Machiavelli: I fear that you have some prejudice against loans. They are precious for more than one reason: they attach families to the government; they are excellent investments for private citizens; and modern economists today formally recognize that -- far from impoverishing the States -- public debts enrich them. Would you like to permit me to explain how to you?
Montesquieu: No, because I believe I know these theories. Since you always speak of borrowing and never of reimbursing, I would like to know from whom you would ask so much capital and with respect to what you would ask for it.
Machiavelli: Here foreign wars would be a great help. In the great States, such wars permit the borrowing of 500 or 600 million. One would only spend half or two-thirds of this amount and the rest would find its place in the Treasury for domestic expenditures.
Montesquieu: Five or six hundred million! And who are the modern bankers who would negotiate loans in which the capital would be the entire fortune of certain States?
Machiavelli: Ah, so you are still at the rudimentary procedures of borrowing! If you will allow me to say so, such an idea is barbaric when it comes to matters of financial economy. Today one no longer borrows from bankers.
Montesquieu: From whom then?
Machiavelli: Instead of passing through the markets with the capitalists, who get along by thwarting bids and whose small numbers annihilate competition, one would address oneself to one's subjects: the rich, the poor, the artisans, the merchants, to whomever has available funds; one would set up what one calls a public offering and, so that each person can buy shares, one would divide them into coupons of very small sums. Then one would sell 10 francs per share, 5 francs per share, up to a hundred thousand francs, a million shares. The day after their issuance, the value of these claims would be high, "prime," as one says: the people would know this and hurry from all sides to buy them; one would say it is "madness." In several days, the coffers of the Treasury would be re-filled; one would receive so much money that one wouldn't know where to put it; nevertheless, one would agree to take it, because if the offering surpasses the capital of the shares issued, one could bring about a great effect on public opinion.
Montesquieu: Ah!
Machiavelli: One would refuse to take money from latecomers. One would do so with a lot of noise, with the great reinforcement of the press. It would be a staged, dramatic turn of events. The excess might be as high as two or three hundred million: you must judge the point at which the public spirit is struck by the confidence of the country in the government.
Montesquieu: A confidence that would be mixed with the spirit of unbridled speculation, from what I can imagine. In fact I had intended to speak of this combination but, in your mouth, all this is truly shadowy [fantasmagorique]. So: you would have money right in your hands, but --
Machiavelli: I would have more than you might think, because -- in the modern nations -- there are great banking institutions that can lend directly to the State 100 or 200 million at the ordinary rate; the great cities can also make loans. In these very nations, there are other institutions, which one calls contingency reserves: there are savings banks, emergency accounts, retirement funds. The State has the custom of demanding that their capital resources, which are immense and which can sometimes be as much as 500 or 600 million, are deposited in the public treasury, where they function along with the communal mass in exchange for low rates of interest to those who make deposits there.
Moreover, governments can procure funds exactly like bankers. They issue from their coffers demand-drafts [bons a vue] for sums of two or three hundred million, kinds of bills of exchange, on which one throws oneself before they enter into circulation.
Montesquieu: Permit me to stop you here: you have only spoken of borrowing or drawing on bills of exchange. Do you ever preoccupy yourself with paying something?
Machiavelli: It is good to tell you[1] that one can, in case of need, sell the State's domains.
Montesquieu: Ah, now you sell [yourself]! But, finally, do you ever preoccupy yourself with paying?
Machiavelli: Without a doubt. It is now time to tell you how one would meet debts.
Montesquieu: You say "one would meet debts": I would like a more exact expression.
Machiavelli: I make use of this expression because I believe that it has a real exactitude. One cannot always wipe out a debt, but one can meet it; the word is even very energetic, because the debt [le passif] is a redoubtable enemy.
Montesquieu: So, how would you meet it?
Machiavelli: The means would be very varied. First of all, there would be taxes.
Montesquieu: That is to say, the debt employed to pay the debt.
Machiavelli: You speak to me as an economist and not as a financier. Do not confound [the two]. With tax revenues, one can really pay. I know that taxes make the people cry out; if the tax that has been established is inconvenient, one could reestablish it under another name. As you know, there is a great art to finding the vulnerable points in a taxable matter.
Montesquieu: I would imagine that you soon overwhelm these points.
Machiavelli: There are other means: there is what one calls conversion.
Montesquieu: Ah! Ah!
Machiavelli: This is related to the debt that one calls consolidated, that is to say, the one that comes from the issuance of loans. For example, one could say to the State's stockholders: "Until today, I have paid you 5 percent of your money; this was the rate of your interest. I intend to only pay you 4.5 or 4 percent. Consent to this reduction or receive the reimbursement of the capital that you have loaned me."
Montesquieu: But if one really returned their money, this procedure would be quite honest, in my opinion.
Machiavelli: No doubt one would return it, if they demanded it; but very few would care. Stockholders have their customs; their funds are invested; they have confidence in the State; they love to get a few returns on a sure investment. If every one demanded his money, it is obvious the Treasury would be placed in the hangman's noose. This would never happen and one would, by such means, get rid of several hundred millions in debt.
Montesquieu: This would be an immoral expedient, whatever one says: forced loans lower public confidence.
Machiavelli: You do not know stockholders. Here is another arrangement that relates to another form of debt. I said to you a little while ago that the State would have at its disposition the funds of contingency reserves and that it could make use of them by paying off the interest, subject to demands to return them at the first requisition. If, after having handled them for a long time, the State is no longer in a position to return them, it would consolidate the debts that fluctuate in its hands.
Montesquieu: I know what this would mean. The State would say to the depositors: "You want your money, I no longer have it; here is an annuity."
Machiavelli: Precisely, and it would consolidate all the debts that it could no longer satisfy in the same manner. The State would consolidate the Treasury bonds, the debts to the cities, to the bankers, finally all those debts that form what are very picturesquely called floating debts, because they are debts that have no definite assessment and are of a more or less approximate due date.
Montesquieu: You have singular means of liberating the State.
Machiavelli: What could you reproach me for, if I only did what the others do?
Montesquieu: Oh! If everyone did this, it would be quite difficult, indeed, to reproach Machiavelli for doing it.
Machiavelli: I have only indicated the thousandth part of the arrangements that one could employ. Far from dreading the increase of perpetual annuities, I would like it if the entire public fortune was in the form of annuities; in a certain way, I would make the towns, the commons, and the public establishments convert their buildings and their personal capital into annuities. It would be the very interest[2] of my dynasty that commands me to take these financial measures. There would not be a penny in my kingdom that would not be tied to my existence by a string.
Montesquieu: But from this same point of view, this fatal point of view, would you reach your goal? Would you not be marching -- in the most direct manner -- to your ruin through the ruin of the State? Do you not know that, among all the European nations, there are vast markets of public funds that are backed up by prudence, wisdom and the probity of the governments? Due to the manner in which you manage your finances, your funds would be ruinously rejected from the foreign markets and they would fall to the lowest rates, even in the Stock Exchange of your [own] kingdom.
Machiavelli: This is a flagrant error. A glorious government, such as mine would be, could only enjoy great credit abroad. Domestically, its vigor would dominate all apprehension. In addition, I would not want the credit of my State to depend on the anxieties of several tallow merchants. I would dominate the Stock Exchange by the Stock Exchange.
Montesquieu: What now?
Machiavelli: I would have gigantic credit establishments apparently instituted to make loans to industry, but whose real function would consist in supporting annuities. Capable of throwing 400 or 500 million claims [titres] on the market or to rarefy the market in the same proportion, these financial monopolies would always be masters of the exchange rates. What do you say about this arrangement?
Montesquieu: The bargains that your ministers, your favorites, and your mistresses would be able to get from these firms! Would your government thus play the market with the secrets of the State?
Machiavelli: What are you saying?
Montesquieu: Then explain the existence of these firms otherwise. As long as you were on the terrain of ideas, one could be deceived about the real name of your politics; but since you have indicated the applications of these ideas, one can no longer be deceived. Your government would be unique in history; one would never be able to calumniate it.[3]
Machiavelli: If someone in my kingdom took it into his head to say what you have left to the understanding, he would disappear as if struck by a thunderbolt.
Montesquieu: The thunderbolt is a beautiful argument; you would be fortunate to have it at your disposition. Have you finished with financial matters?
Machiavelli: Yes.
Montesquieu: The hour advances at a great pace.
[1] The French here, Il est bon de vous dire, contains the suggestion that it is "good" to do this, because doing so offers a kind of "bond" or "coupon" (un bon) to the listener.
[2] A pun: both self-interest and rate of interest.
[3] The only place (or person) that (or who) could not be calumniated would be Hell (or the Devil).