The old-world charms of perpetual bonds
EVERYBODY AGREES that Jane Austen’s “Pride and Prejudice” is a love story. A truth less universally acknowledged is that it is also about money. When Mr Darcy first enters the Meryton assembly, the stir he causes owes something to his looks and bearing. But it owes a lot more to the fast-circulating report of his £10,000 a year. Darcy’s money is old money. It comes neither from commerce nor the professions, but from Pemberley, the family pile in Derbyshire.
In Jane Austen’s day, wealth was measured by the yearly income it provided. The reckoning for sovereign debt was similar. Britain financed the Napoleonic wars by issuing “consols”—bonds that could not be redeemed but which, like Darcy’s estate, promised payments in perpetuity. There are now demands for consols to be revived as a means to manage the escalating fiscal costs of the coronavirus. Francesco Giavazzi and Guido Tabellini of Bocconi University have called for a perpetual-bond issue to be jointly backed by euro-zone countries. George Soros has echoed this.
在简·奥斯汀那个时代，财富的多少是以它每年带来的收入衡量的。主权债务也用了同样一本账。英国发行了“统一公债”为拿破仑战争筹集资金——这种债券不可赎回，但正如达西的财产一样，承诺永久付息。现在有人呼吁恢复发行统一公债，以应对因疫情导致的财政成本不断攀升。博科尼大学（Bocconi University）的弗朗西斯科·贾瓦齐（Francesco Giavazzi）和吉多·塔贝利尼（Guido Tabellini）主张发行欧元区国家联合担保的永续债券。乔治·索罗斯表达了支持。
Any scheme that adds to fiscal firepower without adding to the measured stock of debt might be especially welcome in euroland. But it is quite wrong to view consols as a means to circumvent fiscal discipline. Perpetual bonds are an ideal form of debt. Many bondholders care far more about how much income a bond pays than its capital value. You might call this the Darcy doctrine.
To understand it, consider the goals of public-debt management. One is to finance budget deficits at the least cost consistent with steady taxes and spending. Another is to supply safe and liquid financial assets. The more able governments are to meet the demand for securities, the lower and more stable is the long-run cost to the taxpayer. The need to keep costs down leads them to issue short-term bills, which are usually in high demand and carry the lowest interest rates. The need to keep costs stable and predictable leads them to issue long-term bonds.
These goals can be met at least as well by issuing consols. In a thought-provoking paper in 2015*, John Cochrane of the University of Chicago proposed that the entire stock of American public debt should be made up of two securities. The first would have a fixed value of $1 forever and a coupon payment that is set in line with overnight interest rates. The second would have a fixed coupon payment of $1 forever and a price that is determined by market forces. The fixed-value, floating-rate bond would meet the need for a safe, trusted and highly liquid security. It would have the same qualities as a Treasury bill. The fixed-coupon security would have the character of long-term debt.
Perpetual bonds have several advantages. A big one is liquidity. America’s sovereign debt is currently divided up into hundreds of distinct securities with different maturities. A 30-year bond that is issued in one year becomes a 29-year bond the next. The more individual bond issues there are, the less liquid each one is. By contrast, perpetual bonds are identical. A consol issued today is the same as a consol issued last year. And there is never the need to roll it over.
There are advantages for bondholders, too. A floating-rate perpetual would be a super-liquid, super-safe asset. A fixed-rate perpetual, meanwhile, would be in high demand from pension funds with promises to retirees that stretch into the indefinite future. Ideally the coupon would be inflation-protected.
A bond that pays the same in real terms for many years is the quintessential Darcy asset, say Victor Haghani and James White of Elm Partners, a fund-management firm.** Much of people’s wealth—their human capital; their pension benefits; their homes—is akin to an inflation-protected long-lived bond. It is judged by income, just as Austen saw it.
基金管理公司Elm Partners的维克多·哈冈尼（Victor Haghani）和詹姆斯·怀特（James White）表示，长年支付按实值计算固定的利息的债券就是典型的达西资产。**人们大部分的财富——他们的人力资本、养老金、住房——都类似于一种抗通胀的长期债券。正如奥斯汀的看法，衡量标准是它带来的收益。
Why, then, is so much debt made up of bonds with a principal that is paid back at a relatively short, set maturity? Credit risk is part of the explanation. In a company bankruptcy or when a country defaults on its foreign-currency debt, bondholders are paid back some fraction of the principal value of the bonds. But consols have no principal. Only countries with pristine reputations might be trusted to stand behind them.
Prejudice is a potential barrier to perpetual bonds. But they should be judged on how well they meet debt-management goals. On that basis, they are useful tools. Why not use them?
* “A New Structure of U.S. Federal Debt” (May 2015).
** “Reviving a 19th Century Perspective on Financial Well-Being” (May 2020).