Page:Encyclopædia Britannica, Ninth Edition, v. 17.djvu/256

NATIONAL DEBT made use of in various states for obtaining money, which, as they involve the payment of interest, may be regarded as of the nature of loans ; but the debt incurred by such methods is comparatively insignificant, and some of the methods adopted are peculiarly irritating and mischievous. On the other hand, it has occasionally been attempted to raise voluntary loans by appeals to a nation s patriotism ; the method has been confined almost exclusively to France. After the revolutions of 1830 and 1848 appeals were thus made to the patriotism of French capitalists to buy 5 per cents direct from the Government at par, at a time when the French 5 per cents were selling at 80 ; but the results were quite insignificant. Even if the amount sought for by a Government could be obtained on the voluntary prin ciple, the method itself is vicious, withdrawing as it does from the general working capital of the country a sum of serious dimensions. In short, the only economically sound method of meeting expenses which the ordinary resources of a state cannot meet is by borrowing in the open market on the most advantageous terms obtainable. On this normal method of borrowing, loans are divided into different categories, though there are really only two main classes, which may be designated perpetual and terminable. Borrowing in quasi-perpetuity has hitherto been the mode adopted by most states in the creation of the bulk of their debt. Not that any state ever borrows with the avowed intention of never paying off debts ; but either no definite period for reimbursement is fixed, or the limit has been so extended as to be practically perpetual, or in actual practice the debt has been got rid of by the creation of another of equal amount under similar or slightly differing conditions as to interest. Of course a state is not bound to retain any part of its debt as a perpetual burden; it is at liberty to liquidate whenever it suits its convenience. This quasi-perpetuity of debt in the case of a state in a sound financial condition involves no hardship upon its creditors, who may at any moment realize their invested capital by selling their titles as creditors in the open money market, it may be at the price they paid, or it may be a little below or a little above it, according to the state of the market at the time. Loans, again, contracted on the terminable principle are of various classes ; the chief of these are (1) life annuities, (2) terminable annuities, (3) loans repayable by instalments at certain intervals, (4) loans repayable entirely at a fixed date. From the time of William III. life and terminable annuities have been a favourite mode in England either of borrowing money or of commuting, and thus gradually paying off, the existing funded debt. At first, and indeed until comparatively recent times, the system of life annuities resulted in serious loss to the country, owing to the calculation of the rate of annuity on too high a scale, a result arising from imperfect data on which to base estimates of the average duration of life. The system of life annuities was sometimes combined in England with that of perpetual annuities, or interest on the permanent debt, the life annuity forming a sort of additional induce ment to lenders of limited means to invest their money. At one time the form of life annuities known as tontine was much in vogue both in England and France, the principle of the tontine being that the proceeds of the total amount invested by the contributors should be divided among the survivors, the last survivor receiving the whole interest or annuity. The results of this system were not, however, encouraging to the state. In England, at least, the terminable annuity has been a favourite mode of borrowing from the time of William III. ; it has been generally conjoined with a low rate of permanent interest on the sum borrowed. Thus in 1700 the interest on the consolidated debt amounted to only 260 000, while the terminable annuities payable amounted to 308,407. In 1780 a loan of 12 millions was raised at 4 per cent, at par, with the additional benefit of an annuity of 1, 16s. 3d. per cent, for eighty years. Even so late as the Crimean War in 1855, a loan of 16 millions at 3 per cent, at par was contracted, the contributors receiving in addition an annuity of 14s. 6d. per cent, for thirty years. Latterly, however, this beneficiary system has been abandoned, though the system of terminable annuities has received increased favour, especially as a means of reducing the funded debt. Of the total debt of England in 1882, up wards of 35 1 millions were in terminable annuities, while in 1883 the sum was only 29,492,125. The third method of contracting terminable loans, that of gradual repayment or amortization within a certain limit of years, has been a favourite one among certain nations, and specially commends itself to those whose credit is at a low ebb as Turkey, Eussia, and Egypt. When the final term of repayment is fixed upon, a calculation is easily made as to how much is to be paid half-yearly until the expiry of the term, so that at the end the whole, princi pal and interest, will have been paid. At first, of course, the amount paid will largely represent interest, but, as at each half-yearly drawing of the numbers of the bonds to- be finally paid off the principal will be gradually reduced, there will be more and more money set free from interest for the reduction of the actual debt. This method, as we have said, has its advantages, and when conjoined with stipulations as to liberty of conversion to debt bearing a lower rate of interest than that originally offered, and when the bonds are not issued at a figure much below par, might be the most satisfactory method of raising money for a state under certain emergencies. What is known as the "Morgan loan" of France in 1870 was contracted on such conditions. The last form of temporary loan, that repayable in bulk at a fixed date, is one which, when the sum is of consider able amount, is apt to be attended with serious disadvant ages. The repayment may have to be made at a time when a state may not be in a position to meet it, and so to keep faith with its creditors may have to borrow at a higher rate in order to pay their claims. It has, however, worked well in the United States, most of the debt of which has been contracted on the principle of optional payment at the end of a short period, say five years, and compulsory payment at the end of a longer period, say twenty years. Thus the loan of 515 millions of dollars contracted in 1862 was issued on this principle, at 6 per cent., and so with other loans between that year and 1868. In European states, however, the risks of embarrassment are too great to permit of the application of this method on an extensive scale ; and for loans of great amount the methods most likely to yield satisfactory results are loans bearing quasi-perpetual interest, or those repayable by instalments on the basis of half-yearly drawings within a certain period. What are known as lottery loans are greatly favoured on the Continent, either as an independent means of raising money, or as an adjunct to any of the methods referred to above. These must not be confounded with the lottery pure and simple, in which the contributors run the risk of losing the whole of their investment. The lottery loan has been found to work well for small sums, when the interest is but little below what it would have been in an ordinary loan, and when the percentage thus set aside to form prizes of varying amounts forms but a small fraction of the whole interest payable. The principle is that each contributor to such a loan has a greater or less chance of drawing a prize of varying amount, over and above the repayment of his capital with interest.