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the latest source of comment and analysis from the Institute for Security & Resilience Studies at UCL.


A stock answer

By Dan Fox, on 9 January 2012

ISRS Senior Research Fellow, Chris Cook, argues for qualitative easing through stock issuance.

For several hundred years, the Exchequer financed and funded English sovereigns by issuing IOUs, in the form of wooden tally sticks (pictures) split into two parts.  Individual creditors were given the Stock as a receipt and as a credit token which was returnable to the Exchequer in payment of taxes: the Exchequer retained the counter-stock or foil to be matched against returned Stock.

13th-century Exchequer "stocks".

By the time the (privately incorporated) Bank of England came along to privatise the money supply in the late 17th century there were at least £17m worth of tallies in issue at a time when the total cost of the operation of the Kingdom was perhaps £2m to £3m per annum.-

From 1660 onwards, the UK began to issue interest-bearing Stock wholesale which met a demand for long term risk free annuity investments.  This Stock paid interest periodically to the holder and became very popular with long term investors, representing the lowest risk and most solid income stream available.  Meanwhile the physical tally stick accounting system gradually fell into disuse as the accounting system became a more secure double-entry book-keeping system.

Several classes of Stock were issued and in 1752 these were consolidated into what became known as Consolidated Stock or Consols.  Further issues were made and in 1888 these were all brought together by (Chancellor) Goschen’s Conversion as the 2.5% Consols which remain in existence to this day.

A Return to Stock

Under professional management of credit managers/service providers, and the accountable supervision of the Bank of England as monetary authority, local Treasury branches could issue, in virtual form, undated Stock which would be redeemable in payment against taxes.

Stock would be issued at a discount – eg a Unit of £1.00 of Stock sold for 90p – and the rate of return depends on the period over which the Stock is returned to the Treasury in payment of taxes.  The very word return alludes to this long forgotten practice of returning Stock to the issuer.

Stock revolutionises long term investment by transforming the risk.  There is no longer a risk that debt and interest will not be paid.  The stockholder may redeem Units against taxation, or may sell Units to other taxpayers/investors.  Even if pure investors will not buy Stock, taxpayers will always buy Stock when the price is below £1.00.

The rate of return depends literally upon the date of return of the Stock to the Treasury or the date of sale: the former depends on the rate and basis of taxation, while the latter depends on liquidity – the ability to sell stock.

Liquidity is transformed: instead of a market in debt fragmented by different rates of interest; repayment dates; and trading platforms, there will be a single wholesale market in Stock, probably through periodic auctions on the Treasury web-site.  The retail market in Stock takes place throughout the nation: Units of Stock in bearer form – Treasury Notes – may simply circulate alongside Bank of England notes as they still do in the US.

Stock also revolutionises Government funding, since massively reduced funding costs enable the issuance of new Stock to create new productive assets – which was precisely the reason why the wiser sovereigns issued Stock in the first place.

Qualitative Easing

The outcome of such 21st Century Stock issuance would be to transform the quality rather than the quantity of UK public credit – a debt/equity swap on a national scale.

Such Qualitative Easing will give a short/medium term breathing space for the transition of the UK economy to a sustainable long term fiscal basis.

But that is another story.




6 Responses to “A stock answer”

  • 1
    Derek Louden wrote on 15 August 2012:

    Hello Chris,
    This is clearly a way to fund investment in infrastructure on a national scale. Are there any reasons why it could not be used at a more local level to achieve the same thing?

  • 2
    Tim Young wrote on 4 October 2012:

    I followed your link here from FTAlphaville a few days ago, Chris.

    I am afraid that you are not making clear what the difference between stock and debt like gilts is. You say that stock is undated, but yet would be issued at a discount. If stock has no redemption date and is issued at a discount, I am going to redeem it as soon as it is issued; if not then stock must be dated and the market would remain fragmented into issues with different maturity dates and interest rates. Either way, it is not clear how risk would be transformed compared with gilts.

    You often make remarks on FTAlphaville about the nature of money that I find interesting but mystifying. If you want people to appreciate what you are suggesting, I suggest that you provide and refer to a full account of your argument somewhere that anticipates such questions.

  • 3
    Chris Cook wrote on 4 October 2012:


    Thanks for your interest.

    You can either:

    (a) return stock against taxation you are due to pay; or

    (b) sell it to someone else for the same purpose;

    Therefore your personal’rate of return’ would literally be the rate at which you could return the currency to the Exchequer for cancellation.

    Now, there are limits to that, but of course Corporates and individuals would always be in the market bidding for stock to return and will buy ANY stock available at less than £1.00, while always going for the lowest offer.

    Anyway, government issued stock won’t happen, but it’s an interesting thought experiment.

    What WILL happen is the advent of new breeds of stock issued at a discount by owners of productive capital and returnable in payment for value.

    It already exists – it’s called ‘prepay’.

    Imagine a social housing provider issuing £1.00 rental credits/stock at a discount: or energy savings projects issuing credits/stock returnable in payment for 1 MMbtu.

    And so on.

    These are simple but radical ‘peer to asset’ market instruments, which will wipe the floor with existing market instruments.

  • 4
    Tim Young wrote on 4 October 2012:

    Sorry, I still do not understand why this “stock” offers much advantage over gilts, Chris. If I know when my taxes are due, I can just buy gilts that return my money close to when I need it. I would be foolish to tender stock to pay my taxes which had a market value in excess of its face value.

  • 5
    Chris Cook wrote on 13 October 2012:


    The point about stock is that it always has a face value ABOVE the market value, because it is issued and sold at a discount.

    Holders make a profit by realising the discount, or by selling the stock at a profit to someone else.

    They have no incentive to hold stock, because they get no return by doing so.

    The rate of return is – literally – the rate at which the stock is returned to the Treasury. Stock is – and always was – fiat currency sold forward at a discount for an indefinite term.

    The government could continue its QE process to buy up all existing gilts (‘gilt-edged’/dated stock), and the Treasury could simply issue undated stock at a discount to finance investment in productive assets and productive people.

    This direct issuance could be suitably managed by professionals with a stake in the outcome, and under accountable supervision of a Monetary-Authority-Formerly-Known-As-The Bank-of-England.

    (cf Hong Kong, which is half way there).

  • 6
    Tim Young wrote on 4 December 2012:

    I see now Chris. I can see that there would be a place for such an instrument (whether it is debt or a credit note depends on your point of view), not least because of the fungibility of the issue, but I find it hard to believe that many people would find this stock attractive to hold because the further in advance your tax liability, the more uncertain the amount is, and therefore the more uncertain the return is to buying stock. It seems to me that this uncertainty would make the cost of this debt to the government prohibitively expensive beyond a small amount that could be sold, directly or indirectly, to those with a clear idea of an imminent tax liability. Certainly an interesting addition to the range of government funding instruments though.

    By the way, something seems to have gone wrong with the time record of these comments.

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