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 Navy Discounts 
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Post Navy Discounts




The Times, September 9th, 1785:

" .... Navy Discounts are reduced so far as barely to get five per cent interest - and every Banker is London is abounding with cash, and at a loss how to employ his money. ...."


What were "navy discounts"? Seeing as I am no expert on the matter of high finance, could someone elaborate as to what the snippet means?

Thanks .....




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Wed Dec 23, 2009 11:46 am
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I think that this refers to the rate of discount charged on purchase of Navy Bills (see our disciussion of 8/11/09 under Wages/Pay).


Wed Dec 23, 2009 8:52 pm
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The topic of Navy Bills is touched on by N.A.M. Roger (The Wooden World, Chapter 1B and The Command of the Ocean .. 1649-1815 Chapter 19). These 'promissory notes' or 'IOUs' had been issued by the Navy Commission since Cromwellian times, and allowed the Treasurer of the Navy to maintain an effective navy on credit, independent of any money that the Houses of Parliament might vote to the Navy Estimates from time to time.

If one searches the archives of The London Gazette at about this period one finds hundreds of notices from the Navy-Office or Victualling-Office either inviting tenders for the supply of materials, or inviting holders of Navy Bills to bring them for payment. The invitations to tender, which could be for timber, canvas, masonry work, plumbing materials, or even "cheque shirts" (19 November 1791), normally specified that the supplier would be "paid for in Navy Bills with the Discount added." Sometimes it would be phrased "Discount to make it equivalent to money" or something similar. The sums involved could be quite high: there are two notices in the Gazette at about this time, offering a reward of one guinea for lost Navy Bills: one lost by a supplier of tar and worth GBP 619.75 and another worth GBP 822.87 to a mason.

Roger explains that this Discount was to make the ownership of a Navy Bill attractive to a broker (or speculator), so that the tradesman offering to tender could promptly exchange his Navy Bill for cash from a broker, who would stand to gain by holding the Bill until it was eligible for payment by the Navy Office. The tradesman would get a bit less than the face value of the Bill, but Roger states that this was fully understood and that the tender price was always slightly inflated to allow for this. Depending upon the state of the country's and navy's finances, the discount on a Victualling Bill was between 5% and 10% in 1760-61 but in the following year rose to 12.5% (Roger). The current rate of discount was often published in the newspapers.

These Navy Bills were not inscribed with the names of those to whom they were issued. They were given a serial number and date, and were negotiable instruments, to use the jargon of the financial world. In other words, one broker could buy or sell them with another. Depending on one's view of how long it might be before the Navy Office was able to repay them, the buyer and seller might agree on a separate discount (or even premium) to the face value, to compensate them for the uncertainty ("risk premium" in financial jargon).

The Navy Bills also paid out interest, like any other loan/deposit. Whoever held the bond would expect to get 5% (1714-1748) or 4% (until 1783) and the first payment was due 6 months after issue (Roger).

There were two ways in which Navy Bills might get repaid. One was when the Navy Office, or Victualling Office, had been given some money by Parliament. The London Gazette often carried notices along the lines of: "Navy-Office August 11 1787. The Principal Officers and Commissioners of His Majesty's Navy ..." or "Victualling-Office, August 11, 1787. The Commissioners for Victualling His Majesty's Navy do hereby give Notice, That there is money in the Hands of the Treasurer of His Majesty's Navy to pay the Principal and Interest of the Bills registered in the Course of the Victualling for Three months ending the 31st July 1786, in order that the Persons possessed of such Bills may bring them to this Office to be assigned for Payment. And all Persons who hold the said Bills are desired to subscribe their Names and Places of Abode at the Bottom on each Bill."
Note that the holders of these Bills were asked to add their names and addresses to the documents - there was no other normal record of who might own particular bills. The phrase "registered in the course" meant, at the time, registered with a serial number (Roger). The London Gazette notices that I have seen generally repay Navy Bills about 1 to 2 years after the date of issue, but the time might have varied greatly according to the state of the country's finances.

The other way in which Navy Bills might be repaid was to convert them into official Bank of England Stock, paying a fixed rate of interest for an indefinite period. This method of repaying the Bill, in a way that converted it to a part of the National Debt, was introduced from time to time by Parliament. See, for example, the London Gazettes for 3 July 1784 and 1 April 1795. Navy Bills, generally in blocks of GBP 100 nominal value, were exchanged for blocks of Bank of England "Annuities". The blocks of "Annuities" paid 5% interest, but the exchange brought the holders of the Navy Bills a higher face value of stock than the face value of the Bill, depending on how long ago the Bill had been issued. For instance, a person with a GBP 100 Bill issued on or before 31 August 1781 would be able to exchange it for stock with a face value of 107 pounds, 10 shillings and 6 pence on 31 July 1784. The Bank of England would continue to pay 5% per annum interest on the "Annuities" every 6 months. These "Annuities" could not be redeemed until the National Debt had been reduced at some time in the future.

NB: the abbreviation GBP is the standard financial code for UK Pounds.

I hope that this is reasonably understandable.

Martin



Mon Jan 11, 2010 4:17 pm
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Thanks for the nice overview of Navy Bills, Martin.

I've always found the notices for supplies fascinating, but I've never looked into the payment side of things.

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Tue Jan 12, 2010 7:11 am
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Thanks, Martin, for the extremely helpful, and comprehensive, explanation of the financial matters of running the navy. I'd often seen notices inviting tenders for various supplies in the TDA. I hadn't given thought to how the suppliers were paid.

I :oops: when I confess that I hadn't thought to consult either of NAMR's books that you mention.

Thanks again, Martin. I appreciate your looking into the matter.

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Tue Jan 12, 2010 11:14 am
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Thanks! I hope that I have got the gist of Navy Bills about right. It was fun doing the exploring, but I am sure that there are many others who would be able to fill in details more accurately - perhaps having worked with original papers from the Navy Office etc.

I was surprised to find no mention at all of Navy Bills when going through the indexes to The Mariner's Mirror (my wife has been a member of the SNR for a long time). Admittedly, their indexing system is not as comprehensive as it could be, but surely someone must have published a paper on this aspect of financing the Georgian navy in Britain?

Martin


Tue Jan 12, 2010 12:28 pm
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