which the State has expended $3,102,932-leav. ing unexpended, and necessary to complete the canal, $1,647,373. To compensate for the postponement, stock must then bring,
Towards the enlargement of the Erie Canal, the State has expended $10,710,781, leaving unexpended, and neces. sary to complete the enlargement, $12,692,082. Pursuing towards this undertaking the same reasoning that we applied to the others, the result is as follows: to compensate for a postponement, the stock must then bring in market,
These calculations are only approximations towards the truth, being modifiable by several circumstances; as, for instance, 52 miles of the Genesee Valley Canal will be navigable the approaching season, and hence be somewhat productive. And some of the expenditures on the Erie Canal enlargement would have been incurred as repairs, had no enlargement been contemplated. To compensate, however, for these palliatives, no charge is made in the foregoing calculations for interest on the interest money that will be annually paid, and that has been paid. Nor is any charge made for interest on the money that must be paid by the State on outstanding contracts, which amount to $1,268,062 49, for work not yet performed, but which the State will be compelled in justice to let the contractors perform, or compensate them for if not performed. The work which is already completed, but useless till the whole improvement is finished, will require also an annual expenditure in repairs, or will produce an annual loss in decay ; though when the canals are completed we may reasonably suppose that they will earn these expenses, as well as the interest on the money expended in their construction.
But the foregoing calculations, however defective, give prominence to a principle, which has never been very distinctly presented to the public, but which ought to be considered before we make the present low price of State stocks a reason for postponing the completion of our public works; especially as we possess resources for their completion without burthening the people at present with taxation, and probably without ever burthening them or their posterity, unless they shall prefer to be thus burthened ; like the customers of a celebrated Boston dentist, who, he affirmed, had their teeth extracted by him for the pleasure of the operation.
THE ALTERNATIVE OF DEBT OR TAXATION.
BEFORE we can decide on the merits of a doctor's prescription, we must ascertain the malady for which he prescribes. This rule is applicable to the recent letter of Albert Gallatin and others, which has just been presented to our State Legislature in reference to our State debts. The signers are gentlemen of high character and great experience as bankers, and the writer of the present article finds in their communication but little to gainsay. Their communication relates substantially to their inability to grant the State further loans, and their anxiety to be relieved from those already granted, and which amounted on the 1st of January last, to $742,840 66.
Such being the disease, the remedy which the gentlemen propose sufficiently comports with their financial celebrity. No doubt a cessation of all further issues of State stock, combined with a State tax to precipitate the payment of existing stock, will cause State stock to advance in price, and benefit holders who have purchased the stock at a low price, or injudiciously procured it while it was high.
But the question which the Legislature must decide is broader than the above. So long as the State duly pays the interest on its stock, the State performs all that it is bound to perform, both legally and morally, till the principal of the stock is payable ; and stock whose payment is dependent on the discretion of the Commissioners of the Canal Fund, after any given date, (as say the year 1845,) is not payable till such discretion shall direct its payment. The fall in price which makes the holders of stock anxious that the State should waive its said discretion, is no good
* Published in 1842.
reason for the waiver. With the floating market price of stock, the State has properly no connection. It is an incident which those assume who purchase stock.
The true question, therefore, for the State to decide, in the levying of a tax and the suspension of public works, is not whether those measures will enhance the price of stocks, and thus benefit stockholders; but, whether the tax and suspension of works will promote the interests of the whole people?
The four New-York financiers admit that the present price (February 28, 1842,) of 5 per cent. stock is 77 per cent. To thus obtain loans is to pay about six and a half per cent. interest on the money borrowed. Any private borrower would deem such a rate moderate, and it seems to present no unreasonable obstacle to the further prosecution of our public works; much less to the creation of new stock for the discharge of existing pecuniary engagements, in preference to their discharge by a State tax-to pay which, the people will have to borrow money at seven per cent. interest. Shall the State compel the citizens to borrow at seven per cent., to shield itself against borrowing at six and a half?
The only justifiable occasion for a State tax in the prosecution of public works is, when the State cannot borrow on as good terms as the people, or when the income of the State shall be insufficient to pay the interest on its debts. Such a contingency exists not at present, though it may occur if the State shall proceed manfully in the prosecution of its great works; and when the contingency shall occur, the people possess patriotism enough, and sense enough, to bear the burden. The constituency of our country have ever been wiser than their legislature imagines. They are now, and for a long course of time have been, far in ad