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 have command of sufficient funds for the purpose of paying off the stockholders, or should be able to raise those funds by borrowing at a rate of interest lower than that borne by the stock. Any circumstances which might tend to raise the price of the stock above par would also assist the government in raising its redemption money on more favourable terms. When the amount of stock to be dealt with is large, the raising by a fresh loan of the amount required for redemption would occasion great disturbance. A more convenient method is the conversion of the existing stock to a lower rate of interest by agreement with the stockholders, whose reluctance to accept a reduction of income is overborne by their knowledge that the power of redemption exists and will be put in force if necessary. The opportunity for conversion may be looked for when the price of a redeemable stock stands steadily at or barely above par. Observation of the movements in the price of other securities will serve to show whether this stationary price represents the real market value of the stock, or whether that value is subject to depression owing to an expectation of the stock being converted or redeemed. Accordingly, the course of prices of other government stocks which are free from the liability to redemption, of the stocks of foreign countries and the colonies, and of the large municipalities, must be watched by government in order to determine, first, whether the conversion of a redeemable stock is feasible, and, secondly, to what extent the reduction of the interest in the stock may be carried.

The credit for the first measure of conversion belongs to Walpole, though it was carried through by Stanhope, his successor as chancellor of the exchequer. In 1714 the legal rate of interest for private transactions, which had been fixed at 6% in the year of the Restoration, was reduced to 5% by the act 12 Anne, stat. 2, c. 16, But the bulk of the national debt still bore

interest at 6%, the doubtful security of the throne and the too frequent irregularities in public payment having hitherto precluded any considerable borrowing at lower rates. Walpole saw that the first requirement was to give increased confidence to the public creditors. Three acts were passed dealing respectively with debts due to the general public, to the Bank of England and to the South Sea Company. Three separate funds—the general fund, the aggregate fund and the South Sea fund—were assigned to the service of the several classes of debt, each of these funds being credited with the produce of specified taxes, which were made permanent for the purpose; and it was further provided that any surplus of the funds, after payment of the interest of the debts, should be applied in reduction of the principal. Such was the success of this measure that, in spite of the reduction of interest from 6 to 5% which was also enacted, the passing of the acts was followed by a rise in the price of stocks. A curious preliminary to the introduction of these measures was the passing of a resolution by the House of Commons, which invited advances not exceeding £600,000, to be repaid with interest at 4% out of the first supplies of the year. The result showed that the time was not ripe for such a reduction of interest, as only a sum of £45,000 was offered on those terms. A further resolution was then passed, substituting 5% as the rate of interest, and the whole sum was at once subscribed. Besides accepting the reduction of interest on their own debts, the Bank of England and the South Sea Company agreed to assist the government by advancing 4 millions at the reduced rate, to be employed in paying off any of the general creditors who might refuse assent to the conversion. The assistance was not required, as all the creditors signified assent. The debts thus dealt with amounted altogether to about 25 millions, and the annual saving of interest effected (including that upon a large quantity of exchequer bills for which the Bank had been receiving over 7%) was £329,000.

Walpole had a further opportunity of effecting a conversion in 1737. In the meantime much of the 5% debt had been reduced to 4% by arrangements with the Bank of England and the South Sea Company, and further borrowings had taken place at that rate and even at 3%. In 1737 the 3% stood above par, and Sir John Barnard proposed to the House of Commons a

scheme for the gradual reduction of the 4%. As a financial measure the scheme would doubtless have succeeded; but Walpole, moved apparently by consideration for his capitalist supporters, opposed and for the time defeated it. A scheme on similar lines was carried through by Pelham as chancellor of the exchequer in 1749 and embodied in the act 23 Geo. II. c. 1. By that act holders of the 4% securities, amounting to nearly £58,000,000, were offered a continuance of interest at 4% for one year, followed by 3% for seven years, during which they were guaranteed against redemption, with a final reduction to 3% thereafter. It was necessary to continue the rate of 4% for the first year, as any objecting stockholders could not be paid off without a year’s notice. Three months were allowed for signifying assent to the proposal. At first it was viewed with disfavour, and both the Bank and the East India Company opposed it. But the pens of the government pamphleteers were busily occupied in showing the advantages of the offer, and at the close of the three months acceptances had been received from the holders of nearly £39,000,000 of the stocks, or more than two-thirds of the whole. A further opportunity was afforded to waverers by a second act (23 Geo. II. c. 22), which allowed three months more for consideration; but for holders accepting under this act the intermediate period of 3% interest was reduced from seven years to five. These terms brought in an additional £15,600,000 of stock; and the balance left outstanding, amounting to less than 3 millions, was paid off at par by means of a new loan. The annual saving of interest on the stock converted was at first £272,000, increasing to £544,000 after seven years.

For nearly three-quarters of a century no further conversion was attempted. In that period the total debt had been increased tenfold, and the practice of borrowing in times of war by the issue of an inflated capital, bearing nominally a low rate of interest, prevented recourse to conversion as a means of reducing the burden after peace was restored. But in 1822 Mr Vansittart—who

four years earlier had effected a conversion in the opposite direction, turning £27,000,000 of stock from 3 into 3%, in order to obtain from the holders an advance of £3,000,000 without adding to the capital of the debt—was able to deal with the 5%. These stocks amounted to £152,000,000 out of a total funded debt of £795,000,000. The prices at which the chief denominations of government stocks stood in the market in the early part of 1822 indicated a normal rate of interest of more than 4 but considerably less than 4%. In these circumstances, to propose the conversion of the 5% stocks to 4% would probably have been futile, unless the new stock were guaranteed for a long period, as holders would have stood in fear of a speedy further reduction. Nor could the government hope to succeed in a reduction to 4%. Mr Vansittart’s plan was to offer £105 of stock bearing 4% in exchange for £100 of 5% stock, thus adding slightly to;the capital of the debt, but effecting a large annual saving in interest. These terms were highly successful. Holders of nearly £150,000,000 accepted, leaving less than £3,000,000 of the stock to be paid off, and the annual saving obtained was £1,197,000. The new 4% stock was made irredeemable for seven years (act 3, Geo. IV. c. 9).

There were, however, other 4% stocks, amounting to £76,000,000, which were not secured against redemption. Two years later, the conditions being favourable for their conversion, the act 5 Geo. IV. c. 24 was passed, offering holders in exchange a 3% stock, irredeemable for five years; The offer was accepted

as regards £70,000,000, and the remaining £6,000,000 paid off, the annual saving on interest being £381,000.

In 1830 the guarantee given to the 4% stock of 1822 had expired, and the stock stood at a price of 102. Mr Goulburn decided to attempt its conversion without delay, and accordingly by the act II Geo. IV. c. 13 holders were offered in exchange for each £100 of the stock, either £100 of a 3% stock, irredeemable

for ten years, or £70 of a 5% stock, irredeemable for forty-two years, these two options being considered of approximately equal value. No difficulty was found in securing assent. Over £150,000,000 of the stock was converted, almost wholly into the 3% stock; the balance of less than £3,000,000 was paid off, and an annual saving of £754,000 in interest was the result.

It was again Mr Goulburn’s fortune to carry out a large and successful conversion in 1844. At that date the funded debt was made up of 3% and 3% stocks in the proportions of about two to one, the only other denomination being the trifling amount of 5% stock created in connexion with the conversion of 1830. The price of 3% consols ranged about 98, and that

of the new 3%, created in 1830, about 102. A reduction straightway from 3 to 3% was not to be looked for, but it was hoped to ensure that reduction ultimately by offering 3% for the first few years and a guarantee against redemption for a long term. Accordingly the holders of the several 3% stocks were offered an exchange to a new stock bearing interest at 3% for ten years and at 3% for the following twenty years. Practically the whole of the stock, amounting to £249,000,000, was converted on these terms, only £103,000 being left to be paid off at par. The immediate saving of interest was £622,000 a year for ten years, and twice that rate in subsequent years (acts 7 & 8 Vict. cc. 4 and 5).

Mr Gladstone’s only attempt at the conversion of the debt was made in his first year as chancellor of the exchequer. His primary purpose was to extinguish some small remnants of 3% stocks which stood outside the main stocks of that denomination. The act 16 Vict. c. 23 offered to holders of these minor stocks, amounting altogether to about 9 millions, the option

of exchanging every £100 for either £82, 10s. of a 3% stock guaranteed for 40 years, or £110 of a 2% stock guaranteed for the same period, or else for exchequer bonds at par. in the result stock to the amount of only about £1,500,000 was converted, and the remaining £8,000,000 had to be paid off at par, with some apparent loss of capital, as the current market price of the 3% was less than par. The failure was largely owing to the fact that, between the initiation and the execution of the scheme, the train of events leading up to the Crimean War had become manifest, with unfavourable results