Gordon Thomson 1882-1950 THE LAW OF REAL PROPERTY IN ENGLAND A COURSE OF LECTURES BY G. WOOD HILL, ( Barrister-at-Law. DELIVERED AT THE Institute of Actuaries, Staple Inn Hall, Holborn, During the Session 1896-97. LONDON: CHARLES & EDWIN LAYTON, 56, FARRINGDON STREET, E.G. 1898. GIFT PREFACE. J_HE education of an actuary covers a wide field of knowledge and research. He must be an efficient mathe- matician capable of applying his technical skill to the every- day problems of life ; a practical financier possessing a comprehensive knowledge of the different classes of invest- ment and of the causes which regulate and govern the value of money ; and withal he must have a large and peculiar acquaintance with the law, embracing not only the ordinary commercial law, particularly the law of contracts, the law of joint stock companies, and especially the law relating to life assurance companies, to guide him in the discharge of his duties as a manager; but he must also have an intimate acquaintance with the principles of the law of real property in order that he may grasp the exact nature and bearing of the various forms of possession, and of the conditions and responsibilities arising out of the inheritance and disposition of property. The actuary is in constant need of his knowledge of the law of real property. He has to advise on the purchase or mortgage of estates ; life interests, contingent or in possession ; and reversionary interests ; and is frequently consulted on the financial adjustment of operations arising out of family or other arrangements. In fact, the actuary who is in full practice must have this law at his fingers' ends, M751407 IV Although it is essential that he should know the law, the actuary is never expected to become a lawyer. The difference between knowing the law and being a lawyer is as wide as the difference between theory and practice ; and the actuarial student in his studies will learn sufficient of the law to convince him of the danger of interfering in the practice of it. The actuarial student proceeds to the study of the law in a different way to the legal student. He naturally, therefore, meets with many difficulties, arising most frequently from the want of a clear perception of the basis on which the whole fabric is built. The Council of the Institute of Actuaries, recognizing these difficulties, and being always anxious to assist the students in their studies, invited Mr. George Wood Hill to give a series of lectures in plain and simple language on the law of real property. These lectures were listened to with marked attention and interest, and were received with evident satis- faction and pleasure by those who were fortunately able to attend them; and their issue now in printed form will, it is reasonably hoped, supply the students with sufficient knowledge to serve as an introduction to the more complete study of the subject. It should be clearly understood that these lectures do not contain all that it is necessary for the actuary to know on the subject. They are merely aids to study ; and by presenting to the mental vision a kind of miniature photograph of the subject, they will serve to stimulate the student to investigate further, and with deeper interest, into the recesses of the law of real property. H. W. M. 25 July 1898. LECTURES LAW OF REAL PROPERTY IN ENGLAND. BY MR. G. WOOD HILL 1896-1897. INDEX. Actuary PAGE education ... ... ... ... ... ... iii not a lawyer ... ... ... ... ... ... iv Agricultural Holdings Act, 1883 72 Appointment, general power of... ... ... ... ... 56 Chattel real 71 Contingent Remainders Act, 1877 ... ... ... 48, 60 Conveyancing and Law of Property Acts ... ... ... 84 forfeiture of lease ... ... ... ... ... 80 mortgagee's interest passes to personal representatives 90 power to grant leases ... ... ... ... ... 92 power of sale ... ... ... ... ... ... 96 consolidation ... ... ... ... ... ... 105 Copyholds 63 De donis conditionalibus ... ... ... ... ... 19 Devises of land ... ... ... . ... ... ... 57 Disentail 20 Embiements 72 Enfranchisement... ... ... ... ... ... ... 67 Entail 20 Equity of redemption 86,88,106 Escheat 10, 13 Estates in fee simple ... ... ... ... ... ... 17 freehold, and less than freehold ... ... ... 17 in tail ... 18 for life ... ... 21 equitable estates ... ... ... ... ... ... 28 legal estate ... ... ... ... ... ... 31 Executory devises ... ... ... ... ... ... 51,57 Fealty 7, 12 Fee a feudal estate in land ... ... ... ... ... 6 originally inalienable ... ... ... ... ... 8 alienation by sale and by will ... ... ... ... 13 fee simple ... ... ... ... ... ... 17 fee tail ... 18 base fee ... ... ... ... ... ... ... 34 Feudal system ... ... ... ... ... ... ... 5 Fines and recoveries ... ... ... ... ... ... 20 Frauds, Statute of ... ... 74 Freehold ... 17 Gavelkind ... ... 39 Heir ... ... 24 Hereditaments, corporeal and incorporeal ... ... ... 38 Heriot ... 65 Homage ... ... ... ... ... ... ... 6 Inheritance Act, 1833 24 Investiture ... ... ... ... ... ... ... 7 Judicature Act 31,93 Knight Service ... ... 9,12,14 Leases grant ... 73 assignment ... ... ... ... ... ... 76 covenants ..76,79 underlease 78 mortgage... ... ... ... ... ... ... 78 forfeiture ... 80 surrender ... ... ... ... ... ... ... 84 Lectures, object and scope iv, 1, 2 PAGE Limitations, Statute of 100 Locke King's Act, 1854 93 Manor mesne Lords, or Lords of the Manor 9, 63 Court Baron 10 Marriage right of marriage ... ... ... ... ... 10 marriage settlement ... ... ... ... ... 54 Merger ' 50 Mortgage of lease 78 ofland 85 form 85, 91 at law and in equity ... ... ... .. ... 85,87 equity of redemption 86,88,106 covenants... ... ... ... ... ... ... 91 reconveyance ... ... ... ... ... ... 100 priority 101 tacking 102 consolidation ... ... ... ... ... ... 103 second mortgages ... ... ... ... 103,105 Mortgagee in possession ... ... ... ... ... ... 87 legal estate passes to personal representative ... ... 90 right to sue ... ... ... ... ... ... 94 foreclosure 94 power of sale 95,96 right to take possession ... ... ... ... ... 96 to appoint receiver 98 to grant leases 98 Mortgagor right to grant leases ... ... ... ... ... 92 to bring actions 93 to repay after giving notice ... ... ... 99 Paramount, lord ... ... ... ... ... ... ... 8 Partition, writ of ... ... ... ... ... ... 36 Perpetuities 27,60 Portions 26 Primogeniture ... ... ... ... ... 26 Property in land ... ... ... ... ... ... ... 4, 14 real and personal 69 chattel real 71 Quia emptores, Statute of ... ... ... ... ... 8 Quit rent 12 Real Property Act, 1845 49, 50, 74 Remainder vested ... ... ... ... ... ... ... 40 contingent ... ... ... ... ... ... 44 Reversion ... ... ... ... ... ... ... 39 Seisin livery of seisin ... ... ... ... ... ... 7 must never be without owner ... ... ... ... 46 Settled Land Acts 22 Shelley's case, rule in ... ... ... ... ... ... 43 Socage, free ... ... ... ... ... ... ... 11,14 Subinfeudation ... ... ... ... ... ... ... 8 Tacking 102 Tenancy in common and joint tenancy ... ... ... ... 34 at will 72 by sufferance ... ... ... ... ... 72 from year to year ... ... ... ... 72 for term of years ...... 73 Tenure knight service 9,12,14 free socage ... ... ... ... ... ... 11,14 gavelkind... ... ... ... ... ... ... 39 copyhold ... ... ... ... ... ... ... 63 Terms of years ... ... ... ... ... ... ... 73 Uses Statute of Uses 14,29,52 shifting Uses ... 51 Wardship 10 Williams on Real Property ... 3 Wills Act, 1837 .. 14 THE LAW OF REAL PROPERTY IN ENGLAND. FIRST LECTURE. [Delivered 14 January 1897. ~\ THE PRESIDENT (Mr.T. E. Young, B.A.): Gentlemen, in extending a cordial welcome to Mr. Wood Hill this evening, I may briefly refer to the origin and purport of this course of lectures. The Institute of Actuaries has always gladly accepted the view that, besides con- stituting a scientific body, its position involves the responsibility of assuming educational functions, and of endeavouring to utilize every opportunity of aiding its members, and particularly its younger members, the students, by an appropriate course of training and instruction. Hence, in the past, the Institute appointed lecturers and classes of a practical character, with a view of bringing within the range of the students the most authentic and the most recent knowledge, and as the Institute fully recognizes the fact that technical study and book knowledge are absolutely incompetent as an equipment for professional life, they have been guided by this feeling to devising a method of securing a practical education for the younger members by practical men. The course of lectures, consequently, which we inaugurate this evening, is an extension of that original design, and I may be permitted to express the confident hope that it is simply the beginning of a larger and ampler scheme of practical education in various other modes. With these brief remarks, showing the purpose which the Institute has in view in instituting this course, I have very great pleasure in asking Mr. Wood Hill to address us. (Applause.) MR. WOOD HILL : Mr. President and gentlemen, in introducing me to this Hall, your President has stated the purpose and object that the Council have in view in asking you to be present here to listen to a course of lectures, to begin with, upon legal subjects. When the Committee of this Institute did me the honour to ask me to deliver a series of lectures upon legal subjects in this Hall, I was informed, as you have heard to-day, that the main object of those lectures was the education of candidates for admission into the Institute of Actuaries, to assist them, and to encourage them by interesting them in working up for their examinations in the subjects of the lectures, and to induce them to acquire such a knowledge of those subjects as would enable them to deal, as actuaries, not as lawyers, with matters of business involving a knowledge of the law with which they might have to deal in the course of the practice of their profession as actuaries. So that you will see, gentlemen, the object I have in mind is not to make lawyers of you, but to make you a little more competent as actuaries than you would be without any knowledge of the legal subjects upon which I have been asked to lecture to you. Now, the first lecture, at the request of the Council, that I have to deliver is upon the Real Property Law of England, or rather the principles of it. Into the details of it it would be impossible to go in the course of a series of three or four lectures, and I do not think it would be wise to do so, because as your intention is not to become lawyers, it is not necessary you should have that precise and accurate knowledge of the law which is required of a person who has to carry out, as a lawyer, legal transactions. I shall, therefore, only deal with the principles of any subject upon which I shall have to lecture, and certainly only with the leading principles of the Law of Real Property in England. What you want to know, and what I hope you will learn, is what the Law of Real Property is at the present day. But let me say this at the outset. It is impossible, or at least I think so, for any man to have an intelligent appreciation or understanding of the Law of Real Property in England as it is, unless he knows how it came to be what it is. And I have no doubt whatever that, in learning how the Law of Real Property in England came to be what it is, you will also, at the same time, learn what it is ; so that you only have to learn how it came to be what it is to know what it is. Well, in the first place, it is an artificial subject, and there is, fortunately for you, and, I think, more fortunately for me, for I am essentially an advocate, and not a professor, I am not in the habit of delivering lectures, and therefore I say, particularly fortunate for myself, there is an excellent text-book upon the subject, of which, I have no doubt, many of you are aware. It is the late Joshua Williams on " The Law of Real Property ", and I should advise every student of law, whether he intends to be an actuary, or a barrister, or a solicitor, or county magistrate, or to hold any other position of eminence or prominence in this country, to master the leading principles of the law of this country, and especially of the Law of Real Property, and he can do so from that book, if he only studies it. It is an interesting book, and it is really not a large book. This is the last edition, and if you master that book or even the principal parts of it you will know as much of Real Property Law as you are ever likely to want to know in practising your profession as an actuary. I do not think I can follow any other method better than the method which has been pursued by Mr. Joshua Williams in that book which is now a classic work. The matter has been re-arranged from time to time in the different editions, but I advise you to give it away if you happen to have an old edition, and to buy a new one, because it brings the Law of Real Property up to the present time, or very nearly to the present time. The last edition, I think, is dated in the year 1896. It is not an expensive book. It is published at the price of one guinea, and I think you can get it at some stationers for 15. or 16s., and it is a book you will always be glad to have in your library, for if you don't often read it, you will often want to refer to it to refresh your memory, and as a book of reference it will always be of use to you, and the money would not be lost. So I strongly advise you to get this book, and to supplement, or rather fill in, the gaps which I must necessarily leave in a course of lectures. To begin with, you ought to get rid of all preconceived notions about law, and I don't think I can do better at the outset than read to you what Williams says in one of the earlier editions with reference to that matter. The passage does not appear, so far as I am aware, in the later editions, but I cannot tell you why. It seems to me pregnant with good sense, and I ask you to give me your attention while I read it. It is not long. You will find it in the old editions at the very beginning of the book. On page 16, in the tenth edition, Chapter I, he says this: "It seldom happens that any " subject is brought frequently to a person's notice without his " forming, concerning it, opinions of some kind, and such " opinions, carelessly picked up, are often carefully retained, " though in many cases wrong, and in most inadequate. The " subject of property is so generally interesting, that few persons " are without some notions as to the legal rights appertaining to " its possession. These notions, however, as entertained by " unprofessional persons, are mostly of a wrong kind ; they " consider that what is a man's own is what he may do what he " likes with. And, with this broad principle, they generally set " out on such legal adventures as may happen to lie before them. " They begin at a point at which the lawyer stops, or at " which, indeed, the law has not yet arrived, nor ever will, but " to which it is still continually approximating. Now, the " student of law must forget for a time that if he has land he may " let it or leave it by his will, or mortgage it, or sell it, or settle " it; he must humble himself to believe that he knows as yet " nothing about it, and he will find that the attainment of the " ample power which is now possessed over real property has been " the work of a long period of time, and that even now a common " purchase deed of a piece of freehold land cannot be explained " without going back to the reign of Henry VIII, or an ordinary " settlement of land without recourse to the laws of Henry I. " That such should be the case is certainly a matter of regret. " History and antiquities are no doubt interesting and delightful " studies in their place, but their perpetual intrusion into modern " practice, and the absolute necessity of some acquaintance with " them gives rise to much of the difficulty experienced in the " study of the law, and to many of the errors of its less studious t( practitioners. The first thing then the student has to do is to " get rid of the idea of absolute ownership. Such an idea is quite " unknown to the English law. No man is in law the absolute " owner of lands; he can only hold an estate in them/' Now, gentlemen, those words are not applicable to some of you, but I have no doubt they are applicable in every sense to many of you. I happen to know that some gentlemen who present themselves as candidates for admission into this Institute have studied law, and studied it carefully, and that they are really students of the law in the best sense. They have not just looked at it and got up enough, say, to pass the examination which the Council requires every member of this Institute to have passed, but they have an intelligent knowledge of the subject. But to the majority, no doubt, of the gentlemen here present it is evident every word that Mr. Joshua Williams has there said, is applicable, and I hope you will follow his advice, and assume that you know nothing about it, that you come here to learn, that I am going to do my best that you should learn, and to assist you to learn the law of England upon the subject of real property. Now, gentlemen, at the present day the whole of the form of our law with regard to real property, is based upon what is known as the Feudal System, and without a knowledge of that Feudal System, you cannot appreciate the present state of our law with regard to real property. I say "the form" emphatically, because the substance of the feudal tenures has happily gone. A very little remains of the substance, so little, indeed, that a lawyer very rarely hears anything about it, and a man who is not a lawyer, but is a mere man of business, hears nothing about it, except when, in his own experience, it is actually brought to his notice. Well, gentlemen, as I say, I do not think you can understand the present state of our law without having some knowledge, I do not mean to say a knowledge of all the details, but some knowledge, and an intelligent know- ledge, of the Feudal System. With regard to the Feudal System, if you want to know and I hope you will have the curiosity to want to know the full details of the system, you will find them in a book which I think every gentleman ought to read, whether he intends to be an actuary, or a lawyer, or anything else Hallam's "Middle Ages", Chapter ii, part I, is practically devoted to the history of the Feudal System. It is necessary that you should have this knowledge, because whatever may have been the Anglo- Saxon tenures, those of the Feudal System were completely established, with some variations and additions to which I need not direct your particular attention, in this country during the llth and 12th centuries, that is, during the time of William the Conqueror and his successors on the throne, commonly known as the Norman kings. Now what was this Feudal System? It did not arise in this country. It came over, to put it shortly, with the Conqueror, but it existed in France and other countries in a form, not in the same form as it was established here exactly as I have said, but practically in the same form. The essence of this Feudal System was to establish between the grantor of what was called a fee, and the grantee of that fee, a relation of a personal character. You will see how different that is from our present notion; but that was the essential principle of the Feudal System. The relation was, as I say, of a personal character. It was this: the grantor, called the lord, afforded 6 to the grantee, called his vassal, protection; and, on the other hand, the vassal owed to his lord certain services, generally, and at first, almost entirely, military service. In those days there was no settled order of government, and this Feudal System was a substitute, or something in the place of, a settled order of government. That you may thoroughly get into your minds how personal this relation was between the grantor who was called the lord, and the grantee, whom I have already said, was called the vassal, I will read to you from Hallam the ceremonies of investiture by a lord of his vassal in a fee, but before doing so, I think you ought to have a notion of what is meant by the word " fee." It is a feudal estate in land, either of one tract of land, or more; it may be a very large territory, it may be a very small territory. Abroad they were called feus, or fiefs, but in England we have used the word fee, and we still use the word fee. The word fee is in use to the present day. In the very last Act of Parliament relating to the Law of Real Property, I think you have the expression " in fee simple/' You cannot understand what " in fee simple " means in that Act of Parliament, unless you know what a fee was under the Feudal System. Now, that you may understand, as I have said, fully, the personal character of the relation between the lord and the vassal, I will read to you from Hallam. At page 169, you will find the passage I am about to read. "The ceremonies, in conferring a fief upon a vassal " he uses the word fief, I prefer to use the word fee, because the word fee is a word in daily use, and the word fief is not " the " ceremonies used in conferring a fief were principally these, " homage, fealty, and investiture. The first that is, homage " was designed as a significant expression of the submission and ft devotedness of the vassal towards his lord. In performing " homage, his head was uncovered, his belt ungirt, his sword and " spurs removed. He placed his hands, kneeling, between those of " the lord, and promised to become his man from thenceforward" notice that expression, gentlemen to be " his man from thence- " forward, to serve him with life and limb and worldly honour, " faithfully and loyally, in consideration of the lands which he held " under him. None but the lord in person could accept homage, " which was commonly concluded by a kiss/' I do not know whether you have ever seen an undergraduate at one of the Universities take his degree. But I remember being very much in that position when the Vice-Chancellor conferred upon me my degree, and if you have ever seen a degree conferred, you will have a very vivid idea of the actual ceremony. The next thing is " an oath of " fealty was indispensable in every fief, but the ceremony was less " peculiar than that of homage, and it might be received by proxy. " It was taken by ecclesiastics, but not by minors, and in language " differed little from the form of homage. Investiture' 7 what we should now call a conveyance "investiture, or the actual con- " veyance of feudal land, was of two kinds, proper and improper. " The first was an actual putting in possession upon the ground, " either by the lord or his deputy" it is called in our law "livery of seisin/' That is an expression you will often come across in reading Williams, and it is just as well that at the very outset you should know what it means. In plain English it means, actual delivery of possession, nothing more or less. "The second was " symbolical, and consisted in the delivery of a turf, a stone, a " wand, a branch, or whatever else might be made usual by the " caprice of local custom. Du Cange enumerates not less than 98 " varieties of investiture/' If that presents any picture to your minds, it will be a picture of an intimate personal relationship between the lord and the vassal, between the lord who had the dominion over the territory out of which the fee was carved, and the vassal to whom possession of a portion of the territory, the fee, was delivered under the investiture. That being, speaking generally, the nature of a fee, one has to see what its incidents were. The principal incidents of a fee were aids, reliefs, and other matters to which I shall have to draw your more particular attention hereafter. You will find them, I think, stated in Hallam on the following pages, and you will also find them in Williams. But the main object of the Feudal System was to secure to the lord the military service of the vassal. The vassal was bound to serve his lord in war. That was the military system by which a local militia, if one may use a modern term with reference to anything so ancient as the Feudal System, was provided for the defence of the lord, to enable the lord to protect others, and generally to carry on the business of depredation, as it then was carried on there is no other word for it. This Feudal System was the origin of our present system of tenures, and you will see, and I lay great stress upon it, established a personal relationship between the lord and the tenant. When the fee was first conferred, when the system was first established, the tenant could not determine that personal relation between himself and his lord without the consent of both parties. It is 8 doubtful whether, in the first instance, the interest, or as we now say the estate of the vassal, in the land descended to his heirs. It is clear that at the outset he could not part with it during his lifetime, but we know, or at least the historians tell us, that shortly after the Feudal System was established in this country, a fee became descendible to the heirs of the tenant, that is, upon his death it went to some other person who was called his heir, and that by degrees, step by step, the power of disposing of that estate became very nearly, or almost, complete. But it was not until an important statute was passed, to which I shall have to draw your attention, known as the statute of " Quia emptores", was passed that every holder of a fee became entitled as of right, without the consent of his lord to alienate, that is, to dispose of, his fee. That statute created an epoch in the law relating to real property in England, and it is very short, and I should like to show you how very clearly our ancestors could put things. The whole statute consists of three very short chapters, and the part of the statute which relates to this matter is called the first chapter. It was a statute passed at Westminster, and it was passed in the 18th year of the reign of Edward I, in the year 1290. I will now read to you the enacting part of that statute. " That " from henceforth it shall be lawful to every freeman to sell at his " own pleasure his land and tenements, or part of them, so that " the feoffee shall hold the same lands or tenements of the chief " lord of the same fee by such service and customs as the feoffor " held before." That is extremely short and extremely simple. It gives the right to the tenant in fee to dispose of his lands in his lifetime to anyone he thinks fit, but subject to this, he cannot grant his estate in fee to another to be held of himself as the lord. You see the words are ff so that the feoffee " that is the grantee " shall hold the same lands or tenements of the chief " lord at the same fee by such service and customs as the feoffor " held before/' Now that had an enormous effect upon the law in England that simple statute in those few words. I must here explain that William the Conqueror assumed to be the chief lord, or the lord paramount, of all the land in England. What happened ? The persons to whom the king granted fees, or who were assumed to hold their fees of the king, from time to time granted to other persons fees to be held of themselves, and that was called subinfeudation, and this went on from time to time until the chief, or mesne, lord was unable to enforce, or was 9 obstructed in enforcing, his rights against his own vassal, and that statute was passed with the object of putting an end to that state of things. It did so effectually, because that statute has been in force from the day it was passed until the present day, and it is part of the Law of the Real Property in England at the present moment. No man can grant an estate in fee, as it i-s called, to be held of himself. He can substitute another in his place, but he cannot create the relation of lord and vassal between himself and his tenant ; he can only, as I said, substitute another in his place who is the vassal of the lord from whom he holds, and in the absence of evidence to the contrary, in this country that lord is the Queen. There still exist certain manors in this country which are held by mesne lords called lords of the manor, and if a fee is part of such a manor, and the freeholder, the owner, as we say now, of that fee sells it to a purchaser, the purchaser holds that land of the lord of the manor. But unless something of that kind can be shown, and it is rather difficult nowadays to show it, because from the time that statute was passed it has been absolutely impossible to create a manor, and every manor, therefore, dates from before that time. All land in this country is assumed to be held from Her Majesty the Queen. She is the chief lord, or lady, or lady paramount. I think it would be right even to speak of the Queen as the lord, because it is a word used technically. It has nothing to do with sex, it has only to do with the person who has dominion over the land and the person who holds it. I will now direct your attention, more particularly than I have done, to the chief incidents of a feudal estate. You will find them stated, and, I think, more concisely stated, in Williams than in Hallam, and I would refer you to page 45 of the last edition of Williams: "The incidents of " tenure by knight service, which was the most honourable et species of free tenure, were these First, the tenant was bound " to discharge the obligation of military service annexed to his " holding. The feudal obligation of military service was a royal " service due to the king from his immediate military tenants, " and the tenants of knight service of a mesne lord would " generally be bound to perform this service, and to acquit his " lord thereof to an extent proportionate to the value of his " holding. In and after the reign of Henry II, the obligation " of personal military service seems to have become generally " commuted in the case of the tenants of mesne lords, for a money 10 " payment called scutage or escuage, and assessed first by the " Crown, and afterwards by the authority of Parliament. But " scutage and the feudal obligation for military service became " obsolete after the reign of Richard II, if not earlier. The " military tenant was first, moreover, expected, and afterwards " obliged, to render to his lord pecuniary aids to ransom his " person " the lord's person " if taken prisoner, and to help " him in the expense of making his son a knight, and in " providing a portion for his eldest daughter on her marriage. " On entering upon his estate, the tenant was bound to do " homage to his lord, kneeling to him and professing to become " his man. He was also bound to take an oath of fealty." I draw your attention to that, because every tenant now is bound to take that. " An heir of full age was required to pay a fine on " succeeding to his estate. If the heir were under age, the lord " had, under the names of wardship, the custody of the body and " lands of his heir, without accounting for the profits, to the age " of 21 in males, and 16 in females. In addition to this, the " lord possessed the right of marriage, or of disposing of his " infant wards in matrimony. And if a male heir refused a " suitable match, he was to forfeit a sum of money equal to the c( value of the marriage, that is, what the suitor was willing to " pay down to the lord as the price of marrying his ward; and " double the market value was to be forfeited if a male ward " presumed to marry without his lord's consent. If a female " heir refused the match tendered by her lord, he might hold her " lands until she attained 21, and further, until he had taken the " value of the marriage " and the value was what he could squeeze out of one of the nobles for his ward's hand. " The " king's tenants were, moreover, subject to many burdens and " exactions, from which the tenants of other lords were exempt. " Again, every lord who had two or more free tenants, had " a right to compel them to do suit at Court, that is, duly to " attend and to aid in transacting the business of the lord's " Court or Court baron, wherein his freeholders were judges as " well as suitors." I may say here, every lord who had two or more free tenants had a right to hold a Court. "Lastly, on " failure of the tenant's heirs, his lord had the right to have the " lands again as his escheat. That is, as falling into the lord " who, or whose predecessors, had granted the fee, now brought " to an end for want of heirs. The tenant's heirs might fall, 11 " either from natural causes, or by reason of his or their attainder, " or corruption of the blood so as to lose its inheritable quality. " Escheat upon attainder was, however, subject to the right of " the Crown to hold for a year and a day, and to waste the " attainted person's lands, a right usually compounded for. And cc the lands of one attainted for high treason were forfeited " absolutely to the Crown, and did not escheat to the lord of the ee fee." In all other cases the escheat was to the immediate lord of the vassal. That was the state of things when the Feudal System was established in this country, but it did not seem to meet the wants and requirements of civilization. As men progressed, and, bit by bit, the military service was commuted for a payment of money, and most of the other rights of the lord over the vassal were used for the purpose of extorting or exacting money from the tenant. And, ultimately, all tenants became, and were made by Act of Parliament, tenants in free socage. Knight's service was done away with in all these tenures, and the heavier part of their burdens was got rid of. In order that you may understand what was done, you ought to know what a tenant in free socage was, because, at this day, all owners of land in fee are tenants in free socage, whether he holds land, a house, or other building. What, then, is a tenant in free socage ? When the country was parcelled out by the Norman conqueror and his successors on the throne, manors were created. In those manors there sprung up a class of tenants called free socagers. They were not tenants by knight service, but by fixed service. They had to render certain services to their lord, either the payment of a fixed amount of rent, or certain agricultural services, that is, to do certain work on the property of the lord for so many days in the year and so on. These were fixed services, and the free socager was liable originally to certain aids and reliefs, but he was free from those dreadful exactions which the lord could exact from a tenant by knight service, such as wardship and marriage. There were no rights of that kind to the lord over his vassal if his tenant was what was called a free socager. These free socagers grew in number. It was a very pleasant sort of tenancy. They paid very little rent, and had very great liberties, and they had the protection of the law. The lords, on the other hand, with respect to their tenants who were not free socagers, used their powers in a most I will not say brutal fashion but a most unreasonable way. And the result of it was, that when 12 the Rebellion came, the Parliament of the day put an end to them all on the 24 February 1645. But, of course, what that Parliament did ceased to have any effect when Charles II came to the throne, but the people were so determined to get rid of this Feudal System in its worst aspects, that the first Parliament of Charles II in the year 1660 passed an Act of Parliament to the like effect, and I want to draw your attention to that, for it will show you exactly what our tenures are now. The Act of Parliament is the XII of Charles II, chap, xxiv, that is dating his reign from the death of his father but the first year he was actually on the throne was the year 1660. Its enacting part is substantially this "All tenures of any honours, manors, lands, " tenements, or hereditaments, or any estate or any inheritance at " the common law, held either of the king or of any other person " or persons, bodies politic or corporate, were thereby turned into t( free and common socage to all intents and purposes from the " said twenty-fourth day of February 1645, and shall be so " construed, adjudged and deemed to be from the said twenty- " fourth day of February 1645, and for ever thereafter turned " into free and common socage. And the same were for ever " hereafter to stand and be discharged of all tenure by homage, " escuage, voyages royal and charges for the same, wardships " incident to tenure by knight's service, and values and forfeiture " of marriage and all other charges incident to tenure by knight " service, and of and from aids for marrying" that is, to provide a portion for the eldest daughter of the lord when about to be married " and aids for knighting the lord's eldest son " and all conveyances of any manors, lands, tenements, and " hereditaments, made after the 24th day of February, were to " be expounded to be of such effect as if the same manors, lands, " tenements, and hereditaments had been then held, and continued " to be holden, in free and common socage." That, gentlemen, is the law of the land to this day. I think you will now fully understand why it was necessary all landowners, as we say now, being tenants in free socage that you should know something of the Feudal System. A tenant in free socage at the present time is bound to take an oath of fealty. It is never exacted from him. If his land is subject to a quit-rent, he is still bound to pay that quit-rent, because the statute of Charles II does not abolish fealty or a quit-rent, which may still be an incident of an estate in free socage. And if there were any other incidents to 13 such an estate not abolished, he is bound by them. For instance, if there is such an incident as that the tenant should pay a relief upon his succeeding to the estate upon the death of his ancestor, that is still payable. It is still payable on some estates in England. I think it is generally, if not always, I am not quite sure, one year's rent. So you see a tenant by free socage is a pretty free person. As to the lord's rights, he has the right to that fealty, worth nothing, and he has the right to the quit- rent, which is generally extremely small, because the value of money has so much increased, and the quit-rent is sometimes never exacted or asked for, and is often not paid. But there is something still left which is occasionally of value, it is the right of escheat, which is, as I told you a few minutes ago, the right of the lord to the estate if the tenant dies without heirs. Now that a man can dispose of his property by will, one seldom hears of an escheat; but if the tenant of an estate in fee now dies without heirs, and without having disposed of his estate in his lifetime, or by will, the land then goes to his lord. Sometimes it goes to the lord of the manor, but, as I said just now, generally to the Crown, because it is very difficult nowadays to produce sufficient evidence that a freehold tenement is part of a manor, and held of anyone but the Queen. I do not know what the value of the escheats in recent years has been, but formerly they were considerable. But ever since a man has had the power, as I said just now, of disposing of his property by will, it is entirely his own fault if he allows his estate, when he can have no heir, to fall in to the Crown. And as people get better educated, and know more of the law, that happens more and more seldom. But a man in that unfortunate position in life ought to know the law. Well, gentlemen, having said so much as to the relation of the tenant or owner of land in fee simple to his lord, I think you will understand what it now is. Let us now consider what are his powers over his estate. At first, as I have already said, there was a personal relation between the lord and the tenant, which could not be determined without the consent of both of them. By the statute " Quia emptores", to which I have drawn your attention, the tenant was enabled to dispose of his estate by sale, but that Act did not enable him to dispose of it by will. But, by degrees, the lawyers invented a mode of disposing of estates by will. They invented a system of conveyances to trustees to the use of such persons as the tenant in fee simple 14 should appoint by will, and in that way they kept the estate in the hands of the persons to whom the tenant himself wished it to go. But, in the reign of Henry VIII, that device was summarily put an end to by a statute, to which I shall have to refer, I am afraid more than once, further on. That was simply a device, a lawyer's device, to enable a man to do indirectly what he could not otherwise do directly. That was stopped by a statute, passed in the 27th year of the reign of Henry VIII, called the Statute of Uses ; but, strange enough, five years afterwards, by statutes passed in the 32nd and 34th years of the reign of Henry VIII, tenants who held their lands in free socage were empowered to dispose of the whole of their estates but tenants by knight service were only empowered to dispose of two-thirds of their estates. You will bear in mind the distinction there drawn between a tenant by knight service and a tenant by free socage. A free socager is allowed to dispose of the whole or any part of his estate, as he pleases, by will. Then comes the statute of Charles II, to which I have drawn your attention, which makes all tenants by knight service tenants by free socage, and by virtue of that Act all persons holding land, having become tenants by free socage, get the right to dispose of the whole of their property by will. I think you could not understand that unless you knew how it came to be the law. Then in the year 1837, by the present Wills Act, it was enacted that everybody might dispose of the whole of his property of whatever nature, kind or description, by will. Thus, you see what the position of a tenant or owner of land in fee simple is at the present time; he can now dispose of his estate in his lifetime or by his will, speaking generally, in any way he pleases. The only thing, so far as I know, as a lawyer, that he cannot do is, that he cannot grant his estate in fee to another person to be held of himself but only to hold it of the lord of whom he held it, who is generally the Queen. That, to the mind of a layman, is as near absolute ownership as anything can be. It is not, however, absolute ownership, because the lord still has rights in respect of the estate. If the tenant dies without heirs and without having disposed of his estate in his lifetime, or by will, it becomes the lord's estate. It is not like the ownership of goods. A man may be the absolute owner of goods, he does not hold them of any lord or other person, he can not only do what he likes with them, but the right of his legal representatives to them 15 at his death is not defeated in any case by his dying without heirs. I said at the beginning of my lecture that the form of our Law of Real Property depends upon its history, and that you cannot understand what it is at the present day, without having an intelligent knowledge of the way in which it came to be the law; and I have now dealt substantially with the history of the law with regard to an estate in fee simple, but I must pray of you to be good enough to fill up the gaps I have left as you think fit. I am not here to dictate to you what you should do, but if you have the time, and the desire, I shall be glad if you will fill them up by reading the first 80 to 100 pages of Joshua Williams' book. b 2 THE LAW OF REAL PROPERTY IN ENGLAND. SECOTSTD LECTURE. [Delivered 28 January 1897.'] IN my first lecture I explained to you the Feudal System of tenures established in England under the Norman kings and their successors, and I also gave you so much of the history of those tenures down to the present time as I thought it was necessary that you should know before you could understand what is now the law as to estates in land. For the sake of simplicity we examined particularly the tenure of an estate in fee simple, and we saw what I desired particularly to impress upon you, that no man is in law the absolute owner of lands, and that he can only hold an estate in them either of the Crown or of some other lord, who in his place holds of the Crown. Though, in modern times, as I showed you, the incidents which mark the relation of lord and tenant of a fee rarely occur in practice, and are really very insignificant, and the burthen on the tenant has been reduced, the rights of the lord diminished, and the profit which the lord can derive from his position at the present time is extremely small, and is substantially reduced to the possibility of what I explained to you was called an escheat, that is, the right of the lord to succeed to the estate in case the tenant dies intestate, that is without having disposed of the estate by his will, and also without heirs. Having dealt generally with an estate in fee simple, I ought to tell you, for you ought to know, that an estate in fee simple is not the only estate 17 in land which is known to the law. There are also other estates in land, and having dealt with the largest estate in land known to the law, an estate in fee simple, I propose this evening, if time permits, to deal more particularly with other estates in land. I explained to you on the last occasion what an estate in fee simple was, but before I deal with the other estates I should like to recall to your minds what really an estate in fee simple is. You will lind a very concise statement in the book to which I referred you, Mr. Joshua Williams on the Real Property Law, p. 64. " It is an estate given to a man and his heirs simply and without " restriction, and inheritable, therefore, by his blood relations, " collateral as well as lineal, according to the legal rules of the " descent of a fee. Such an estate is, as we have seen, the most " absolute property which a subject can have in land." Now, the other estates which a man can have in land are called either freehold estates or estates less than freehold. An estate in fee simple is a freehold estate. The other freehold estates are and you will find them stated on p. 62 of Williams' book in these words : " Freehold estates are either estates of inheritance, which " are in fee simple (inheritable by heirs generally), or in fee tail te (inheritable only by heirs of the donor's body), or else estates " not of inheritance " it ought to be donee's body " or else " estates not of inheritance, but for some definite period of " uncertain duration, as where land is given to one to hold for his " life, or the life of another, or until some particular event shall " happen. Estates less than freehold arise where one gives land " to another to hold for a certain period or term, or at the donor's " will only, or where one occupies another's land on sufferance." So that you will see freehold estates are tenancies in fee simple, tenancies in tail, and tenancies for life, speaking generally, and that any estate less than a tenancy for life is not a freehold estate. For instance, a tenancy for a term of years it does not matter how long the term is, the term may be seven, fourteen, or twenty-one years, it may be a building lease for ninety-nine years, it may be a mining lease for a thousand years, it may be a term created under a settlement for the purpose of raising portions for younger children of even two thousand years. With all those terms of years, lawyers and persons who deal with land are in modern times perfectly conversant. They are not freehold estates, and the person in possession for any term of years is not a freeholder ; he may be a leaseholder, or he may not. For instance, if you grant your land to a man to hold it as long as 18 you think lit to let him, that is a tenancy at will ; if a man gets into possession of your land and you do not turn him out, he is called a tenant at sufferance. All those are estates in land, but those persons are not necessarily leaseholders. The word freehold is so often used with respect to estates in land, that I think you ought to get that into your minds very early, because freeholds are generally considered very much more valuable than leaseholds, but it does not always follow, because a freehold estate may be worth little if it is subject to a long lease, unless it is a lease at a rack rent, when the annual value of the property is payable under the lease. Now, gentlemen, those being the estates which can be held in land, let us deal particularly, having already dealt with an estate in fee simple, with what is called an estate in tail. You will remember that an estate in fee simple is an estate granted to a man and his heirs, that means that it goes to his heir whether the heir is his issue (that is, a descendant of his), or it is some other person, either a collateral relation or even an ancestor, so long as he has an heir that estate continues whether he has descendants or not. On the other hand, a tenancy in tail, or fee tail sometimes one expression is used and sometimes the other is a grant to a man and the heirs of his body. You will notice the distinction between the two grants, the grants to the heirs generally and a grant to a man and the heirs of his body. That estate would continue if left alone, that is to say, if left to itself and nothing were done, only so long as the person to whom it was granted had some lineal descendant who could be his heir when he died. When the time arrived that there was no such lineal descendant that estate reverted or went back to the grantor and his heirs, and there was a determination of the estate in fee tail. Now fee tails were either general or special. For instance, a grant in fee tail might be granted to a man and his heirs by a particular wife. Only heirs begotten of that particular wife could take. Those estates were originally common, but such estates are not generally granted in these days ; they have gone out of fashion and you very seldom hear of them. The ordinary grant is a grant in fee tail generally. Now fee tails general may be granted either to the heirs generally or to the heirs male or to the heirs female of the grantee's body. If the grant is general, then the heir, whether a man or woman, can take. If the grant is to the heirs male of a man's body, then only an heir male could take ; and in the same way, if the grant is to a man and his heirs female, an heir female only could take the estate. And, as the 19 case may be, upon the failure of such heir, the estate reverts to the original grantor of the fee tail. Now, when those estates were first granted the intention no doubt of the lord granting them was that the estate, on the happening of the event, such as I have mentioned, of a failure either of the heir male or the heir female, should go back to the grantor. But every device was used by lawyers, and many of those devices were sanctioned by the judges in order to defeat the lord of his right to the estate upon the failure of the issue, and the result was that grants of that kind were construed to be grants conditional upon the birth of some person who could take as heir, and then upon the birth, say, of a son of the grantee in tail male, or of a daughter in case of a grantee in tail female, the grantee could put an end to the reversion of the grantor and dispose of the estate and bar the lord of all his rights in the property. Then, gentlemen, that being so, to put it quite shortly, the lord having been defrauded of his rights by these devices, a very important statute was passed which made another epoch in the law of this country, and it is a statute I think you ought to read. It is rather a long one, it is not like the short one to which I drew your attention on the last occasion ; it is called the Statute De donis conditiunibus , that is, concerning conditional gifts. All these fee tails were called conditional gifts, and were construed by lawyers and, with the assistance of the judges, were held to be conditional upon the birth of someone who could take. Then this statute, commonly called De donis conditionibus, was passed in the year 1285. It is the Statute of Westminster II, and it was passed in the thirteenth year of Edward I, and is in force to this day in terms. Now the effect of that statute I cannot read it to you because time does not permit ; it is too long, and you must take the effect from me now the effect of that statute was to restore to the lord the rights which he intended to reserve to himself when these conditional estates, or estates in fee tail, were granted, and give effect to the original intention of the parties, the grantor and the grantee, when these estates were first conferred. But again, the lawyers, with the assistance of the judges, set to work, and they again succeeded in defeating, to a considerable extent, the lord. They invented a solemn piece of jugglery, which was known as a common recovery. I doubt whether I could, in under an hour or two, explain to you satisfactorily that piece of solemn jugglery, and I shall not attempt it. It is not necessary, as you do not intend to be lawyers, that you should understand anything 20 about it except this you should know that the result of it was to give the tenant the power to, what was called " Bar the entail." A collusive or sham action was brought against the tenant in possession of the estate, and the tenant in possession of the estate, in collusion with a nominal person by whom the estate was presumed to have been granted, consented that judgment should go against him. That was recorded in the Courts, and that was considered by the Court to be conclusive upon all parties as to the right to the estate. That is, shortly, what the solemn jugglery was, and in that way the lord's rights were defeated and the person who recovered the land held to be entitled to hold the land free from the lord's rights. And that mode of barring an estate tail existed in this country up to the year 1833, when an Act of Parliament was passed absolutely abolishing the fines that I mentioned to you in my last lecture, and the common recoveries which I have just mentioned to you, and so put an end to all those farces which were played by lawyers with the object of defeating the lord of his estate, and it was enacted that a person in possession you will bear in mind that I told you the collusive action was always brought against the person in possession of the eatate, who must have been a party to the action that a person in possession of an estate in tail could simply by a deed enrolled in the Court of Chancery bar the reversion, and so put an end to the estate in tail. If he was not in possession, and there was a person who was called the tenant for life in actual possession of the freehold, then that person had to concur in barring the entail and depriving the lord of his rights in the reversion. And in that simple way now all these tenancies in tail can be barred except in one case, and that the statute does not provide for, and I do not think a tenant now in that particular case can bar the entail, and that is when a man is in possession of an estate in fee tail. " After possibility of issue extinct ", that is, suppose a man is entitled to an estate, or in possession of an estate in fee tail limited to him and the heirs of his body by a particular woman, then on the death of that woman without having had any child, there is no possibility of issue which can take the estate, and in that particular case the entail cannot be barred. In every other case, speaking generally, as one must always do in speaking of matters of law, an estate tail can be barred by consent of the persons who are entitled under the Act of Parliament to protect, as it is said, the entail, or by the consent of the tenant for life in actual possession of the estate, that is, in receipt of the rents 21 and profits, he need not be actually living upon the property, but he must be in possession of the rent and profits, which is possession in the eye of the law. In that simple way at this present time these estates in tail can be barred, and that is the present law upon the subject. But, if the estate tail is not barred in the lifetime of a tenant in tail, and he should happen to die without an heir, and without having done anything to alter the estate, then that estate still goes to the lord. You could not have understood that, gentlemen, unless I had explained to you the elements of the Feudal System. It is important for you never to forget in studying the law of real property in England that in theory a person is nothing more nor less than a tenant of his estate of some lord, however great that estate may be, even a fee simple. Now, gentlemen, the next estate we have to deal with is an estate not of inheritance, but it is yet a freehold, that is, a tenancy for life. A tenancy for life is a grant of an estate to a man either for his own life, or for the life of someone else. In the first case he is called the tenant for life ; in the second case he is called the tenant pour autre vie ; that means for another person's life, both these estates are freehold. For instance, if a man is in possession of an estate for another man's life, and he dies during that other man's life, that estate goes to his heirs during the life of the man during whose life he holds the estate. If a man holds for his own life and he dies, there is an end of his estate. Having dealt quite generally with the several estates which are known to the law, I do not think I can do better than deal more particularly with an estate for life. You will see that when the estate was granted, it was granted to a man for his own life. He could not do as he liked with it ; he had no interest in it beyond his own life. If he granted a lease of it, say, for 10, 14, 21 years, or for any term, and he happened to die, that lease came to an end, because after his death his interest in the property came to an end, and no man could then grant to another a greater interest in land than he had himself, therefore the lease came to an end. For instance, he could not cut timber ; he could not open mines ; in fact, he could only use the estate and have what was called the usufruct of it. If mines had been opened by his predecessor in title and they had been worked, he could also go on working them, but he could not open fresh mines. His estate, or rather his powers over his estate were limited very much indeed. That was thought to be a very disadvantageous state of things for the country at 22 large, and a very important Act of Parliament was passed, to which, in your practice, I have no doubt your attention will often be directed, and I will direct your attention to it now. I have said an Act of Parliament, but there are really two, the " Settled Land Acts" of 1882 and 1890. I shall only trouble you now with the first Act, the Act of 1882. Those being the limited powers of a tenant for life, this Act of Parliament was passed substantially to give tenants for life very extensive powers over the land to give them power to make grants which their own estates were not sufficient to authorize; but it was provided that the advantages, or the pecuniary returns from the exercise of those powers should be treated as capital, the money being invested and the income paid to the tenant for life, and the capital to the persons interested in the estate after his death. That was the general scheme of the Act, and I want now to draw your attention to the third section of that Act, and you will see how very extensive the powers given to a tenant for life are : " A tenant for life may sell the settled land, or any part thereof, " or any easement, right, or privilege of any kind over or in " relation to the same" so that he may sell it right out-and-out ; and, secondly, " Where the settlement comprises a manor, he " may sell the seigniory of any freehold land within the manor, " or the freehold and inheritance of any copyhold or customary " land, parcel of the manor, with or without any exception " or reservation of all or any mines or minerals, or of any " rights or powers relative to mining purposes, so as in every 2 security for debt ... ... ... ... ... ... 64 Interest accrued 6, 11 rate affected by gold production ... ... ... 26 rate yielded by British Government securities ... 52 Lectures object iv scope ... ... ... ... ... ... ... 1 Local Debt borrowing powers of Local Bodies ... ... ... 54, 78 advances by Treasury ... ' . . . ... ... ... 55 Local Loans Stock .... ... ... ... ... 54, 56 history and growth of debt ... ... ... ... 70 local authorities and areas ... ... ... ... 75 security for debt ... ... ... ... ... 77,85 Local Loans Act, 1875 77 Corporation Stocks 78,85,98 Local Government Board 79 redemption of debt ... ... ... ... ... 80 standing order of House of Commons 82 amount of debt ... ... ... ... ... ... 88 productive and unproductive outlay ... ... ... 89 Metropolitan Consolidated Stock 78,93 PAGE Local Debt (continued) stamp duty on transfers ... ... ... 95, 99 transfer regulations ... ... ... ... 100 inscribed and registered stocks ... ... ... ... 101 Local Government Board ... ... ... ... ... 79 Local Loans Fund 56 Local Loans Stock ... ... ... ... ... ... 54,56 Metropolitan Consolidated Stock ... 78, 93 Municipal Corporations Act, 1882 ... ... ... 73 Municipal Reform Act, 1835 ... 72 National Debt security for debt ... ... ... ... ... ... 15,42 history of debt ... ... ... ... 15 deficiency loans ... ... ... ... ... ... 16 funding system ... ... ... ... ... 17 tloating debt ... 19, 35 funded debt ... 23, 35 the Consolidated Fund 25 items of funded debt ... ... -.. ... ... 25 conversion schemes of 1853 and 1884 26 Consols 29 issue of Consols below par 30 conversion scheme of 1888 ... ... ... ... 32 saleability of Consols 33 redemption of Consols ... ... ... ... 36 taxability of debt ... 37, 60 management of debt ... ... ... ... ... 41 transfer regulations ... ... .. ... ... 42 redemption of debt 43,70 price movements of Consols 50 interest yield ... ... ... ... ... ... 52 National Debt Act, 1870 ... 37, 101 Official List- history ... ... ... ... ... ... ... 1 description of securities, not guaranteed ... ... 4 admission of securities to List ... ... ... ... 4 prices given in List ... ... ... ... ... 4 prices " cum div." and " ex div." ... ... ... 6 comparison with foreign prices ... ... ... ... 8 Official List (continued) foreign currencies ... ... ... ... .. 10 Political Economy scope ... ... ... ... ... ... ... v test of maxims ... ... ... ... ... ... 43 Poor- Rate Valuation ... ... 80 Public Health Acts 54, 74, 79 Public Works Loan Commissioners ... ... ... ... 55 Rupee paper, see Indian Debt. Settlements, on Stock Exchange ... ... ... ... Sinking Funds, National Debt ... ... ... ... ... 15 Stamp Duty on Transfers ... 05, 99 Stock 34 Stock Exchange Securities investigation of yield ... ... ... ... ... 3 valuation ... ... . . ... ... ... ... 5 Taxation of national debts 37, 60 incidence of local taxation ... ... ... ... 83 Terminable Annuities ... ... ... ... ... ... 48 Town Councils ... ... ... ... ... . ... 73 Treasury Bills ... ... ... 19 Trustee Securities 15,67,85 War- effect on capital ... ... ... ... ... ... 3 payment for ... ... ... ... ... ... 18 effect on National Debt 45,19 effect on price of Consols ... ... ... 51 Wealth, growth of 2 Wetenhall 3 THE LONDON DAILY STOCK AND SHARE LIST. FIRST LECTURE. [Delivered 13 December ISO?.'] UENTLEMEN, as you will see from the syllabus that has been circulated, I have undertaken to deliver a short course of lectures, with the object of introducing to you that somewhat formidable-looking document, the London Daily Stock and Share List, and also of making you acquainted, as far as time will permit, with some portion of its contents. But as I have not imposed this task upon myself with a view to converting you into either "bulls" or "bears", I shall avoid discussing the merits or the demerits of the securities enumerated in the List in their character of investments or of speculations, but shall confine myself to directing your attention to the nature and to the distinctive peculiarities of the classes into which they are grouped. I also purpose treating the subject historically, as I am convinced that in all cases it is far easier to com- prehend and co-ordinate the inherent qualities of a security if we know something of its origin and of the early stages of its development. The Official List, I may begin by informing you, claims to possess a very respectable antiquity. According to Lord Macaulay, the business of stock- jobbing first assumed importance a few years after the Revolution, from which period we, as a matter of fact, date the beginnings of our development into a nation of shopkeepers. Prior to the Revolution there existed no stocks to deal in : which is a simple reason why the business was unknown. But about three years after the establishment of the Bank of England, the existence of a recognized market in securities was signalized by the appearance of a so-called " Course of Exchange", which came out twice a week, and which at the outset contained six securities only. This was in 1697, exactly 200 years ago, so that we may consider we are celebrating its bi-centenary here to-night. In 1797, a century later, the number of securities had grown to 20, but in 1897 it has increased to something like 3,000 and what is more, the number is being added to every month, at a rate which must bring despair to the soul of the publisher. What the List will be like in 1997, I dare not venture to prophecy, but it certainly looks as though long before then it will have to be published in sections. I may remark, in passing, that those who practised the business of stock- jobbing in early days, do not somehow appear to have gained the esteem of their contemporaries, for you will find if you refer to an original, or early, edition of Dr. Johnson's dictionary, that a stock-jobber is there defined (and this is not in jest, but in sober earnest) as "a low wretch, who gets money by buying and selling shares in the funds." Whether Dr. Johnson had ever been induced by by one of these " low wretches " to sell a " bear " of " shares in the funds ", and got " cornered " over the operation, history does not tell us, but the definition is so spiteful that I " hae ma doots." To-day's List, then, contains the names and descriptions of upwards of 3,000 securities, practically the whole of which, with the exception of the first group " British Funds, &c.", have been called into existence since 1837. I know of no more striking proof of the enormous growth of our national wealth and resources during the 60 years of the Queen's reign. But without going back so far as that, let me take half the period. In the current volume of the Stock Exchange Official Intelligence, there is an article written by Sir Henry Burdett in which he points out the amazing fact that the total nominal value, so far as it can be ascertained, of the securities listed on the 1st of January 1867 only the other day, as it were was 2,362,000,000, but that on the 1st of January 1897, the total nominal value was 6,065,000,000, so that in the last 30 years alone the British public have absorbed something like 4,000,000,000 of securities, and are still clamouring for more. At the present time our savings as a nation amount to about 200,000,000 a year I should say considerably more rather than less, but that is a very safe estimate and if we continue to grow rich at the same rate of progression, we shall require an outlet during the next 30 years for something like 6,000 to 8,000 million pounds of surplus capital. Well, I suppose some outlet will be found for it, as one always has been found, but on looking through the List, I must confess that I am quite unable to discover it. As to the first group, " British Funds, &c." , the National Debt is being fast paid off, while as regards municipalities and colonies, I think you will agree that they have already borrowed quite as much as appears justifiable. Foreign countries the next head have also had more of our money than is good either for them or for us. Our railway system, too, is practically complete ; and so on throughout the list. Every channel, in fact, appears to be full to overflowing. It may be, however, that the development of electricity may in some way supply an opening, or it is also possible that a great war the great war of the future may swiftly sweep away the accumulations of a century of peace. Before concluding these prefatory remarks, it just occurs to me to say that if any of you wish to take up a congenial and original line of research original, that is to say, as far as I know I think I can suggest one. It would be very interesting, namely, to know the com- parative yield during the last 30 years of each of the principal groups of securities. Suppose, for instance, a capitalist, on the 1st of January 1867, had invested a stated sum in Consols, would he have done better or worse to have spread his money over an assortment of English railway stocks? and in like manner, taking of course the dividends into account, what would the result have been if he had divided it amongst American Railway bonds or foreign stocks ? You would, of course, have to allow for the losses caused by defaults and re-organizations, &c. I simply throw out the suggestion for what it may be worth ; the ground I am sure is fruitful, but whether the seed is worth growing is another matter. Turning* now to the List we first notice that it is published by Mr. J. Gr. Wetenhall, and here I may remark, as a noteworthy circumstance, that the same name has been connected with the List for upwards of a century, at it is recorded in the archives of the Stock Exchange that in November 1787, Mr. E. Wetenhall was unanimously elected publisher by the members. That is followed by a 4 notification that the List is published under the authority of the Committee of the Stock Exchange, and the superintendence of the Secretary of the Share and Loan department; but closely on the heels of this notification comes another that " the titles are taken from the securities as issued." I think there is more in this latter clause than meets the eye. You may take it for granted, I think, that although the List is under official super- vision, yet the mere fact of a security being described in a certain manner is no guarantee whatever that it corresponds to such description. If, for instance, a stock or bond is described as " first mortgage ", the buyer is not to assume without further enquiry, either that the mortgage actually is a first charge, or even that there exists any mortgage at all. The List, large as it is, does not claim to contain every share which is quoted on the Stock Exchange. Dealings take place every day in hundreds of shares which are not listed. Admission to the privilege of official quotation for it is a privilege, and confers a certain status on an undertaking depends to a certain extent (assuming that there exist no special grounds for exclusion) upon the importance of the concern, and this is gauged generally by its magnitude. Hence numbers of small companies have to be shut out, not because there is any question as to their bond, fides, but simply because the inclusion of these small fry would render the List so bulky as to impair its utility. So far, however, as mining shares are concerned, there appears to exist some prejudice against them on the part of the Committee, as in no other way is it possible to explain the exclusion of so many well known concerns. You will observe that the prices in the List are arranged in two columns, headed " Closing " and {t Business done." Of these the " Closing quotations " are merely valuations and are not official in any sense whatever, which is a fact which I commend to your careful notice, because it is one as to which considerable misapprehension appears to prevail. The publisher of the List depends upon the dealers in the market to give him what they consider to be a fair estimate of the market value of the different stocks at the close of the day, but beyond the fact that the boards on which the clerk marks down the prices that have been supplied to him are hung up in the " House " for the inspection of members, no supervision whatever is exercised over these appraisements. In the case of securities that are currently dealt in, they afford, of course^ a close and reliable indication of the value, but in regard to those in which transactions occur only rarely, the " Closing quotation " is frequently quite nominal and is only to be looked upon as an expert's opinion of the price at which business might perhaps be done. The closing quotation is useful, however, in one respect. If a broker on going into the market finds it impossible to deal at the quoted price, he can insist on having it altered to the limits at which he can deal. What is true of the closing quotation also applies to the well-known " tape " prices supplied by the Exchange Telegraph Company. These are likewise in no way official ; but the dealer who supplies each particular price is held responsible for it, and if, when challenged by a broker, he refuses to deal, the quotation is not allowed to appear again. Under these circumstances you will easily understand that it is by no means a simple matter to assess the value of a parcel of stock, if required for probate or other purposes, and if this duty should ever devolve upon you, I can only advise you not to trust to the List quotation, but to call in the advice of a broker or other expert. The official part of the quotation is that which under the head " Business done " records the transactions that have actually taken place. When a broker concludes a bargain on the Stock Exchange, it is competent to him to have it " marked " if he so pleases. This is accomplished by passing a slip containing the necessary particulars to one of the clerks of the House, who officially registers the price by writing it 011 a certain board kept for that purpose, from whence it is copied down for publication in the List. The figures registered must be the actual market prices, and if any member considers the marking to be outside the current quotation, he may at once call the attention to it of two members of the Committee, who, if they find the objection justified, will order the marking to be expunged. By asking his broker to get a bargain marked, a buyer can, therefore, always satisfy himself that there has been no collusion between broker and jobber, and that the purchase or sale in which he is interested has been in all respects a genuine one. It is neither obligatory nor usual to give notice of every transaction. If a broker, for instance, buys at a lower or sells at a higher price than one already marked, he might not think it necessary to mark afresh. If Consols, for instance, are already marked 112J, 113 011 the board, business done at either of those rates, 6 or at any fraction between them, would fall within the existing markings, so that "112}, 113" may either mean two transactions at those respective prices or may represent 100 different transactions that have taken place within those limits. It should also be borne in mind that many bargains are not allowed to be marked, even if the broker should be anxious to do so. Up to the price of 30 no bargain may be marked at a smaller fraction than -jL, and at 30 or over, no bargain may be marked at a smaller fraction than J. Hence the thousands of bargains that are transacted at thirty-second prices are entirely excluded, and so are the majority of those at sixteenths. As to the amount of Stock in which business has been done the List affords us no information whatever, and a marking that represents a turnover of 20,000 may come to be sandwiched between two others that stand for less than a tithe of that amount. It is usual, however, to specially distinguish bargains in small bonds, or those in which an exceptional amount has changed hands at special prices. On the New York Stock Exchange, as some of you may have noticed, the number of shares dealt in is officially registered each day, and the magnitude of the daily turnover is an unerring guide to the activity of the market; but here in London, the only indication we possess to help us in that respect is the number of markings. If these are unusually numerous, we know that it has been a busy day in that particular market, but as to whether the dealings have amounted to 1,000 shares or 100,000 we are left quite in the dark. Business may be done either for " Money " or for the " Account " that is to say, either for prompt settlement or for settlement on the next account day ; but the great bulk of the transactions are for the " Account ", and the quotation, unless otherwise stated, is to be so understood. There are two settlements per month, one towards the middle and one towards the end, but in Consols there is only one settling day, usually on or about the 3rd. All quotations, except those of Indian rupee paper, of some Indian railway debentures, and perhaps of one or two others, which are regarded as money market securities, include the interest that will have accrued on the security up to selling- day. The seller makes the buyer a present of it, so to say. Suppose, for instance, that to-day I had bought 1,000 Argentine 1886 loan, which is quoted in the List at 93 1, 94^, and on which the interest is due 1st January, I should have to pay for the stock on settling day the day after to-morrow but on the 1st January I receive interest, not from the 15th of December, but from the 1st of last July, so that actually the quotation includes 5J months' interest at 5 per-cent. To arrive at the real cost of the stock, therefore, I must deduct this accrued interest, and if I wish to be perfectly accurate in my book-keeping, I must take care on the 1st of January not to pass the whole coupon to revenue account, but to book only one-twelfth to income and the remaining eleven-twelfths to the credit of Argentine 1886 Loan, which stock will then stand in my ledger at its true net cost. As a con- sequence of this practice of including interest in the quotation, prices ought in theory to rise after each settlement (other things being equal) by about the amount of a fortnight's interest, and, when the dividend comes off, ought to undergo a fall of equal extent with its value. When 3 per-cent Local Loans Stock, for instance, is marked x. d. you will find that it falls | per-cent, while Canadian Government 4 per-cent Guaranteed Bonds, on which the dividend is payable half- yearly, fall 2 per-cent when marked x. d., and so does the Turkish 1855 loan. In those exceptional cases and they are very exceptional in which interest is not included in the quotation, the buyer gives the seller, in addition to the market price, the interest accrued from the date of the last dividend- payment to the date on which he pays for the stock ; and the quotation, so far as interest is concerned, need never vary. In one very important instance, however, which stands alone, this usage produces a somewhat remarkable effect. For Stock Exchange purposes the enfaced promissory notes of the Indian Government which are expressed as payable (both principal and interest) in rupees, and which go by the name of Rupee Paper, are quoted at so much per-cent in sterling, the rupee being calculated at the fixed conventional exchange of 2s. (that is to say, "Rupee Paper, 60" means 60 for 1,000 rupees) and the accrued interest, which has to be paid by the buyer, is also taken at the same rate of 2s. a rupee. Now the annual interest at 3J per-cent on 1,000 rupees is 35 rupees, equal to about 3 per month, so that if I buy 100 Rupee Paper a month after the interest was paid I shall have to give the seller, in addition to the price, three rupees, or 6s. for the accrued interest. But the rupee for which I am paying the seller 2s. is really only 8 worth Is. 3d., so that I lose 9d. per rupee, and that makes, you will find, about J- per-cent per month. Consequently, so long as the Indian exchange stands at Is. 3d., Rupee Paper will be worth J per-cent less for every month's interest that the buyer has to pay, and if it stood say at 61 the day the dividend came off, we should expect to see it a month after- wards at 60| ; four months after at 60J, and so on. Instead, therefore, of the price remaining stationary, or of its rising from settlement to settlement, as is the case with other securities, and falling back again when the interest is paid, the price gradually declines (assuming the exchange to be steady at Is. 3d., and other things being equal) at the rate of J per-cent per month, and the day it is marked x. d. goes up again to starting point. I must tax your patience a little longer upon this subject of accrued interest. In order to arrive at the actual cost of a stock purchase, it is necessary, as I said, to deduct from its price the interest that has been accumulating since the last dividend was received, and this is a fact we must carefully bear in mind whenever we have occasion to compare the yield of different investments. Thus, a 4 per- cent stock at 101, the dividends on which are due January and July, is not really so dear to-day as a 4 per-cent stock at par on which the dividends are due in June and December, because, of course, the price of the former includes 5 months' more interest, equal to 1 per-cent, than that of the latter. Then, again, the question of interest must be carefully con- sidered if you should have occasion to compare the foreign price of a security with the London price, or, what is much the same thing, if you should have to work out the cost of any stock from a foreign quotation ; and as I have little doubt that insurance companies with huge funds to dispose of will sooner or later find it repay them to scrutinize the Continental Stock Exchange Lists in search of suitable investments, I hope you will not consider that I am wasting your time if I go into this matter rather more fully than might otherwise appear necessary. In the case of stocks quoted both in London and abroad a comparison of the respective prices constitutes what is called an " arbitrage " calculation, and the object of such calculations, when treated as a special business, is to take advantage of existing differences in value by buying in the cheapest and selling in the dearest market. Suppose, for instance, we know the 9 price of a stock at A and the exchange between A and B, we can by a simple calculation ascertain the corresponding price of the stock at B. In like manner, if we knew the price at B and the rate of exchange, we can work out the price at A. This is called the " arbitrated " price or parity. Then, again, if we know the price at A and the price at B, we can, by a comparison of those prices, ascertain the rate of exchange between A and B, as established by these prices. This is called the " arbitrated par of exchange", and is arrived at, as you see, by buying the stock in one place and selling it in another. In actual practice the arbitrated par of exchange is very rarely considered, but in theory it plays an important part. As an example of calculations of arbitrated prices, let us take a simple case. If, for instance, Chartered shares are quoted at 3 in London, and the exchange between London and Paris is 25.25, what is the arbitrated price in Paris ? Francs ? = 1 Chartered share. 1 = 3 1 = 25.25 francs. 75.75 francs. The arbitrated price is 75J, and if the shares stand higher in Paris (allowing for all expenses of transmission) it will pay to buy them in London and sell them in Paris ; if they are lower than 75f, it will pay to buy them in Paris and sell them in London. Or we may state the equation from the Paris point of view : that is to say, if Chartereds stand there at 75|, and the cheque rate is 25.25, what is the arbitrated price in London ? ? = ! share. 1 = 75.75 francs 25.25 = 1 3 Here, again, if the London price is so much above 3 as to leave a profit after covering expenses, it will pay to buy in Paris and sell simultaneously in London ; or, if lower, to reverse the operation. Lastly, suppose we have to remit to Paris, and it occurs to us to ask whether it would be cheaper to send Chartered shares. 10 than to buy a cheque. What exchange will Chartered shares give if we buy them here at 3 and sell them in Paris at 75} ? Francs ? = !. 3 = 1 share. 1=75.75 francs. 25.25 francs. This is the arbitrated par of exchange as arrived at from a comparison of the respective prices of Chartered shares, but, as I have already said, an arbitrated par is valueless in practice, owing to the expenses that such an operation would entail. So far as the theory of arbitrage goes, these three examples present the whole of it; but when we attempt to apply its principles to the prices of stocks quoted abroad as well as in London, we encounter at the outset a slight difficulty. The interest on the majority of such stocks is payable abroad, and whenever the interest on a stock is payable abroad the capital, you will find, is expressed in foreign currency. Take an American railway bond, for instance ; if the coupon is payable in London, the bond is expressed in sterling ; if in London and New York, the bond is in both sterling and dollars ; if in New York only, the bond is in dollars only. Again, the interest on Austrian silver rente is payable in Vienna, and the capital is in florins; on Dutch rente in Amsterdam, and the capital is in guilders ; on French rente in Paris, and the capital is in francs ; and so on. But observe. If a bond or stock, the capital of which is expressed in a foreign currency, is dealt in or quoted in London, it is the custom of the Stock Exchange to buy and sell in sterling, and to convert the foreign money into pounds at a fixed conventional exchange, which, though not in each instance stated in the List (on page 2 a number of these stocks with " coupons payable abroad " are grouped together), is well known to all who have dealings in such securities. The Austrian florin, for instance, is taken at 2s., while the Dutch florin, which has about the same value, is only taken at Is. 8d.; the franc is reckoned at 25 to the ; the mark at Is. each ; the American dollar at 4s. each, and so on. A moment's consideration will convince you of the advantage of this plan, which is a custom of the Bourses all over the 11 world. As things are, buyer and seller haggle over the price, and as soon as they arrive at an understanding on that point, the bargain can be concluded ; but if the exchange were not fixed, they would have to haggle over the rate of exchange as well, and it would take just twice as long to do the business. Whether the fixed exchange is for or against the buyer does not really matter in the least, because any difference is taken into account in the price. But the fixed exchange is not the only difficulty we shall have to contend with. Another, and to the novice a more perplexing one, is that of interest. In London, as we have seen, the accrued interest is included in the price of the stock, and the same practice obtains in Paris and in New York. London, Paris, and New York quote net prices, but on almost all the foreign Bourses Amsterdam, Berlin, Antwerp, Brussels, Copenhagen, St. Petersburg, Vienna, Hamburg, &c., the interest which has accrued on the stock since the payment of the last coupon is added to the price quoted in the List. This interest is always taken on the nominal amount of the stock, and is charged at the rate which the stock actually bears, but in the case of shares, with varying dividends, it is taken at a conventional rate (in Germany generally at 4 per-cent), which is usually stated in the foreign Lists side by side with the quotation. Now, let us see whether we can turn our information to any practical use. I propose to take the prices of a few illustrative stocks from the foreign telegrams in to-day 's Times, and to state the equations for you, but shall leave you to work out the parities for yourselves, and to compare them with the actual London prices in the List. FEENCH 3J FEE-CENT RENTE. PAEIS PEICE, 106J. The interest on this stock is payable abroad, and the capital is expressed in francs, which are taken here at 25 to the . The actual exchange for cheques on Paris is 25.18J. ? = 100 stock, If stock 1 = 25 francs stock, if francs stock 100 = 106.75 francs, and francs 25.185 = 1 . 12 CHESAPEAKE AND OHIO 4J PER-CENT BONDS. NEW YORK PRICE, 81. Interest payable New York. Capital expressed in dollars. Fixed exchange, $5 = 1. Actual exchange $4.86 = II. ? = 100 stock. If stock 1 = 5 $ stock. If $ stock 100 = 81 $ If 4.86 = 1 , PRUSSIAN 3 PER-CENT CONSOLS. BERLIN PRICE, 97.40. Interest payable Berlin on 1 April and 1 October (not included in the price). Capital expressed in Reichsmarks. Fixed exchange m. 20 = 1. Actual exchange, 20.37J. N.B. In Germany and on the Continent generally, the year is taken in interest calculations at 360 days, and the month at 30 days. ? = 100 stock. If stock 1 = 20 m. stock. If m. stock 100 = *98.02 m. If m. 20.37J = 1 . * 98.02J is the price (97.40), plus 2 months' accrued interest (1 October to 15 December), at 3 per-cent. MEXICAN 6 PER-CENT 1888 LOAN. BERLIN PRICE, 96.60. Interest payable quarterly in London. Capital expressed in sterling. Fixed exchange in Berlin, 1 = m. 20. Actual exchange, 20.37 i. ? = 100 stock. If stock 1 = 20 m. stock. If m. stock 100 = *97.85 m. If m. 20.37i = 1 . * 97.85 is the price (96.60), plus 2| months' accrued interest (1 October to 15 December) at 6 per-cent. ITALIAN 5 PER-CENT RENTE. BERLIN PRICE, 95.10. Interest payable Paris on 1 January and 1 July, less 20 per-cent Italian tax. Capital expressed in francs. Fixed 13 exchange in Berlin fcs. 100 = m. 80 ; Fixed exchange in London, fcs. 25 = 1. Actual exchange, Berlin on London, 20.37J, ? = 100 stock. If stock 1 = 25 francs stock. If francs stock 100 = 80 m. stock. If m. stock 100 = *96.88 m. If m. 20.37J = 1 . * 96.88 is the price (95.10), plus 5| months' accrued interest (1 July to 15 December), at 4 per- cent. AUSTRIAN SILVER RENTE. VIENNA PRICE, 101 4. Interest payable Vienna, less 16 per-cent tax. Capital expressed in florins. Fixed exchange, fl. 10 = 1. Actual exchange, 12.07. ? = 100 stock. If stock . 1=10 florins stock. If fl. stock 100 = *103.42 florins. If fl. 12.07 = 1 . * 103.42 is the price (101.50), plus 5-g- months' accrued interest (1 July to 15 December), 4i per- cent. In the case of stocks not quoted in London, and in which the question of the fixed exchange does not arise, the foreign price, plus interest, if divided by the sight-exchange, gives the cost in London, to which must be added the expense of getting the stock over. Those of you who may have studied the subject of the foreign Exchanges will probably remember to have read that a rising rate is frequently held in check, and prevented from reaching gold point by arbitrage operations in stocks, and you will now be better able to understand what that statement means. The point is this : the higher the exchange rises, the less it costs to remit from this side, and the less the remittance costs, the cheaper the stock works out. Thus, if Chartered shares stand at 3 in London, and at 75.30 in Paris, when the exchange is at 25.10, the price would be the same on both sides ; but if the exchange rose to 25.224, the parity would work out 4 per-cent cheaper, and it might B 2 14 then pay to buy the shares in Paris, and sell them in London. If such operations were carried out on a large scale, it is easily seen that the increased supply of London paper in Paris (or the increased demand for Paris paper in London) would stay the further rise in the exchange until the price of the shares adjusted themselves to the changed conditions of supply and demand by rising a fraction in Paris and falling a fraction in London. THE LONDON DAILY STOCK AND SHARE LIST, SECOND LECTURE. [Delivered 10 January 1898.] A.T our last session we discussed the history and composition of the Official List, and we now proceed to examine its contents. It starts well, you will see, for in the first group we have the pick of the basket. It begins by setting out those securities which constitute an absolute first charge on the wealth and industry of the richest kingdom of the world, and of its greatest dependency. Under the superscription of British Funds, &c., we find all the Parliamentary Stocks and Government Securities of the United Kingdom : all those securities, the interest on which is guaranteed by Parliament, the stocks of the Bank of England and Ireland, and those forming the debt of India ; the all-round high quality of this little assortment being attested by the fact that it is lawful for a trustee, unless expressly forbidden by the instrument creating the trust, to invest any trust funds in his hands in every one of them, except Rupee Paper. The leading items in the group are, of course, those which make up the National Debt, and this it will be well to consider as a whole, before we proceed to examine its separate parts. Our National Debt, like that of most other Great Powers, is in the main a war debt ; but though it was in the reign of William the Third that the practice of borrowing money to carry on war was first introduced together with its 16 corollary, the Funding system, it would be a mistake to imagine that the device of meeting the exigencies of the State by loans was imported into our Island by William's Dutch advisers. The expedient of anticipating revenue by borrowing at short date was of great antiquity, and in times when the system of tax collection was far less prompt than it is now was unavoidable. It is one, moreover, that prevails in a familiar shape to this day, for in every quarter when there is a deficiency in the means to meet the charges upon the Consolidated Fund, advances to the required amount are obtained from the Bank of England (or the Bank of Ireland), which are paid off from the accruing revenue of the ensuing quarter and which constitute, therefore, a loan in anticipation of revenue. In the Exchequer and Audit Department Act of 1866, you find it enacted that "At the close of each of the "quarters ending on the 31st day of March, the 30th day of " June, the 30th day of September, and the 3 1st day of " December in every year, the Treasury shall prepare an " account of the income and charge of the Consolidated Fund "in Great Britain and in Ireland for such quarter, and the " charges for the Public Debt, due on the 5th day of April, "the 5th day of July, the 10th day of October, and the 5th " day of January, shall be included in the accounts of the said "charge for the quarters ending cm the days preceding the " latter dates; and a copy of such account shall forthwith be " transmitted by the Treasury to the Comptroller and Auditor- " General ; and if it shall appear by such account that the 1 "income of the Consolidated Fund in Great Britain or in " Ireland for the quarter is not sufficient to defray the charge " upon it, the Comptroller and Auditor-General, if satisfied of "the correctness of the deficiency, shall certify the amount " thereof to the Bank of England or to the Bank of Ireland, " as the case may be, and upon such certificates the said Banks " shall be authorized to make advances from time to time " during the succeeding quarter, on the application of the " Treasury, by writing in a form to be from time to time " determined by them to an amount not exceeding in the " aggregate the sums specified in such certificates ; and all " such advances shall be placed to the credit of the Exchequer " Acounts at the said Banks MI id be available to satisfy the " Orders for Credits granted, or to be granted, upon the said " accounts by the Comptroller and Auditor-General ; and the 17 " principal and interest of all such advances shall be paid out "of the growing produce of the Consolidated Fund in the " said succeeding quarter." The Government cannot borrow without express permission, and the Act was passed to give them that permission. What really dates from the Revolution, as Macaulay points out, is not the system of borrowing but the system of funding. Merely to contract debts was no novelty, but the system introduced by William the Third, of honestly paying them, was a genuine innovation. The origin of our indebtedness as a nation may be traced to a piece of chicanery on the part of Charles the Second. After the Restoration, the London goldsmiths, who were bankers as well as dealers in the precious metals, lent the Government about 1,300,000, which had been deposited with them by their customers. This money the King appropiated to himself in 1672 by suddenly shutting up the Exchequer, and informing the lenders that, though it was not convenient to let them have the principal, he should be pleased to go on paying them interest. Many years afterwards, in 1701, the half of this sum was formally acknowledged by Parliament as a national obligation, so that in point of origin it forms the oldest part of the public debt. During the war waged by King William against the French allies of his father-in-law, it was found impracticable to meet the excessive expenditure by revenue raised within the year, and recourse was therefore had to loans. At first the Government felt its way cautiously ; it borrowed only for short periods, promised to repay by instalments, and pledged par- ticular taxes to secure the return of the principal and interest. These taxes were to be levied only for a limited number of years, and it was expected that their produce would discharge the debt within the period for which they were granted. In 1692, for instance, a law was passed imposing certain new duties 011 beer and other liquors, and it was ordered that these duties should be kept in the exchequer separate from all other receipts, and that they should form a fund, on the credit of which a million was to be raised by life annuities. Had the war quickly terminated, this and similar arrangements would probably have been adhered to ; but its long duration, and the new emergencies to which it gave rise, rendered it necessary to put the redemption off to a future day. The loans had to be renewed, and the taxes continued; the pretence of repayment was gradually abandoned; and the country was at last committed 18 to the plan of paying interest only,, and of allowing the principal to stand over as a permanent liability. Once fairly entered upon, this system of permanent borrowing went steadily on from year to year, and under one administration after another, until, at the termination of the long struggle which ended in 1815, the debt, funded and unfunded, reached its highest point of nine hundred millions (in this sum I include the value of the terminable annuities which at that time were not reckoned part of the debt), having thus attained its maximum in the short space of about a century and a quarter. Whether those who incurred that liability had the right to cast so large a share of its burden upon posterity is a question to which there are two sides. The annual charge for interest and sinking fund is so large an item of our national expenditure, that its extinction would create a revolution in our finances, and it would be very agreeable, no doubt, if we could awake one morning to find ourselves free of the six hundred millions of debt contracted by Mr. Pitt and his successors it would be very agreeable, that is to say, if we could be rid of it without otherwise altering our circumstances. But would our circumstances be the same ? Is it not likely, as the late Lord Iddesleigh, who gave considerable attention to the subject, appears to have thought, that if that money had been raised by excessive taxation, the load would have been too great for the springs of industry and commerce to bear, and hence that our national resources at the present time would be far more seriously crippled than they actually are by the burden of the debt? After all, it may possibly be better for us that Mr. Pitt allowed the money to fructify in the hands of our great-grandfathers, instead of forcing* it out of their possession by taxation. It is generally admitted too, as an abstract principle, that the money cost of a struggle for national existence may, with justice and propriety, be left for succeeding generations to liquidate. The cost in blood and tears must be borne at the time, but the mere debit balance in the national ledger may be left for settlement in the future. I speak now, of course, of those great wars in which a nation fights for its life and liberty. As to the little wars which every generation has to engage in, which confer only a temporary benefit, and which are essentially the evils of a day, their cost, it is clear, is a charge against revenue and not against capital, and the Government that undertakes them, 19 and which gains in popularity thereby, ought undoubtedly to settle the bill. The public debt is of two descriptions. In addition to that greater portion which has solidified into a permanent shape, and which is known as the funded debt, there always exists a varying amount of indebtedness of a less degree of fixity known as the unfunded or floating debt. This consists of loans raised for short periods and for temporary purposes. It represents money borrowed from time to time to meet national expenses for which no provision has been made, or for which the provision made has either proved insufficient or not forth- coming at the time when wanted. Our credit as a nation, it is to be observed, is committed to the due payment of interest 011 both classes of obligation alike ; but while on the former the State contracts to pay interest only, it undertakes, in regard to the latter, to discharge the principal as well as the interest. In other words, the State promises to pay off the unfunded debt on certain specified dates, but the funded debt it need never pay at all. The securities representing unfunded debt are, or rather were until recently, of three denominations, namely, Exchequer Bills, Exchequer Bonds, and Treasury Bills. For the invention of the Exchequer Bill we are indebted to the fertile genius of Charles Montague, William the Third's renowned Chancellor of the Exchequer. During the great re-coinage undertaken in that reign, the withdrawal of the old money appears to have proceeded more rapidly than the issue of the new, and the country fell into great distress for want of the currency needed to conduct its business. In order to fill the void, a clause was inserted at Montague's instance in the Ways and Means Bill of 1696, empowering the issue of interest-bearing Government paper, based on the security of the revenue, and in July of that year the first Exchequer Bills appeared. The success of the issue was great, and though intended merely as a temporary substitute for the new money then in course of manufacture, the country took to the Bills so kindly, even after the immediate necessity had passed away, that the Government decided 011 their permanent adoption, and they continued in use down to the present year. A newly-issued Bill bore interest coupons running for five years, but as the holder might claim repayment of the principal 011 any anniversary of the date of the Bill, it was practically twelve months' paper. To ensure convertibility, they were 20 made receivable in payment of customs,, excise, or other duties, at any time in the last six months of every year from the date of the Bill, and the interest due on them at the time of presentation was allowed in the payment. They were issued at two periods only, March and June, and the interest, which might not exceed 5 per cent., was fixed half-yearly, and always at such a rate so as to keep the Bill at a slight premium. There was a very good reason for this practice. In case of an emergency, the Chancellor of the Exchequer might have had need to raise a few millions as quickly as possible, and by keeping the Exchequer Bill at a trifling premium, he could always be sure that a new issue at par would be eagerly taken up. Until the introduction of the Treasury Bill, the theory held with regard to the Exchequer Bill was that it provided a security of which not only was the repayment at par assured, but which, by bearing a variable interest, adjustable to the circumstances of the money market, should always preserve a fixed value, and hence be a suitable investment for floating money. In practice, however, the theory was never fully carried out, because the interest, instead of being adjusted from week to week, or even from month to month as it would require to have been if the value of the principal was never to vary was fixed for half a year in advance, during which period there was always the possibility, owing to unforeseen changes in the money market, of the Bill falling to a discount, as it frequently did. But apart from this drawback, the Exchequer Bill, it had long been evident, had had its day. It belonged to a time when the rate of interest on short loans did not fluctuate so often as it does now, and when the system of holding vast sums of money ready for short investment was unknown. The expedient, too, of permitting them to be used in payment of duties grew antiquated, and did not accord with modern ideas. Gradually the issue grew smaller, and finally, in 1897, it dwindled away altogether. In his Budget speech in April last, the Chancellor of the Exchequer, referring to this subject, said : " The unfunded debt, besides being reduced, has been " greatly simplified. It now consists solely of Treasury Bills. " The remnant of Exchequer Bonds borrowed by the First " Lord of the Admiralty to pay off the holders of consols, has " been paid off during the past year. Exchequer Bills have " ceased. That security which was invented 200 years ago 21 " by one of the greatest of my predecessors, Mr. Charles " Montague, in order to effect a great re-coinage for the " benefit of the country, has often stood the Treasury in good " stead, and never more so than during the great war early in " this century. But these Bills, issued as they were for terms " of five years, the interest on them being fixed half-yearly " by the Treasury, have become inconvenient. Certainly it " was an invidious task to fix the interest 011 Exchequer Bills. " You might fix it too high, and if you did, there was a loss " to the Exchequer ; if you fixed it too low, the holders of the " Bills had a right to present them at certain periods in " payment of duty. And in these days Treasury Bills issued " for periods of not more than 12 months at a rate fixed by " the competition of the market, are far more convenient, and " a better form of security." The Exchequer Bond to which the Chancellor of the Exchequer refers, was another form of security invented by Mr. Gladstone in 1853. Bonds to bearer are of course common enough now, but at that time they were little known. The interest on the Exchequer Bond was to be payable by coupon, and Mr. Gladstone thought that foreign buyers of our investments would be likely to give the preference to one of which the actual security itself would be in their possession, and of which they could encash the interest in whatever part of the world they might be by simply cutting off and selling a coupon. For some reason or another the Exchequer Bond was not a success, and for many years the public heard no more of them, the few that came out at intervals being issued to the National Debt Commissioners against advances made out of the funds under their control. In. 1889, however, Mr. G-oscheii decided to resuscitate them, and a new form of bond was prepared to meet modern requirements, but these also were paid off last year, and now it is very likely that we have seen the last of them. The third and last division of the unfunded debt, and now in fact the only one, is that of Treasury Bills. These are Money Market securities, and, as they are not dealt in on the Stock Exchange, you will not find them in the Official List ; but that need not prevent us from bestowing a little attention on them. I think I am right in saying that the first conception of the Treasury Bill is contained in a suggestion put forward by the late Mr. Walter Bagehot, AV!IO, in an article in the Economist of 1876, asked the very apposite question, " Why not issue Exchequer 22 Bills at short dates " ? Up to that time, whenever it was the duty of the Chancellor of the Exchequer to raise money for temporary purposes, he had to choose between the Exchequer Bond and the 12 months' Exchequer Bill. On the former he could never hope to borrow at much less than 3 per-cent, and on the latter, although backed up by the finest credit in the world, the Government had just announced the rate to be 2 per-ceiit, while a private individual could, on the same day, have taken a three months' Bank Bill into the market and have borrowed on it at just half that rate. The fault, said Mr. Bagehot, lies in the present form of Exchequer Bill. It runs too long, and it is too clumsy. If the Govern- ment wish to take advantage of the tempting cheapness of the money available for this class of investment, let them issue a more handy and more negotiable security. For a three months' bill the market would be found willing to pay the best price, and the Government ought to study its wants. The wisdom of the advice was recognized in the proper quarter, and early in the following year the Chancellor of the Exchequer, Sir Stafford Northcote, introduced a Bill providing for the issue of a new form of floating debt obligation, to be known as a Treasury Bill. The Act imposed no restrictions on the Treasury in respect of the rate which it might pay the rate on Exchequer Bills was limited to 5J per-ceiit but the term of the Bill was not to exceed 12 months. Immediately afterwards, in March 1877, tenders were invited for the first emission under the new plan, and to the gratification of those concerned, the Government succeeded in obtaining the best market rate. Being new and strange, however, the Treasury Bills were for some time looked upon rather shyly, but during the City of Glasgow Bank crisis, which occurred in 1878, French bankers manifested so strong a predilection for such perfectly A 1 paper as to give them the character of an international Bill, and from that time they have taken their proper place as the highest class of paper known to the market. From the point of view of the Chancellor of the Exchequer, Treasury Bills possess another excellent quality in addition to that of enabling him to borrow cheaply ; they also enable him to spread the liabilility over the whole year. There was no legal reason why an Exchequer Bill should not bear date on any date that the Treasury might appoint, but the peculiarity of the interest conditions appeared to render it 23 convenient to issue only twice a year, so that the danger of having to take them up was concentrated on two days only, whereas the three months' Treasury Bills are arranged in such a manner as to fall due about twice a month all the year round, and, at the worst, the Government could only have a small proportion thrown on its hands at one time. As the Treasury Bill bears no interest, the buyer pays the amount, less discount. In tendering for them, " the tenders must specify the net amount per-cent which will be given " ; that is to say, instead of offering to take a 12 months' bill at 2J per-cent, you bid 97. 10s. per-cent for it. Perhaps I need hardly mention that, as this is bankers' discount, and not true discount, the buyer at that price really obtains rather more than 2J per-cent on his money. Let us revert now for a moment to the loan that I spoke of as being raised in 1692. Its repayment, I told you, was secured by the hypothecation of certain fresh duties which were simultaneously imposed to an amount sufficient both to meet the interest and to redeem the principal by instalments. The borrowing system, of course, was then in its infancy, and the national credit consisted of little else than good intentions. The Stuarts had just been driven from the country, and the Government of William was far from firmly established. It was very natural, under these circumstances, that provision for paying back the money borrowed should be deemed an essential part of the scheme. To have attempted, indeed, to borrow, with the avowed intention of never repaying, would only have excited ridicule. Duties or taxes so assigned and set apart, as in this instance, were said to form a fund, and his claim upon some such specified fund constituted the lender's security. This practice of the hypothecation of a specific branch of the revenue is a very common practice in the case of countries of inferior credit. The law authorizing the Argentine 1886 Loan, for instance, contains the following clause " The " service of the loan shall be provided by the general " revenues of the country, the Custom House receipts remain- " ing specially appropriated to the necessary extent for the " annual service." A first-class State, such as England, Germany, France, Holland, &c., borrows, of course, upon its general credit ; only a State which cannot do this proposes to mortgage a particular revenue. Security of that kind, even 24 at its best, is very superficial, for if the country which mortgages its customs finds it impossible, or says it finds it impossible to pay, where is the imagined security ? In order to realize it, the bondholder would have to usurp the government of the country, which is out of the question. Duties and taxes so assigned and set apart were described, I repeat, as a fund, and his claim upon some such specified fund constituted the lender's security. Gradually, however, by that process of contraction, which is the offspring of frequent repetition, dealing in claims on the funds, came to be spoken of as dealings in "the funds" simply, until, in course of time, the word "funds" almost lost its original signification of the security on which the loans were based, and acquired the new meaning, which it still retains, of the principal of the loans themselves. The use of "funds" in the sense of public debt is, therefore, a survival of the primitive practice. At the outset, again, funding a loan meant, as we have just seen, the provision of resources to extinguish the capital as well as cover the interest, and when the Government first began to contract permanent loans, and to charge the fund with the payment of interest only, this latter process was distinguished as perpetual funding; but the "perpetual" appears to have soon dropped away, and we are left with plain "funding" in the altered sense of appropriating revenue for the perpetual payment of interest alone. What we now mean when we speak of our " funded " debt is permanent debt, of which the interest is a perpetual charge on the Consolidated Fund. In modern times the meaning has undergone even further modification, for whereas the word originally indicated that the service of the loan was secured by a fund, and then that the service was secured, and the loan permanent or of long duration, we now either take the security for granted or treat it as a separate matter, and a so-called "funding operation," in many cases, signifies little more than the conversion of an immediate or a short-term debt into a long term or a perpetual debt. The primitive practice of keeping a separate account of each loan, and of the taxes levied for its service, lasted only a few years. Some of the taxes left a deficit, while others produced a surplus ; and the multiplicity of funds complicated the book-keeping. It was therefore decided, about 1715, to collect the various branches of revenue into three large 25 groups, known as the General, the Aggregate, and the South Sea Funds, each of which was charged with the payment of certain specific annuities. This arrangement, though still involving a separate calculation at the Custom House for each of the different subsidies, was a distinct improvement over the former system, and for some time worked well enough; but long before the end of the century the country had outgrown it, and further simplification was urgently called for. In 1787, accordingly, Mr. Pitt pointed out to the fundholders that, as the credit of the country was committed to the fulfilment of all its obligations alike, the comparative priority of the various loans was more imaginary than real ; and, on obtaining their consent to an amalgamation of the security, he abolished a distinction that had become practically valueless and established one single fund, to which he carried the whole of the permanent revenue, and to which he gave the name of "The Consolidated Fund." The principal and interest of the Unfunded Debt, and the whole of the perpetual annuities payable in respect of the Funded Debt, form a first charge upon and are payable out of this Consolidated Fund of the United Kingdom, without distinction or priority. That greater portion of our national indebtedness, which is repayable only at the option of the Government, and not at the option of the annuitant, is called the Funded Debt, and is composed of the following stocks: Two-and-a-Half per-cent Annuities; Two-and-Three-quarters per-cent Annuities; and Two-and-Three-quarters per-cent Consolidated Stock, as well as the book-debts owing to the Banks of England and Ireland. To discover its first beginnings, we must look to the nego- tiations that led to the incorporation of the Bank of England. There can be little doubt that the Government then contem- plated the contraction, for the first time, of a permanent debt ; for though the Charter was made terminable in 1706, it is not to be supposed that the Government had any intention of withdrawing it after twelve years, or the Bank of asking for repayment. The advance by the Bank to the public of 1,200,000 in 1694 was therefore the foundation stone of our Funded Debt; and Bank of England Stock is the patriarch of the official List. The stock that takes the lead in our schedule Two-aiid-a-Half per-cents owes its origin, in- directly, to the discoveries of gold, between 1848 and 1851, in 26 California and Australia. As a consequence of those dis- coveries, which occasioned a great influx of the metal to this country, the belief was strongly entertained 45 years ago, that we were on the eve of a great and permanent reduction in the value of money. In February, 1853, the rate of interest on Exchequer Bills was cut down from Hd. to Id. per day, but not one Bill was sent in for repayment, and they still stood at a premium; and Consols were quoted at par. Rumours of a projected reduction of interest on the Debt got abroad, and, as the nation appeared to have fully prepared itself for a conversion, Mr. Gladstone decided not to disappoint it. His scheme, which was produced in March, had a two-fold object. His minor aim, in which he succeeded, was to sweep away a few remnants of old stocks connected with the South Sea Company, that still encumbered the List; but his great purpose was to lay the foundation of the stock of the future of a permanent form of irredeemable public debt (irredeemable, that is to say, at the option of the holder), bearing interest at 2i per-cent. To this end he offered to give, in exchange for each 100 of Three per-cent Stock, yielding 60s. per-cent, either 110 of Two-and-a-Half per-cent Stock, yielding 55.s. per-cent, or 82 J of Three-and-a-Half per-cent Stock, yielding a rather better income, namely, 57s. 9d. per-cent. In both cases he guaranteed the holder against further interference until 1894. The latter stock (the Three-and-a-Half per-cent.) was created with a view to the convenience of those who might prefer a larger present payment at the sacrifice of part of their future capital, but as less than a quarter of a million was applied for, it would seem that very few such people existed. At any rate, the stock was a dead failure, and in 1894 it was paid off and abolished. As to the Two-and-a-Half per-cents, Mr. Gladstone's stock of the future, the only fault Parliament could find with it was that it was a great deal too cheap, and everyone confidently predicted that it would be taken with avidity. The Opposition even professed great alarm at the enormous increase of fifty millions in the capital of the debt which would ensue if the holders of the existing five hundred millions of Consols and Eeduced Threes assented in a body, as the City said they would, and to appease their fears, Mr. Gladstone promised to allot only thirty millions to begin with, and to extinguish the increase of capital by applying the annual saving of J per-cent interest to a sinking fund. To cut the 27 story short, the end of this much-belauded plan was that only three millions of the new stock were applied for. Before it could be fairly launched on the market, the political horizon had begun to cloud over and the coming event of the Russian war was casting its first shadow over the minds of far-seeing statesmen and capitalists. The year that had opened so auspiciously with bank rate at 2 per-cent and Consols at par, closed with money at 5 per-cent and Consols at 92 J, and amid the general depression, the great conversion scheme of 1853 the only prominent financial failure with which Mr. Gladstone's name is connected suffered complete shipwreck. Over a quarter of a century was to pass away before a new generation of business men were to see Consols once more at par. It was not until November, 1880, that they again crept up to three figures, and that investors again began to ask themselves how soon the Government would feel itself bound, as guardian of the public purse, to make a fresh attempt at the inevitable reduction. If the credit of the country was now such as to enable it to borrow at less than 3 per-cent, it was, of course, incumbent on the Chancellor of the Exchequer to reconsider the terms of the bargain between the national debtor and the national creditor, and if possible to ease the burden of the taxes by inducing the fund-holder to accept a little less, or, if he proved obdurate, by borrowing elsewhere on lower terms and gradually paying him off; but it was not until 1884 that Mr. Childers made the anticipated proposal. This consisted of an offer to the holders of the Three-per- cents to exchange each 100 of stock yielding 60s. per-cent, into either 108 of Two-and-a-Half per-cent stock yielding 54s. per-cent, or 102 of a new Two-and-Three-quarters per-cent stock yielding 56s. Id. per-cent. In this case, both stocks were made irredeemable until 1905, and, as in the case of Mr. Gladstone's conversion of 1853, the increase of capital in the case of the Two-and-a-Half per-cent Stock to be paid off by a sinking fund. The Two-and-a-Half per- cent Stock was Mr. Gladstone's old creation, which had mean- while been increased by sundry operations to fourteen millions, but Mr. Childers extended the period during which it was irre- deemable from 1894 to 1905. That the terms were very liberal was agreed on all hands, and it was generally expected that the response to the invitation would be practically unanimous. The general expectation, however, was again falsified ; for the c 28 option was only taken advantage of to the extent of nineteen** and-a-quarter millions of the old Two-and-a-Half per- cents, nearly thirteen millions of which were applied for by Government departments,, and four-and-a-half millions of the new Two-and-Three-quarter per-cents, so that another small stock was thus added to the List. Politics could not be blamed this time for the want of success, yet there was evidently a miscalculation somewhere. The mistake, it would appear, was that of offering alternative stocks, instead of proposing a general and progressive reduction of interest in the existing stock. Like the proverbial bundles of hay, the two alternatives only served to render the investor undecided, and in the end to prevent him from accepting either,' besides which, they also produced the more serious effect of causing the bankers to hold back. Why the latter should have refrained, as a body, from supporting the scheme was perfectly clear ; they disliked seeing a great stock, such as consols was, split into halves, and, moreover, if they were to be forced into conversion, they at least wished to make sure, before committing themselves, which of the alternative stocks would command the wider market. They wanted, as Mr. Pickwick once advised, to shout with the largest crowd, and immediately it became evident that the fund-holders generally meant to hold on as long as possible to their beloved Three per-cents, all hope of a voluntary surrender on the part of the banks was at an end. The net result of the two conversions that we have been discussing, was the addition to the List of two new stocks, one of which is so small in amount that any inference drawn from a comparison between its price movements and those of Consols would hardly be reliable, but the other the Two-and-a-Half per-cents has on two occasions, when Consols were over par, served a most useful purpose. It has acted as a gauge, or testing machine, by which to ascertain the true value of the public credit, and, as the point is interesting, we will step aside for a moment to examine it. Consols, as we have seen, touched par in November 1880, but to save the trouble of deducting accrued dividend, we will compare the prices of the 6th January 1881, which are free of interest. The quotations were : 82 for the Two-and-a-Half per-cents, and 98J for Consols. Now, if a Two-and-a-Half per-cent stock is worth 82, a Three per-cent stock, which is based on precisely the same security, and the price of which is governed 29 by the same considerations, ought to be worth one-fifth more, or 981, but as Consols were in rather better demand at the time O * than the Two-and-a-Half per-ceiits, they were quoted a little higher, at 98|, which, however, is quite near enough. Three years afterwards, in January 1884, on looking again at the price of the Two-and-a-Half per-cents, we find it has improved to 90f , and we naturally expect that the same flowing tide will have carried Consols up in a like proportion to 108J. But, as a matter of fact, Consols only stood at 101J ; the reason of the check being that, as they were redeemable at par at any time after twelve months' notice, the buyer ran the risk of soon losing whatever premium he paid, and consequently felt it unsafe to go more than a point or two beyond par. We begin now to see the advantage of a reference to the Two-and-a-Half per-cents quotation. If Consols had been the only stock to go by, it would have been reasonable to infer from the current price that a Perpetual Government Annuity of 3 was worth no more than 101^, whereas the real value, as made manifest by the price of the Two-and-a-Half per-cents, was over 108. For the time being, in fact, the price of the latter alone correctly gauged the actual value of the national credit, and deductions drawn from the price of consols were fallacious. In the speech introducing the conversion scheme of 1888, Mr. Goschen also took occasion to point out that while the Two-and-a-Half per-cents, which enjoyed an immunity from conversion for many years, were then quoted at 96, Consols, with this imminent danger hanging over them, were no higher than 102, and that under the circumstances the former were the genuine indicators of the real value of Government security. We now come to Consols, " the historical stock of this country the champion stock of the world ", as Mr. Goschen enthusiastically termed it. There appears to exist a popular notion that Consols is a sort of generic name for all the Government stocks forming the Funded Debt, and that the separate headings in the schedule only serve to distinguish between the different species ; but, strictly speaking, the term only applies, of course, to Consols proper, which is a stock that was formed in 1752, by consolidating into one, or, as we should now call it, unifying, a number of small stocks, all bearing 3 per-cent interest. The unified stock was entitled " Three per-cent Consolidated Annuities ", from which to plain c 2 30 " Consols " was an easy transition. Other consolidated annuities, of higher denominations, afterwards appeared in the schedule, but the Three per-cents always retained their distinctive designation of " Consols ", both because they came first in point of time, and because they took the lead in the matter of magnitude. Owing to a change made in the system of funding about the year 1781, this particular stock was one that grew rapidly. Before that year the sound principle had been adhered to of varying the amount of the annuity according to circumstances, but of never selling it below par ; but in 1781, as the difficulty of raising money increased, the practice grew up of keeping the annuity invariable, and selling it for what it would fetch. The difference was this under the old system, if it was required to raise 100 when the rate was 6 per-cent, the Government would have sold 100 6 per-cent stock at par. Under the new system it sold 200 3 per-cent stock at 50. Upon the capital of the Debt the consequences were deplorable. From the beginning of the American War to the end of the French War we borrowed 417 millions in money, but created 589 millions in stock, thus increasing the debt by 172 millions more than was necessary. In defence of this practice, it was maintained that the issue of loans at par at a time when the value of the national credit rose with every victory, and declined with every reverse, would have meant a sub-division of the debt into stock at all sorts of awkward and unmanage- able rates, besides which, if stock had been created to a greater amount than the cash really received, what did it matter after all ? The Government was not bound to pay it off at par, but could always go into the market like anyone else and buy it at the price of the day, and if the price of the day should be higher than the price of issue, it only showed that the credit of the nation had improved, which would be a matter to rejoice over and not to cavil at ; as the stock, more- over, was held in England by Englishmen, its redemption at a higher rate was, to a certain extent, but a transference from one pocket to another, and was no loss to the country as a whole. It would be beside our purpose to follow this argument any further, and I only referred to it in order to explain the growth of Consols, for as it was in the Three per- cents, that most of the loans raised at the time were funded, the stock increased in the 30 years between 1776 and 1805 31 from 38 millions to 390 millions, or at the rate of over 11 millions a year. Great reductions were afterwards made, but it still amounted in 1888 to 323 millions. In that year the famous stock which had endured for 136 years, and which had triumphantly withstood the assaults of Mr. Gladstone and Mr. Childers, finally succumbed to the determined attack of Mr. Goschen, and the " sweet simplicity of the Three per- cents " is now a thing of the past. THE LONDON DAILY STOCK AND SHARE LIST. THIRD LECTURE. [Delivered 24 January 1898. ~] JL HAVE already had occasion to mention that the old Three per-cent Consols reached par thrice during the last half-century, and that on each occasion the guardian of our public purse had felt it his duty to try and drive a somewhat harder bargain with the national creditor. Two of these attempts the conversions of 1853 and 1880 ended, as we know, in failure, Mr. Gladstone being defeated by unfavourable politics, and Mr. Childers by the opposition of the city ; but the scheme put forward by Mr. Goschen in 1888 met with general acceptance and was triumphantly carried through. His plan was simplicity itself. He offered the holders of the Three per-cents (New, Reduced, and Consols), a new stock, at par, bearing 3 per-cent for one year and 2J per-cent for 14 years, until April 1903 ; after which the rate fell automatically to 2 per-cent, but was guaranteed against any further reduction until 1923. (It may be remarked in passing, that, in comparing the price with others, it will be found simpler to regard the new Consols as a Two-and-a-Half per-cent stock, and to deduct the present value of the J per-cent bonus from the price. Thus, if you deduct 1|, the approximate present value of a five years' bonus of \ per-cent from to-day's quotation of 112f , you get 111J as the price of a Two-and-a-Half per-cent stock). 33 The phenomenal success of the conversion is to be ascribed to the favour with which it was received by the banking- interest, who, knowing that the reduction was bound to come sooner or later, and finding on examination that the scheme contained all the good points, and none of the bad ones, of its predecessors, consented to lead the way, and were followed by the public. In the first place, instead of contracting the market by splitting up existing stocks, Mr. Groscheii proposed to enlarge it by merging the whole of the Three per-cents into one great and homogeneous stock, which would amount to between five and six hundred millions ; secondly, there were 110 alternatives to puzzle the investor, or arouse his suspicion one stock alone was offered, and he must either take that or his money ; thirdly, no book-keeping complica- tions were created by disturbance of capital 100 old stock exchanged for 100 new stock, neither more nor less; and lastly, Mr. Goschen proposed to retain the time-honoured name of Consols by giving his new creation the title of Two- and-Three-quarters per-cent Consolidated Stock. As to the first point the preference shown for a large, instead of a small, stock, I may explain that the banker looks on Consols from a point of view somewhat different from that of the ordinary investor, who is attracted mainly by their absolute safety. The security they offer that of a first mortgage on the whole of the national assets is, of course, the best conceivable. No promise or obligation whatever is, or can be, so good as the bond of a great, wealthy, and honourable nation. Railway Debentures and Corporation Stocks rank next in order ; but it is quite conceivable that railways may some day be ruined by the invention of a new mode of locomotion, whilst a great conflagration or the collapse of some particular industry might render the bond of a city almost worthless. But the taxability of the British nation is all but inexhaustible. We can augment the national income, if need be, in a manner and to an extent which no other community or corporation possibly can, and on that income the service of the debt is the first charge. In addition, however, to this indispensable quality of perfect security, the banker requires something else. He also requires the scarcely less valuable attribute of convertibility of convertibility, that is to say, without delay, and at a minimum of expense or loss. Next to cash in his reserves, he ranks such securities as 34 are immediately realizable in time of difficulty or pressure, and repeated experience has shown him that, in this respect, Consols stand first and alone, because owing to their magnitude they offer at all times a free market, and a market, moreover, in which the dealer's " turn " and the broker's commission are cut down to the very lowest figures. As you see from the quotation, the " turn of the market " is only J per-ceiit, and is the lowest of any stock in the List. As a matter of fact, the jobbers in that market will always make you a J price, and under pressure, might even quote a T ^ price, and as Consols are changing hands daily and hourly in all imaginable sums, they constitute a stock which the banker can get in and out of both easily and cheaply. There is but one article known to commerce of which we are able to say positively that at all times and under all circumstances you can be certain of instantly turning it into cash in London, and that is gold ; but next to gold in the quality of ready saleability comes Consols, and it is no exaggeration to say that 011 a day of panic it would be easier to sell half-a-million of them than it would be to find a buyer for fifty thousand pounds' worth of Indian or Colonial Stock, or of Railway Debentures. Another prepossessing feature of the new stock was, as I mentioned, its name. Care had to be taken that the appellation should not clash with that of Mr. Childers' Two-aiid-Three-quarters per-cents, and in bestowing on it the title of Consolidated Stock, Mr. Groschen expressed a hope that, after the extinction of the Three per-cents, the public would transfer to it the old and familiar abbreviation of " Consols." That hope was fulfilled; but Mr. Goscheii had a very narrow escape from being immortalized, for in the neck-aiid-neck struggle that ensued between " Consols " and " Goschens " for popular favour, it certainly looked for a time as though the latter were to be the winner. There appears to be no previous instance of the word " stock " being employed in the official designation of any part of the Funded Debt, and, to a certain extent, it is a misnomer. The root is that of the verb " stick ", and the primary notion is that of something which is stuck in and remains fast. The fund contributed by those who took shares in the first public companies, such as the East India Company, the Bank of England, the South Sea Company, &c., was called the " Capital Stock ", probably because the money when once put in could not be taken out again, and the term 35 appears to have been applied by analogy to the imaginary capital of the Government Annuities. This view of the case appears to have been taken by Richardson in his New English Dictionary (1844), where he describes stocks as "the public funds where the money of unhappy persons is now fixed." Our finances were at a very low ebb in 1844, and that might explain the definition. The profit, too, that was periodically divided by such companies was called the " dividend " ; and by carrying the analogy a step further, the instalments periodically paid by Government 011 account of the Perpetual Annuities were also called dividends. Having just referred to the principal sum, in respect of which the Perpetual Annuities are payable, as an "imaginary capital", it would, perhaps, be well to be a little more explicit. The National Debt divides, as we have seen, into two branches, between which it is now necessary to draw a very sharp distinction. The one the Unfunded or Floating Debt actually is debt, being made up of obligations to pay certain definite sums of money on certain fixed days; but the other, the so-called Funded Debt, is really no debt at all. That um of five hundred and odd millions which you see standings in the List as the present amount of Consols, was never borrowed by the Government; the money is not owing to anybody; and the State has never promised to pay it to anybody. What happened was this. The Government, wishing on various occasions to raise money for certain purposes, created Perpetual Annuities of 3 each, and sold them, at the best price obtainable, in sufficient quantity to realize the sum required. The thing sold was a perpetual annuity; that is to say, an unending series of future annual payments of 3 each ; and the price given for it was a lump sum of money down, which, whether 100, or whether only 50, was, all things considered, of equal value at the time of payment. Strictly speaking, there was 110 question of a loan in the transaction at all, but only of a purchase and sale. If I were to buy a 5 life annuity from an insurance company for 100, I presume you would regard it as nonsense to say that the company owed me 100; and, in like manner, it is irrational to suppose, because I buy a Perpetual Government Annuity of 55s., that the Government actually owes me 100, on which it has undertaken to pay me 2J per-ceiit interest. The only engage- ment it enters into is an engagement to pay me a specific annuity, 36 and, so long as that annuity is duly forthcoming, it does not owe me a penny. I have not told you quite the whole of the bargain, however. As the State might, some day, wish to pay off the annuitant, it always took care to stipulate that, after a certain date, and after giving a certain notice, it should have the right to buy back the annuity at the fixed price of 100. The price the Government got for it made no matter; whether they had sold it cheap just before Waterloo, or sold it dear just after, was all one ; if they ever wanted to dispossess the holder of it against his will, they undertook to give him 100. Mr. Goscheii made precisely the same stipulation nine years ago. Here is what he said in "The National Debt (Conversion) Act, 1888" : " The new stock shall " not be redeemable until the fifth day of April, one thousand " nine hundred and twenty-three, but 011 and after that day " shall be redeemable by Parliament 011 such notice, at such " time or times, and either in one sum, or in such sums or " proportions, and in such order and manner as Parliament " may direct, at the rate of one hundred pounds sterling for " every one hundred pounds of the capital sums in respect of " which the annuities constituting the stock are payable." While all else about the redemption has been left to the future discretion of Parliament, the price at which it shall take place is definite and uiimistakeable. What we are to understand by the statement in the List that the present amount of Consolidated Stock is 525,000,000 is now growing clearer. That sum is not debt; for Consolidated Stock is merely the name given to a huge mass of perpetual annuities, and so long as the quarterly instalments are punctually met, there can be nothing owing. It is simply the maximum redemption-value the outside limit of the sum we may be called upon to pay in case the holder of the annuity refuses to part with it until he is forced. But, in addition, there also attaches to it a conventional signification, based, not on principle, but on general agreement and custom. Whether you regard 2. 15s. as the amount of an annuity, pure and simple, or whether, for convenience in book-keeping and to avoid a troublesome circumlocution, you choose to consider it as the annual interest on a hypothetical principal of 100, makes little difference when once you are quite clear as to the true nature of the bargain; and, as a matter of fact, it has been found extremely convenient, both by the State and the 37 annuitant, to adopt the latter supposition. The old consols were not ealled annuities of 3 each, but annuities of 3 per-ceut each, and the "per-cent" referred to an imaginary capital of 100 which the Government assigned to each of them, with a view, 110 doubt, to simplify the keeping of the accounts. It was not necessary to do so; and the French Consols (Rentes) which resemble ours, make no mention at all of a principal. A certificate of French Rente states the amount of the annual payment to which the bearer is entitled, but says nothing about a capital sum. Yet, even the French are illogical ; for, though they studiously avoid all mention of a capital sum, they, at the same time, entitle the stock Three per-cent Rente. The Government, I said, assigned a hypo- thetical principal of 100 to each annuity; and when we speak of buying or selling 100 Consols, we really mean the annuity corresponding to an imaginary capital of 100 stock. I trust you will now understand, therefore, that "Funded Debt", "borrowing", or "raising a loan" (as applied to a fresh issue of consols), and such like expressions, though sanctioned by ordinary usage, must be taken strictly in a conventional, and not in too literal a sense. Let us now turn our attention to "The National Debt Act, 1870", which regulates the transfer and dividend arrangements of all the Funds, and which, being a consolidation of the various enactments relating to the perpetual annuities that had been making their appearance on the Statute Book at greater or less intervals ever since the end of the seventeenth century, presents matter of interest that we cannot afford to overlook. It was passed, of course, before the Two-and-Three-quarters per-ceiits, and the new Consols were created, but the Acts of 1884 and 1888 both incorporate its provisions by reference. The first section that appears to call for special comment is No. 7, which says "The annuities and dividends aforesaid " shall continue to be free from all taxes, charges, and im- fe positions, in like manner as heretofore." Now, I think it probable that if I were to ask any one of you to put your own rational construction 011 that clause, and to tell me what it meant, you would be inclined to reply that it was so clearly expressed in plain English as to need no interpretation, and that it jnst meant what it distinctly said, namely, that the dividends on consols and on the other perpetual annuities shall be payable free from all taxes, as hitherto. But, if that 38 be the true meaning, how comes it that the dividends are not actually paid free from all taxes ? How comes it that the Bank of England deducts income tax; and that, if your quarterly dividend be 10, the Bank keeps back 66-. 8d., and only gives you 9. ISs. 4c?. To the legal mind there may appear to be no inconsistency in that deduction, but to us, who have not had the benefit of a legal training, it certainly seems to call for explanation ; and, in order that we may view the matter in a right light, we will ask, firstly, with what object that clause could have been incorporated in the original Loan Acts, and secondly, whether the imposition of income tax on the dividends is, or is not, consistent with the spirit and purpose of the exemption. As to its purpose there can be little doubt. It was meant to protect the f uiidholder from sharp practice on the part of the Government. The lender of money to the State had in view the possibility that, at some time or other an unwise or unscrupulous Minister might attempt to trick him out of part of his money under the pretext of taxation; and he therefore stipulated that payment of the full annuity, without deduction, should be one of the terms of the bargain. The other question is more difficult to answer. To judge whether or no the imposition of income tax is a violation of contract we shall have to glance at the circumstances under which it was originally levied. The first Income Tax Act was passed in 1799, a few years after we had entered into the great war. The impost was sanctioned because there was no help for it. Money had to be raised by hook or by crook, and however obnoxious a tax of such an oppressive and inquisitorial nature might be, no other way could be found of raising it. All income, from whatever source it might be derived, was made chargeable, and whether the taxpayer obtained his revenue from trading or from a profession, from landed property or from funded property, made no difference. In one case as in another it was income, and as such had to pay ; and though no special mention was made in the Act of the public funds, yet as all the dividends formed part of somebody's receipts they, of course, contributed in common with other income. Shortly afterwards, on the renewal of the tax, a change was made in the manner of its collection, the principle being adopted, which we still adhere to, of charging incomes at their source, that is to say, of charging them when in the hands of the first possessor, instead of in the hands of the ultimate proprietor. 39 The tax on rent, for instance, was to be collected from the occupier instead of the landlord ; the tax on interest, from the borrower instead of the lender; and the tax on income derived from the funds, instead of being gathered from the fundholder himself, was to be collected from the Bank of England, which was authorised to deduct it from the dividends. All at once the fundholder discovered that his annuity was no longer payable free from all taxes. " You have broken faith with me/' he cried. "You pledged your " solemn word to pay me without deduction, and now you " begin to violate the compact ! " " Nothing of the sort ! " indignantly retorted Mr. Pitt. " I only promised that no tax " should be imposed on the stockholder, separately and " distinctly. I only promised that no impost should be " levelled directly at the fundholder, as such, and I still " uphold that promise in its integrity. The engagement was " sacred, and whatever happens, we will stand by it. We " tax the dividend, not as dividend, but as income; and so long " as we subject it to no special tax, but treat it only like all " other income, we maintain that your exemption remains " inviolate." Now, who Avas right ? Was the fundholder or was Mr. Pitt ? I express no opinion ; but simply tell you how the imposition was justified. Mark, however, the result of setting a bad example. Section 71 of our Act says "No " stamp duty shall be payable in respect of any dividend " warrant, transfer of stock, stock certificate, or coupon/' which is language as unequivocal as it well can be. Never- theless, in 1831, Lord Althorp proposed to levy a duty of \ per-cent on all transfers of stock, and when the astonished House reminded him of this express provision in all the Loan Acts, calmly asserted that his proposal could not possibly be construed into a breach of faith, inasmuch as he intended charging all transfers, and not transfers of the funds alone, which, to his mind, appeared precisely on all fours with the precedent set by Mr. Pitt. So great, however, was the outburst of anger which the scheme provoked that it was at once withdrawn. Then again, in 1852 Mr. Disraeli proposed to tax income from the funds at a higher rate than other income, which likewise would have been a clear violation of principle. Immediately the war was over the tax had to be taken off, and I may mention, as an interesting scrap of history, that, in order to be rid of the detested impost once for all, the 40 House ordered the assessment papers and the records of the Commissioners' proceedings to be destroyed, and was very near falling in with Mr. Brougham's serio-jocular suggestion that they should be publicly burnt by the common hangman. After that, though successive administrations cast many a longing look on the forbidden tax, over a quarter of a century passed before any minister could summon up sufficient courage to propose its re-imposition, and it Avas only under a very grave sense of the disaster threatening our national finances that Sir Robert Peel dared to do so in 1842. Desperate diseases justify desperate remedies; but the remedy in this case, I am sorry to say, overstepped the limits of national probity. During the former continuance of the income tax, Mr. Pitt had carefully laid down and maintained one great distinction, which he justly considered essential to public faith, namely, the exemption from its incidence of foreign fund- holders residing abroad, who, as they were not represented in Parliament, could not be said to have accepted the tax through the vote of their spokesman, as might have been argued in the case of the British fundholder. Foreigners residing in this country, and enjoying the protection of its government and laws, are bound to pay their share of the expense of keeping up that protection, but, as there exists neither the power nor the right to impose British taxes on foreigners residing outside our dominions, it is clear that, if taxed at all, they are taxed as fundholders, and as fundholders only. But Mr. Pitt contended that he was not taxing the fundholder, as such, and, as a logical sequence of that contention, he exempted the foreign holder. Sir Robert Peel, on the other hand, decided not to exempt him ; and, it is difficult to arrive at any other conclusion but that, in so doing, he committed a breach of good faith. The chief reason alleged for the departure from precedent was that exemption might open the door to fraud, by inducing British subjects to register their stock in foreign names, but even if evasion of the tax had been an established fact, instead of a mere assumption, it would have been no justification for paying the foreigner less than we had promised to pay him, or, in other words, for partial repudiation. To defend the imposition is, in short, tantamount to assorting that those who have borrowed money shall be at liberty to tax the lenders at their own discretion, which is preposterous. The only extenuating circumstance 41 and a lame excuse it is that we can now plead for neglecting to reverse Sir Robert Peel's decision, is that all aliens who, at the present time, hold British funds, have acquired them subject to that condition. The course taken by Sir Robert Peel was not only a violation of contract, it was also a blunder. It was pointed out to him that the national obligations of many countries were almost entirely in the hands of foreigners principally Englishmen and that if England once set the fashion of taxing debt, it Avould be difficult to blame them for imitating us, as they assuredly would. That warning we have since had reason to remember, and may have again. Italy, for instance, takes toll from all holders of her Rente, and India taxes the dividend on rupee paper, and a few years ago I remember noticing that a prominent colonial statesman had been advocating the imposition of income tax on New Zealand stocks. The British bondholder, he argued, had a direct interest in the maintenance of order and good government in the colony, and might help to pay for them. I daresay you will think I am treating this question with an unwarrantable degree of prolixity, but as there is an important principle involved in its consideration, I wished to place it before you as clearly as I could. Returning now to our Clause No. 7, we can make sense of it by mentally adding " except income tax ", or by reading it in conjunction with No. 36, which openly recognizes the deduction. The greater part of the rest of the Act is made up of regulations concerning the management of the Debt. The arrangements respecting such matters as the payment of dividends, the transfer of stock from one person to another, the preparation of certificates, and so forth, are not settled by voluntary agreement between the Government and the Bank, as might be supposed, but are prescribed by statute. The law provides, for instance, that all the dividends shall be payable at the Bank of England so that, if the Chancellor of the Exchequer wanted to make part of them payable elsewhere, he would have to get a special Act of Parliament passed to authorize it and it also provides (Sec. 72) that the Bank of England shall continue a corporation as long as any part of the Debt remains unpaid. It is, of course, infinitely more convenient to the fundholder to be able to draw his dividend or transfer his stock in the very heart of the City than it would be to have to go to the Treasury or to Somerset House for that purpose, but the original reason for 42 bringing in the name of the Bank was probably to convince the public that everything was straightforward about the loan, just as at the present day its name inspires confidence in, and gives a fillip to, a Colonial or Corporation issue, and that of Rothschild to a foreign one. The Act also imposes upon the Government the duty of paying over to the Chief Cashier of the Bank, out of the Consolidated Fund, sufficient money to meet the dividends as they fall due ; and, if there should not be enough standing to its credit at the time, it is empowered by the Exchequer and Audit Act of 1866 to borrow the difference from the Bank, on condition of repaying it from the first accruing revenue of the next quarter. The operation of these provisions is to make the dividends on the Public Debt, when they become due, a charge upon the moneys in the Exchequer in priority to all other claims ; and, in the event of the sum being insufficient, a prior charge is created upon the first receipts of revenue thereafter. As to Part IV., which deals with the subject of transfer, it is obvious that, as the Debt is only repayable at the option of the Government, and that, as the stockholder's title consists simply of an entry in the books of the Bank, and not of a document (the so-called stock receipt which the purchaser receives, merely proves that a transfer in his name was effected on a certain day, beyond which it has no actual value, and is not evidence of title) capitalists would be unwilling to lend, unless there existed an easy, cheap, and speedy means of transferring their claim to someone else who was willing to buy it from them ; and the Act therefore makes arrangements to that effect. The fund- holder may transfer his holding to as many people as he chooses, and the Bank will prepare the documents and make all the necessary entries without charging him a farthing for its labour, and without putting him to any trouble beyond asking him, if not personally known to them, to show that he is the party he represents himself to be (which he usually proves by getting his broker or solicitor to identify him.) No limit is imposed as to the amount that may be transferred, for as it is a great advantage to a nation that its public debt should be as much divided among the population as possible the greater the number of State creditors, the greater being also the number of those who have a direct interest in upholding the Government accounts may be opened for any amount from a penny upwards. I am not aware that there is 43 any instance of an account being opened for a penny, but I believe there are cases where people have transferred nearly the whole of their stock and carelessly left a trifle over, so that there are accounts standing over in the Bank's books for a few pence. And now we will leave the Act. The best of all instruments, it has sometimes been said, for the discovery of truth in political economy, is a reference to like circumstances or to similar transactions in private life ; and one of the applications of this principle supples a favourite argument to debt reformers. " What should we think," they ask, "of the moral courage of a private individual who, in " bad years, or whenever he had exceptional expenditure to " meet, made a practice of borrowing money on the mortgage ee of his estate ; but who, instead of striving in good years to " clear off the encumbrance, allowed his opportunities to slip " by, and accustomed himself to regard the burden as a " dispensation of Providence, which it was useless to struggle " against. If such conduct would be contemptible in the " individual, how can it be otherwise than reprehensible in the " case of that aggregate of individuals which we call a nation." It is quite conceivable, they admit, that, if the estate were undergoing development, it might be good policy to let the mortgage stand and to lay out all the money that could be spared in improvements, which, in after years, might return ten-fold ; but, when once its productive powers are fully evolved, and when the annual yield becomes greater than the amount that can be wisely spent again upon it, then prudence and common sense dictate that the proprietor should address himself seriously to the task of paying off the mortgage. That is one side of the question ; now let us hear what can be argued on the other. In the first place, it is maintained that, as the public creditor is our fellow-citizen, and that, as a debt owing by one part of the community to another is, in a national sense, no debt at all, it is just as absurd to be alarmed at the magnitude of the sum owing by the public debtor as it would be to take fright at the total of, let us say, our banking deposits, which are also money owing by one part of the community to another. The interest paid on the debt is national expenditure, and has to be provided for by taxation, true ! but it is also national income, and helps to pay that taxation ; and though the Chancellor of the Exchequer takes money from us with one hand to meet the debt charge, yet he D 44 gives it back with the other in the shape of the quarterly dividends. If the National Debt, in fact, were paid off to-morrow, the nation would not be a penny the richer, except as regards the smaller portion of it held by foreigners, and, indeed, if anything, it would even be poorer, for a part of the dislodged capital would inevitably be exchanged for some of the rubbish of the stock and share market, and its owners never see it back. This, in the main is true ; and, at any rate, there is no gainsaying the fact that the weight of a debt held at home, as consols and French rentes are, and of which the interest is spent at home, is not nearly so much felt as that of a debt held abroad, and the interest upon which has to be sent out of the country. Nevertheless, even an internal debt is an evil, and that for at least three reasons : (1) A great deal of money is wasted over the operation of raising the interest, the nation having to support an army of tax-gatherers, many of whom, if the debt were extinguished, could be better employed otherwise; (2) The interest, added to our necessary expenditure, tends to use up the good and fair taxes, and to leave us, in case of war, with only the unjust and irritating taxes to fall back upon; (3) While the whole community, from A to Z, must contribute to make up the interest, only a small portion of it, only A, B, and C, receive that interest. Another argument against redemption is that the national creditors, as a body, do not ask or wish to be paid, but on the contrary, strenuously object. Whenever a holder, here or there, wants to have his money back, there is always someone else ready to buy him out, and step into his place. Then, again, the funds are the one investment that is absolutely safe, and that requires no looking after ; the one investment which widows and orphans, and all those who are incapable of the business-like manage- ment of property, may put their money into, and sleep in peace, and the one investment into which bankers can place their reserves with the certainty of being able to realize whenever necessary. Lastly, the money to repay debt must in part not all, but in part be withdrawn from profitable occupation. Whilst the debt subsists, the public creditor is virtually advancing capital to the public debtor at a little over 2 per- cent, or including all expenses of collection and management, at say 3 per-cent, and the latter can employ that capital to yield him double or treble as much. By redeeming its indebtedness, therefore, the nation ceases to pay interest on 45 the amount discharged, but ceases also to receive profit on the money so applied, or rather, on that portion of the money so applied which was previously laid out to advantage. In spite, however, of these and such like plausible and ingenious arguments, the general opinion and certainly the opinion of those whose judgment is entitled to the greatest respect is that a generation whose taxes are light, productive, and unimpeding, ought undoubtedly to do something to ease the burden of coming generations, which can hardly be much better oif than we are and may be a great deal worse off. Our children and our children's children will have their own exigencies to provide for, and it is our plain duty, in time of national well-being and prosperity, to work off a part of our great mortgage, and not to hand down to them difficulties which it is in our power to alleviate. We must remember, too, that the faster we pay off debt the better our credit, and that our credit is what we rely upon for help in time of trouble. If England should again become involved in a great and protracted struggle and who shall say that we may not? it is no exaggeration to say that two or three years of war expenditure on the modern scale would probably suffice to re-add to the debt the reductions of a century. The first Minister to establish a fund for the redemption of the Debt, and the first Minister, also, to lay violent hands on the accumulation, as soon as it became worth the stealing, was Sir Robert Walpole; but the Sinking Fund which is best remembered is that established by Pitt in 1786. This was based practically on the amazing principle, that if the nation lent itself money, charged itself interest, and continually invested and re-invested that interest in fresh loans to itself, it would, in course of time, grow so rich that the Debt could be paid off with the utmost ease, and yet nobody be a penny the poorer. The House and the country were delighted with the plan, and it passed by acclamation. Some stupid people people of that sort who always try to pick holes in what they cannot understand said it was repugnant to common sense to suppose that the nation could gain riches by lending to itself, any more than a shopkeeper could make money by buying his own stock; but it was explained to them how a certain Dr. Price had calculated that if one penny had been put out at our Saviour's birth at five per-cent compound interest, it would, by the year 1781, have increased to a greater D 2 46 sum than would be contained in two hundred million globes, the size of the earth, all of solid gold, while, at simple interest, it would in the same time have amounted to no more than seven shillings and sixpence. "Well", said the disbelievers, " and what of that"? "Why, simply this", was the trium- phant reply. "Let the Chancellor of the Exchequer borrow a million a year at simple interest, and lend a million a year at compound interest, and there you are"! This arithmetical puzzle deluded the nation for years, and throughout the whole of the French war we kept up the farce of annually paying off large sums of debt, though we always borrowed the money with which to pay it, and a great deal more besides. Mr. Pitt himself was not deceived. There is no doubt that he really meant to redeem the debt out of savings; but that, finding this impossible, and having to choose between either a fictitious Sinking Fund, or none at all, he deliberately adopted the former alternative, in the hope that, by educating the country to regard reduction of debt as a bounden duty, he might be able, when better times came round, to change pretence into reality. Eventually, however, the nation saw its folly, and, in 1829, the whole of the previous legislation affecting the Sinking Fund was swept away. In its stead was instituted the sound and solid principle that the actual surplus of income over expenditure in every financial year shall be paid over to the National Debt Commissioners, and by them be applied in immediate cancellation of debt. This system, which has remained in operation down to the present day, is known as the Old Sinking Fund, and it may be well to point out with regard to it that the actual surplus in question is not to be confounded with the estimated surplus, which the Chancellor of the Exchequer is, now-a-days, expected to provide, and make us a present of, on Budget night. If, I repeat, there should remain, at the end of the financial year, a genuine balance to the good not of hypothetical figures, but of actual cash that money must, by Act of Parliament, be laid out in the payment of debt; and, as it was formerly the practice of our Finance Ministers not to count their chickens before they were hatched, by anticipating the normal growth of revenue, the Old Sinking Fund has served to effect a genuine cancella- tion of indebtedness to the amount, at the end of 1896, of seventy-nine millions. Until twenty-three years ago, the revenue estimates of the coming year were based strictly on the actual 47 receipts of the previous year, without one sixpence of allowance for the augmentation that might reasonably be anticipated as a natural outcome of the growth of population; but the system came to a sudden end, under curious circumstances, in 1874, coiiicidently with the fall of the Liberal administration. In his appeal to the country, in the early part of that year, Mr. Gladstone had held out the bribe of a total repeal of the income tax, and had demonstrated the possibility of its aboli- tion by a sort of pro-formd Budget statement, in which he took into account the full normal expansion of revenue; but, though the electors refused to take Mr. Gladstone back, they hungered after the surplus which he had dangled before their eyes, and when the Conservatives took office, they deemed it expedient not to disappoint the country in that respect, but to adopt the estimates of their predecessors. In this way the system was initiated, which has ever since prevailed, of discounting the elasticity of the revenue by estimates which are drawn up with scientific precision, and which aim at the closest possible approach to perfect accuracy. If we make estimates at all, it is, doubtless, better that they should be true ones; but, for all that, financial reformers look back with regret to the years 1865 to 1874, during which, by wilfully under-estimating our income, we were able to wipe off debt to the amount of many millions. Having deprived the "Old Sinking Fund" of its virtue, Sir Stafford Northcote was bound, in common decency, to take other measures for the liquidation of debt, as it was quite obvious that popular pressure for the reduction of inconvenient taxation would never allow him to put aside an estimated surplus for that purpose. We may be very virtuous and very sincere in our professions; but whenever the Chancellor of the Exchequer has money over, and asks what he shall do with it, we invari- ably discover that it would be a pity to waste it in paying debts. In 1875, accordingly, Sir Stafford Northcote brought forward a proposal for a " New Sinking Fund", which was to operate in conjunction with the existing scheme. His plan, which was simplicity itself, was to take the debt charge in the estimate of expenditure at a fixed sum, somewhat in excess of the amount actually required, and to apply the surplus each year in the purchase of consols, &c. This permanent annual charge now amounts to 25,000,000; of which about 8,000,000 represent capital, and 17,000,000 interest and 48 cost of management. If not tampered with, it will necessarily become more effective every year. A third way perhaps the best of all of paying off the debt still remains; and that is, by the gradual conversion of perpetual annuities into terminable annuities. So long as we go on paying interest only, we make little progress; but, if we could add the principal to the interest, and pay the two together by means of fixed annual instalments extending over a term of years, the time would eventually come when both would disappear. This plan was always open to us; but the objection to it was its costliness, as people could not be induced to buy terminable annuities, unless the price was disproportionately low. They were disliked for several reasons. The proper way to deal with them is to re-invest each year a certain part of the annual income, so that, at the termination of the annuity you may have entire the sum you spent in buying it; but most persons do not know how to make the necessary calculations, and the ordinary investor if he is wise avoids what he cannot understand. Then, again, as the tendency of Government stock is to rise, and as the amount to be paid for a terminable annuity was always based on the current price of consols at the time of the sale, there was ever a possibility that the annual re-investment would prove insufficient to replace the capital. Lastly, income tax had to be paid on the full amount of the annuity both on the capital and interest and, if the tax went up, the holder might find himself a good deal out in his estimate. The consequence was that, though the system of terminable annuities (or long annuities, as we formerly called them) has been in existence even longer than the Funded Debt the first loan on this basis having been issued in 1692 they were never a favourite form of investment, and those in existence up to 1860 had, in most cases, been forced out by the custom of the Government, when raising money, of granting, in addition to the stock created, bonuses in the form of terminable annuities. Shortly after the establishment of the Post Office Savings' Bank in 1861, it occurred, however, to Mr. Gladstone, that if he created large blocks of annuities in his capacity of Chancellor of the Exchequer, he might himself purchase them in his capacity of custodian of the poor man's savings. It occurred to him that, as he was the largest fundholder on the books, he might, from time to time, commute portions of the stock held by him against Savings 49 Banks' funds into terminable annuities, and, by thus increasing the present burden of the nation, diminish its future burden. The plan worked, and has continued to work, admirably. In 1883, no less than 70,000,000 of Consols, 30,000,000 of which belonged to the Savings Banks' Fund, and 40,000,000 to the Chancery Paymaster, were in this way cancelled, and terminable annuities set up to replace the Stock. Let me explain again what the scheme is. The Chancellor of the Exchequer sent, we will suppose, for the Paymaster-General of the Court of Chancery, and said: "I want to make a " proposal to you. I find that you are the holder of " 40,000,000 of stock, which you hold as an investment, " and which you will, no doubt, continue to hold for the next ff twenty years. If you will hand that stock over to me to be " cancelled, I will give you, in exchange, a twenty years' " annuity of 2,666,000. Of this amount, 1,200,000 repre- " sents the interest you have hitherto been receiving, so " that, as far as that item goes, you are just in the same " position as though you kept the stock, and the remaining " 1,466,000 represents return of capital, which, if annually " invested by you in Consols, and allowed to accumulate, will, " in twenty years' time, reinstate you in possession of your " 40,000,000 of stock." These terminable annuities are, at present, automatically paying off upwards of 4,500,000 a-year, and, in case of emergency, we always have the convenient option of re-converting them into an equivalent amount of stock a process which, though it amounts to the same thing as suspension of the sinking fund, does not sound quite so alarming. The total amount paid off by the sinking fund system is continually on the increase, and, at the present time, is about 8,000,000 a-year. Assuming that the State can borrow at 2^ per-cent (it can actually borrow at much less), that sum would pay the interest on a capital of 320,000,000 ; so that, by simply suspending the sinking fund, England could raise a war loan of 300,000,000 without adding a single shilling to the taxation of the country. Other nations, who boast of their war-chests, might mark that fact with advantage. Now, as it is obvious, on consideration, that every mode of alleviating the burden of debt must resolve itself, under whatever name it may be known, into the appro- priation, to that end, of actual surplus revenue, and nothing more, the question suggests itself Why should it be necessary 50 to hide away so plain a process behind all this hocus-pocus of sinking funds and terminable annuities, as though they were ashamed of it? Why cannot Sir M. Hicks-Beach come down to the House next April and say, in a straightforward way, that our actual expenses for next year will amount to, let us say, 100,000,000, but that he means to make us pay 108,000,000, and to use the difference in writing down our liabilities for the benefit of posterity ? Well, if he did, I suppose he would render himself the most unpopular man in the country. The " unemployed " would burn him in effigy, I dare say, and he would probably need police protection. The fact is that, in matters of this sort, it is expedient nay, more than expedient, it is necessary to hoodwink the country. Experience has proved, beyond all question, that Parliament cannot be trusted to deliberately vote large specific annual sums towards the repayment of debt; but that, on the other hand, if it once consents to devote a certain sum to the letting up of an annuity, it can be relied upon to keep its word, and not to be for ever tampering with the arrangement ; and the more so, because, as the true nature of the operation is concealed from public view, members need not go in fear of their constituents. The complicated machinery of terminable annuities is preferable, therefore, to other methods of debt reduction, because it enables the Chancellor of the Exchequer to make sure that our efforts to lighten the load that presses on the industry of the nation will be steady and unremitting in their application, and increasingly beneficial in their result. A few words with reference to the price-movements of consols will exhaust what is still left to say about them. Without going into details, I think it is possible to enunciate a general principle that will account for all their fluctuations. The law appears to be no more than this; that, if the disturbing influence of politics could be eliminated, the steady applica- tion of the New Sinking Fund, the operation of the terminable annuities, and the unceasing absorption of the stock into other channels where such holdings are a necessity, must inevitably cause a continuous upward movement. Supply being limited, the ever-present demand cannot fail, when other influences are in abeyance, to produce a perpetual enhancement of value. But consols are a political security; and a political occurrence of real magnitude might, as has happened before, bring down the price with startling rapidity. 51 Holders of the national stock appear to lose their heads over events which would hardly cause possessors of Metropolitans or of railway debenture stocks to turn a hair, and the reason is not far to seek. It is not because our credit begins to totter immediately a war-cloud is seen on the horizon ; on the contrary, our credit is stability itself; and, since 1815, no public annuitant has ever, for an instant, doubted the safety of his investment. It is because Consols are a stock the quantity of which is liable to indefinite and absolutely incal- culable expansion. In the event of our becoming involved in a first-class war, the quantity forced on the market might reckon, not by millions, but by scores even hundreds of millions ; and the greater the augmentation of supply, the greater the depreciation of value. That is why "bulls" of the stock are in such a hurry to scuttle out whenever politics take an unfavourable turn, and why the public also, if matters look really serious, become anxious to part with their holdings at a small present loss, in order to avoid the possibility of a greater future sacrifice. THE LONDON DAILY STOCK AND SHARE LIST. FOURTH LECTURE. [Delivered 7 February 1898.] WHEN speaking the other evening of the Two-and-a-half per-cent Stock originally created by Mr. Gladstone in 1854, I mentioned the fact that both Mr. Childers and Mr. Groschen had referred to its importance as a testing machine by which to ascertain the true value of the public credit, and it has since occurred to me that it would be of interest to further elucidate this point, by instituting a comparison between the present prices and the yield of Consols, Local Loans Stock, and the Two-and-a-half per-cents, all of which, being based on exactly the same security, ought, after allowance is made for the difference in the dates of redemption, to give about the same return. Consols are redeemable in 1923, Local Loans Stock in 1912, and the Two-and-a-half per-cents in 1905, and we shall assume, in each instance, that the holder will be paid off at par at these respective dates, which is the worst that can happen to him. In each case we must, of course, deduct accrued interest from the price, and, as all the stocks stand over par, we must also in each case, set up an annuity which, if allowed to accumulate at 2J per-cent until the date of redemption, will, by that time, restore the premium which the buyer at to-day's price would otherwise lose. 53 Price of Consols ... ... 11212 6 Less 2 months' accrued interest 092 112 3 4 Less the present value of a 5 years' annuity of 5s ., deducted in order to reduce the stock to a 2^ per- cent basis . 134 Net price ... 111 Gross yield 2 10 Less amount of annual sinking fund necessary to replace the premium of 11 at end of 25 years ... ... ... 065 Net yield ... 237 If 111 yield 237 100 will yield 1 19 3 Price of Local Loans Stock ... ... 113 10 Less 2 months' accrued interest 10 113 Gross yield 3 Less annual sinking fund to replace 13 at end of 14 years 15 9 Net yield ... 2 4 3 If 113 yield 243 100 will yield 1 19 2 Price of Two-and-a-half per-cents ... 106 Less 2 months' accrued interest 084 105 11 8 Gross yield 2 10 Less annual sinking fund to replace 5 11 8 at end of 7 years ... 14 9 Net yield ... 1 15 3 If 105 11 8 yield ... 1 15 3 100 will yield 1 13 5 54 This remarkable result can only be explained by the supposi- tion that the cost of the Two-and-a-half per-cents " looks cheap" as compared with that of Consols and Local Loans Stock, and has induced buyers to pay what is, really, an extravagant price. If we reject this explanation, the only inference open to us is, that the true value of British credit is less than If per-cent. We have now disposed of all the stocks constituting the National Debt, and the next item 011 the Official List is Local Loans Stock, the capital of which, amounting to forty-one millions, represent advances made by the State, for sundry purposes, to local authorities. The principle of lending public money to municipalities, and other corporate bodies, can be traced back for upwards of a hundred years; but, as a definite system, it took shape in 1817, when, owing to the disorganization of the labour market, caused by the great influx of disbanded soldiers and sailors on the close of the great war, it was found necessary to start relief- works for the alleviation of distress. The system took firm root, and since that time the Government has been in the habit of making advances, through the agency of commis- sioners, for almost every conceivable purpose for sanitary and water works; for schools, free libraries, and artizans 7 dwellings; for harbours and lighthouses; for markets and fairs; and so forth the object in view being to assist small communities who desire to carry out really useful works, but who, although they may have fairly good security to offer, could hardly borrow in the open market without great disadvantage, because the amounts they require are so small. During the past thirty or forty years in particular, great extension has been given to this plan of borrowing from the State by numerous Acts of Parliament, which expressly authorize and encourage it. Some of these have been local Acts, passed for the purpose of enabling a particular borough to raise money for a specific object, but others, especially "The Artizans' Dwelling Act", "The Elementary Education Act", and "The Public Health Acts", have bestowed such powers on local bodies all over the country. As the objects for which such bodies are invited to incur debt are mostly matters of Imperial concern, and have been enforced by Imperial legislation, it is but just and proper that the Imperial authority should, by interposing its own credit, enable the local authority to raise the necessary funds on the best terms. 55 The applications for loans have to be made to certain commis- sioners (in England, the Public Works Loan Commissioners; in Ireland, the Board of Works and the Land Commissioners), whose business it is to ascertain whether the applicants have power to borrow, whether they have complied with the statutory provisions in regard to the loan, and whether they have sufficient security to offer. If satisfied on these points, they decide how much they will lend, and on what terms. From a recent report of the Public Works Loan Board, it appears that most of the advances have been made at 3i per-cent, and are repayable within thirty years; also, that fourteen millions of money are represented by balances standing at the debit of no less than 2,500 School Boards in England and Scotland, while another eight millions have been borrowed by about 1,000 Boards of Health and other sanitary authorities. Until 1887, the funds required for these advances were supplied by the Treasury, which provided the money in whatever way happened to be most convenient at the time when it was wanted. If there was plenty of cash at the bank, it simply lent from its balance; if not, it raised the means by an issue of Exchequer or Treasury Bills. As no distinction was ever made, however, between the money it borrowed to spend and that which 'it borrowed to lend, the National Debt had, for very many years, included a varying sum, against which there was a set-off on the other side of the account, and the Chancellor of the Exchequer used to have to explain that the debt appeared to be greater than it really was, because there were so-and-so many millions owing to the nation by local authorities which ought to be deducted. To this unsatisfactory style of book-keeping, Mr. Goschen determined, in 1887, to put an end; and he did what a merchant would have done if he found that his cashier had been lending people money against their 1 IPs, charging it to expenses, and re-crediting the account with it when paid back; that is to say, he ordered the general expenditure account to be entirely cleared of these items, and a separate page to be opened for them in the national ledger, in order that the country might always know exactly how it stood. The amount was thirty-seven millions, and, as a matter of course, if those millions had never been lent, the National Debt would have been that much the smaller. To complete the operation, therefore, Mr, Goschen created a new 56 stock to the amount of thirty-seven millions, and allotted the whole of it to himself, as National Debt Commissioner, in exchange for a like total of funded and unfunded debt, which he held against savings banks' funds, and which he imme- diately cancelled. He also laid down the business-like principle that, whenever the local authorities wanted more money, the State was not, in future, to lend it out of its own pocket, but, if the repayments from old loans were not sufficient to meet new loans, was to borrow it for them; or, what came to the same thing, the State might let them have the money at once, but was invariably to recoup itself, sooner or later, by creating and selling additional issues of the new stock, to which he gave the descriptive title of Local Loans Stock. The stock was to bear 3 per-cent interest, and the difference between 3 per-cent and the rate to be charged to the local borrowers, was meant to cover expenses of management, and to provide a sinking fund for bad debts; but the money has been lent so carefully that bad debts are unknown. As regards security and exemption from stamp duty, Local Loans Stock is on precisely the same footing as Consols. Though primarily a charge on the Local Loans Fund, which consists of the interest and repayments received from the local borrowers, it is expressly provided by the Act of 1887 that any deficiency of interest shall be charged on the Consolidated Fund, and that, in default of payment by a borrower, the deficiency of capital, if any, shall be made good by Parlia- ment. We now come to a stock which, though classed under the head of "British Funds, &c", is in no sense a liability, either direct or indirect, of the British Government. The reason why the capital-stock of the Bank of England stands here, instead of among those of other banks, is, presumably, because "Debt due to the Bank of England" has figured as a national liability ever since we owned a funded debt, and also because bank stock for many years enjoyed the pre-eminence of being the only security, outside consols and East India stocks, in which trust funds might be invested. There is, no doubt, a very general impression that the capital of the Bank and the Government debt of eleven millions are in some way connected; and it has frequently been urged, by those who undertake the easy task of pointing out the numerous anomalies and inconsistencies of the English money market, that the State ought no longer to allow its name to appear on 57 the list of debtors of a trading corporation. When the debt was originally incurred, they say, the Government was poor, and glad to borrow, and the bank, in return for the loan of its capital, acquired a valuable monopoly; but, as the Govern- ment is now rich, and as the bank has long ago been deprived of its exclusive privileges, it is illogical and undignified to let the money still be owing. Set free her capital, they argue, and let the bank invest it in bills, and you will then see that she will have no difficulty in rendering her control over the market as effectual and as complete as it ought to be. Now, this argument, plausible as it sounds, would appear to be based on an entire misconception of the existing facts; and those who reason in this way forget that the debt was virtually paid off over fifty years ago. Until the Act of 1844 came into operation, the holder of bank stock had a right to say that the Government owed him money, for here is how the chief cashier used to make up his balance sheet (this being the last return issued in the old form) : LIABILITIES. ASSETS. Circulation, 21 '3 millions Securities, 22'9 millions Deposits... 14'1 Bullion ... 15*6 35-4 38-5 Only the liabilities to the public were shown, and the assets held against them. The liabilities to the proprietors were : Capital ... ... ... ... 14*6 millions Rest . 3'1 17-7 and, as the Bank's other assets consisted of Securities ... ... ... ... 3'6 millions Government Debt . ll'O 14^6 it is clear that the stock-holders regarded the loan to the Government as an investment of their own money, and not of that of the public. But the effect of the Act was to deprive the bank of the privilege of issuing notes on its own credit, and to convert it from a bank of issue and deposit into a 58 bank of deposit only. For 150 years the bank had been able to earn a large profit by issuing as many notes as it pleased against just so much cash as it pleased and now the power to coin its credit was taken away. All notes were, henceforth, to emanate from a new Government office, called the Issue Department, the management of which was, for practical reasons, placed in the hands of the bank directors, who were, in that capacity, to act as agents of the State; and in the process of establishing that Issue Department, the Government, to all intents and purposes, discharged its debt to the bank. " You owe the note-holder twenty-one millions ", said the Chancellor of the Exchequer to the directors, " and Parlia- " ment insists that you pay him off at once. I will tell you " how to do it. You have already given me eleven millions; {t now, give me ten millions more, and I will pay him off for " you, and then we can cry quits." And the bank did so. It gave the Issue Department three millions in securities, and seven millions in gold and silver, and thus got rid of its liability on the circulation. And the result was, that the eleven millions, which the Government had hitherto owed to the holders of bank stock, was henceforth to be considered as owing to the holders of issue-department notes, whom it undertakes to settle up with whenever they may feel inclined to ask for their money. Immediately afterwards, the Issue Department drew up its first balance-sheet, which was as follows : AN ACCOUNT FOR THE WEEK ENDING 7 SEPTEMBER 1844. Issue Department. Notes issued 28'4 millions. Government debt ... 11 '0 millions Other secu- rities ... 3-0 Gold coin & bullion... 12-7 Silver bullion 1'7 28-4 28-4 This is the first account issued by the bank after the passing of the Bank Act. You will notice that the notes have increased. They were twenty-one millions in the last account, 59 and they have increased to twenty-eight millions, because the bank itself, for its own purposes, took seven millions of the new notes. Practically, that is much the same as the account at the present day. If all these notes were presented to the bank for payment, the Government would have to intervene, because eleven millions of them are issued against the Government debt. It is clear, therefore, from this return, and from every return that has been issued subsequently, that the Government debt is really due to the note-holder, and not, as is commonly supposed, to the Governor and Company of the Bank of England, with whose trading capital it no longer has any connection whatever. Last, though not least, of the stocks forming this group, comes the debt of our Indian Empire, the division of which into India stock and India rupee paper invites enquiry into the distinction that exists between an external and an internal loan. The essential difference between the two is, that the interest on an internal loan is payable at home, while that on an external loan has to be remitted abroad. Internal loans are those, such as consols and French rente, which a State raises in its own currency among its own subjects. External loans, on the other hand, are those which it raises in foreign currency among the inhabitants of other countries, and the interest upon which is, for the convenience of the lender, made receivable abroad. There is no reason why the native capitalist should not invest in the external debt, if he likes it better, or why the foreigner, if so inclined, should not give the preference to the obligations manufactured expressly for home consumption; but if the Calcutta merchant buys India stock, he will have to put up with the inconvenience of a certificate, the coupons attached to which are payable in London in gold, and if the London merchant buys rupee paper, he finds that the interest is payable by a draft or coupon on Calcutta for so-and-so many silver rupees. In both cases the transaction would, under present circumstances, savour more of the nature of an exchange speculation than of an investment. Another distinction is usually drawn between home and foreign loans. The one, it is said, is liable to taxation; the other not. It is held, with regard to the latter, that the borrower is bound to abide by the strict letter of his bargain, and that the terms which he imposes upon himself in the prospectus, and on the strength of which the E 60 money is advanced to him, cannot afterwards be modified, unless and until he obtains the consent of the lender. Without that consent, modification is repudiation, and, as such, may entail the condign punishment of being "warned off " by the committee of the Stock Exchange. In the case of an internal loan, however, it seems to be supposed that the Government of the country is justified, seeing that it represents, at one and the same time, both fund-holder and taxpayer, in dealing with the debt in such manner as the exigencies of the State may render necessary; and that it is at full liberty to tax it, or to reduce the interest, at its own absolute discretion. But this is surely a mistake. A State which borrows money at home and then withholds from its creditors part of that which it has agreed to pay them, must be just as wanting in integrity as the State which borrows abroad and repudiates. England, it is true, taxes her home debt, and so does India; but this is explained away as a tax on income, which all pay alike; and the fact of its being universal is held to be a safeguard against injustice. In both cases, however, it is injudicious, to say the least of it, to tax the foreign holder, and, so far as India is concerned, this liability to taxation helps to explain the disparity of value between its internal and external debt obligation. If, however, instead of being an impartial tax on income derived from every source, it were a tax on income derived from the funds alone, the imposition would clearly amount to repudiation, and to repudiation in its meanest and most dangerous form. Until the year 1858, when the Government of India was transferred, after the suppression of the mutiny, from the East India Company to the Crown, rupee paper was scarcely known at. all to English investors. The company had power to raise loans in this country on obtaining the sanction of Parliament ; but it had usually preferred to pay a higher rate and borrow on its own authority in India, where it had contracted by far the greater part of its debt. In addition to the greater convenience and less expense of effecting interest payments on the spot, there were political reasons for the preference. The company held the wise opinion that those who had much to lose by the subversion of its power, would desire to see that power maintained ; and as that astute prince, the Rajah of Chutneypore, deemed it expedient to secure the fidelity of his Sepoys by keeping their pay two or three years 61 in arrear, so the company, on the principle that a native was a native, whether sepoy or prince, took measures to ensure the passive goodwill of His Highness by inviting him politely, but firmly, to subscribe a good round sum to their new loan. That principle still holds good in India. The home debt was practically in the shape of promissory notes, which were not capable of being held out of the country, because it was necessary to present them at the Indian Treasuries to encash the interest as it fell due. With a view to improve its credit by the removal of this obstacle, the Indian Government decided, in November 1858, to pay the interest in London by means of sight drafts on India, and issued the following notification: "When holders of notes in Calcutta desire that " the interest thereon should be made payable by bills issued " in London, they must present their notes at the office of the " Account ant- General to the Government of India, where an " enfacement*' will be made on each of the notes in question, " as follows: ' Interest payable in London by draft on Calcutta " ' (or Madras, as the case may be)/ '' The measure was not adopted without some misgivings, as it was feared that, if the European capitalist stepped in, the native capitalist might step out, and the Indian Government thus lose its hold over the self-interest of the moneyed classes. In the result, however, the fear proved unfounded. The demand that immediately sprang up on this side for rupee paper, which returned the buyer 5 per-cent, as against 4 per-cent yielded by India stock, not only enhanced its value to the native holder, but also proved that the English themselves had full confidence in the stability of the Indian Government, and were quite ready to back their opinion with their money a fact which the natives had been much inclined to doubt; and from that time onward the Indian capitalist lent much more freely than ever he had done before. " Enfaced " rupee paper the portion, that is to say, which is held in Europe amounts, at the present time, to about a third of the whole issue, and is a favourite investment, or, rather, a favourite speculation with those who believe that silver still has a future before it. The * " Enfacemeut " is the antonym of endorsement, which obviously suggested it. This seems to be its first appearance in public, and it was, doubtless, coined for the occasion to express a form of words written, printed, or stamped on the face of a bill, note, or other document. Though a useful addition to the language, it has never come into general use, except in " enfaced rupee paper ", and has escaped the notice of nearly every lexicographer. B 2 62 comparative expediency of raising money in England or in India depends,, now-a-days, on several considerations. The advantage of borrowing in India is two-fold. On political grounds it is advisable that the native should be encouraged to hold a stake in the country; and, on financial grounds, it is advisable both that the debt should be incurred in silver, the metal in which the revenue is received, and that the country should have the benefit of the fund-holder's expenditure. The disadvantages are, firstly, that on silver loans raised in India a higher rate of interest must be paid than on gold loans negotiated here ; and, secondly, that there is difficulty in obtaining the amount required, and obtaining it quickly, as the Government has never yet succeeded in attracting the petty savings of the people, who prefer either to lay out their money in ornaments, or to employ it in usury. To borrowing in the London market, where money is abundant and cheap, the one great drawback is, that the interest must be met in gold, and that the Government hazards a serious loss in converting its silver. Thus, if India borrows 1,000 here at 2J per-cent when the exchange is at Is. 3d., she receives Es. 1,600, and has to pay 25 interest, which is provided by selling a council draft for 400 rupees. If the exchange now rises to Is. 4t itself. To discover the beginnings of Local Debt, we must go back as far as 1792, in which year the system originated of advancing public money to local bodies in furtherance of objects approved of by Parliament. The usual purpose for which assistance was given was the carrying on of relief works for the alleviation of distress ; but, in some instances, loans were also granted for the promotion of important public works, such as land drainage, river embankments, &c., the execution of which, though of acknowledged necessity, did not fall within the scope of Grovernment operations. It is unnecessary to go further into the history of these State loans, as we went over the same ground in connection with the subject of Local Loans Stock ; but I may mention that the practice of borrowing from G-overnment though now chiefly confined to small communities who require sums too trivial to be worth asking for in the open market still exists, and has been extended to numerous objects. For upwards of half-a-century the growth of the debt was a matter of insignificance, and it is only when we come to the present reign, and to the new era of reformed corporations, inaugurated by the Municipal Reform Act of 1835, that it begins to assume importance. Up to that time the privilege of incorporation had been either granted to serve political ends or acquired by purchase, and as it so happened that the governing councils nominated by most of the early charters were given the right to appoint their own successors, there had gradually grown up in our great towns exclusive and independent corporations, which had succeeded in monopolizing privileges belonging to the borough as a whole, and had in many cases even assumed to themselves the sole right of returning members to Parliament. Owing to the notorious jobbery and corruption to which this system gave rise, the inhabitants of incorporated towns had long manifested a general and just dissatisfaction with their municipal institu- tions, and one of the first duties of the reformed Parliament of 1832, was the appointment of a Commission to enquire into the constitution and privileges of civic corporations. The 73 Commissioners discovered disgraceful abuses, and reported that "the existing municipal corporations of England and Wales " neither possess nor deserve public confidence or respect, and "that a thorough reform must be effected before they can " become, what they ought to be, useful and efficient instruments " of local government." The outcome of their recommenda- tions was the great charter of English municipal liberties, the Municipal Corporations Act of 1835, which enlarged the basis of local representation, put an end to the abuses exposed by the Commissioners, and provided a uniform constitution for all boroughs to which it applied. It also provided for the creation by charter of new municipalities. If the inhabitants of an unincorporated town deem themselves worthy of the dignity of a mayor and corporation, they may petition for a charter, which on their convincing the Privy Council of their fitness to be entrusted with the privilege, will be granted them, unless good cause appears for withholding it. What we call a town, it may be well to explain, has no legal existence as such, and its name is no more than a geographical expression, identifying a certain collection of houses larger than a village. The law may recognize a parish, or a sanitary district of that name, but knows not the town until it is incorporated, and has been scheduled as one of the boroughs to which the Act applies. Its government thereafter rests in the hands of a local repre- sentative body, the Town Council, and, as a municipal corporation, it becomes endowed with a perpetual succession that is to say, however the members may fluctuate, the corporate body never ceases to exist and with the power of holding lands in mortmain. The Act of 1835 was amended by numerous subsequent enactments, and was eventually superseded by "The Municipal Corporations Act, 1882", which consolidated the whole of the law on the subject. The success that attended the first great experiment in local self-government, as manifested in the growth of a municipal administration far more vigorous and intelligent than had been possible during the era of close corporations, speedily led to a great extension in the powers conferred upon towns of managing their own affairs ; and the legislation of the last fifty years has cast upon local authorities a constant succession of new duties and new responsibilities. In the attempt to cope with the multiform and ever-increasing wants of society, their labours have grown with the growth of 74 their capacity ; and were it but generally realized how greatly the internal welfare of the community, its health, and its safety, its pleasures and its comforts, depends on the wisdom and foresight displayed by our local administrators, the subject of local administration would surely meet with the attention it deserves. To them is confided the relief of the distressed poor, the maintenance of elementary schools, the control of the police, and the management of numerous endowments. They provide baths and wash-houses for the poor, hospitals for the sick, workhouses for the destitute, asylums for the lunatic, and graves for all. Under one group of Acts, they cleanse, drain, repair and light our streets. Another bids them erect healthy dwellings for the poor, and keep an eye on common lodging-houses. We look to them to regulate the traffic, to give us libraries and public parks, and even to see that the so-called comic song of the music-hall pays due regard to the conventionalities of public decorum. They register our coming into the world, and, if necessary, vaccinate and educate us; they record our departure from it, and, if need be, bury us. Of all their functions, the most important, however, is the care of the public health. The present reign witnessed the first serious attempts that have ever been made to solve the hygienic problems that spring from the crowding together in great towns of dense masses of human beings, and systematic sanitary legislation may be said to begin with the Public Health Act of 1848. Water supply, food analysis, the main- tenance of sewers and drains, measures to arrest the spread of infection, the inspection and prevention of nuisances, and such like, have been the chief subjects of this legislation, which has necessarily applied more to towns than to the country. The dweller in rural districts still sinks his own well and digs his own cesspool, but in towns the householder is absolutely dependent on the cistern and the dust-cart. Another Public Health Act came into force in 1875. It effected little actual change, however, in the existing sanitary law, but, by codifying the large number of statutes relating to it, rendered it simpler and more intelligible. The long catalogue of offices under- taken by local authorities is even yet not exhausted. Provincial municipalities have shown an increasing disposition, for many years past, to supplant private enterprise by joint action in the supply of such public conveniences or necessities as are of the nature of monopolies, and by including the sale of gas and 75 water, and of cemetery lots, within the sphere of their activity, have been able to apply a considerable margin of profit towards the relief of local rates. Latterly, too, they have been turning their attention to electric lighting, and to the acquisition of tramways, while one great corporation that of Manchester has been investing money in a ship canal, and talks now of establishing a municipal theatre. It is not to be supposed, of course, that duties so numerous and so varied can all be performed by one class of authority. Nor is such the case. In addition to County Councils, District Councils and Parish Councils, to Boards of Guardians and Boards of Health, we find Local Boards, School Boards, Highway Boards, Burial Boards, Harbour Boards, Vestries, Commissioners, and a dozen others. But if the ratepayer attempts to discover which is which of these bodies, to trace out their relations to each other, to distinguish between their functions, to map out their administrative areas, and, in short, to find out for himself how, and by whom, he is rated and governed, the complexity of the subject will strike terror to his soul. It would almost appear that, whenever it has become necessary to legislate for a new social want, Parliament has made provision for it, quite regardless of existing machinery and existing areas. We have parishes and unions; we have urban and rural sanitary districts; we have school board areas, highway districts, and what not; almost all independent of each other, and, as often as not, interlacing and overlapping. "For almost every new " administrative function the Legislature has provided a new " area containing a new constituency, who, by a new method of " election, choose candidates who satisfy a new qualification, to " sit upon a new board, during a new term, to levy a new rate, " and to spend a good deal of the new revenues in paying new " officers, and erecting new buildings. Thus there has been " created, not a system, but a chaos ; a chaos of areas, a chaos of " elections, a chaos of authorities, a chaos of rates, a chaos of " returns." The consequence is, that not one householder in a thousand understands the construction and working of the machinery of local government; in fact, the great majority of us scarcely know even as much as the names of the motley crowd of public authorities by whom the local business of the district is carried on, and by whom our money is spent. The system defies criticism, simply because so few of us can spare the time and trouble to find out what it is and what it does. 76 All we know for certain is, that the rates grow heavier year by year, and that they must be paid; and we pay and grumble. To all who have paid the least attention to matters of finance, it is perfectly well known that the cost of public works of any magnitude is rarely, if ever, defrayed out of current revenue. In the first place, it is obvious that, if a work is of permanent utility, it would be most unfair to make those who happen to be residing in the district at the time of its construction pay for that which will last long after they may have removed or died. Then, again, when it has been once decided that certain work must be done a main sewer constructed, or a town hall built it is best that the work should proceed quickly, and without interruption. It would be quite possible, of course, to build gradually, spending as much each year as the ordinary revenue allowed, and then suspending operations until additional funds accumulated; but, in most cases, the certain consequence of delay would be damage to the work already done, and it is the common experience in such matters that waste of time is waste of money. Generally speaking, therefore, it is essential, before beginning any important undertaking, that there should be sufficient money at command to ensure its completion, and the principle is, nowadays, firmly established of borrowing the requisite capital, and of spreading the repayment of principal and interest over a term of years. Now, a corporation or other local authority cannot, any more than an individual, borrow a large sum of money without giving security for its repayment; and it cannot give security that is to say, it cannot legally pledge the rates without express statutory authority. Being a creation of the law, it is possessed only of such rights and privileges as the law bestows upon it. Until 1848, however, the facilities which are now so common for deferring to a future day the greater part of the payment for local improvements had only been granted by Parliament in some exceptional cases, where special application had been made; and, as a consequence, our towns had shown themselves extremely unwilling to lay out money on such unremunerative objects as drainage, sewerage, and paving, because the ratepayers objected to being saddled with the whole of the cost. As this neglect of sanitary measures was costing the country thousands of lives each year, and undermining the health of the whole urban population, it became necessary to 77 overcome their reluctance by removing its cause, and in the Public Health Act of that year, which enforced a heavy expenditure, Parliament not only authorized all local authorities administering the statute to levy a new rate for improvements, but also empowered them to raise capital by mortgaging the said rate, and to pay back by instalments. The snow-ball of local debt was thus fairly set rolling; and before many years had passed, its growth was fostered and encouraged by a variety of subsequent acts, which aimed at improving the social condition and general health of the people, and which invariably conferred fresh powers of borrowing. At the outset, and for a long time afterwards, almost all these loans were obtained from the State, through the medium of the Public Works Loan Commissioners, but the great inconvenience which this system occasioned to the Treasury, from the fact of frequently having to honour large drafts when funds were low and money dear, led the Government, in 1875, to introduce a Local Loans Act, with a view to encourage local authorities to go to the open market for what they wanted. To some extent they had already done so, having borrowed considerable sums by private arrangement, from solicitors and insurance companies, &c., as they still do, but the security which they were able to offer that of a mortgage deed, charging a specified rate besides being inconvenient and expensive, was not readily negotiable, and appealed only to a special and limited class of investor. Thinking that facilities for issuing a a more marketable form of security might induce the municipalities to try their luck in the money market, instead of coming with a petition to Downing Street, the Government gave them liberty, by means of the Local Loans Act, to create debentures, debenture stock, or annuity certificates; and, in order to tempt the appetite of the ordinary investor, made provision for the official sanction of their loans by the Local Government Board, such sanction to be conclusive evidence that the borrower had power to issue the security, and that the same was in conformity with the Act, thus rendering it indisputable. Though the Act was a distinct step in advance, inasmuch as it clearly recognized the principle that the form given to an acknowledgment of debt is an important element in the success of its issue, yet it met with very little favour, and is practically a dead letter. The mistake made was that of requiring that the debenture, or debenture stock, should be a F 2 78 specific charge on a particular local rate or property, a condition, the result of which would be to split up the debt of a town into a number of small divisions one issue of stock being secured, let us say, on the district rate, and another on the poor rate; one batch of debentures charged on the markets, another on the gas works, another on the town hall, and so forth. But as the marketability of a security depends on its quantity as well as on its quality, that is to say, on the fact of its existing in sufficient bulk to render buying or selling easy within narrow limits, the effect of sub-division is to detract from its value; and this objection proved fatal. Besides which, the corporations had other ideas. The phenomenal success of a daring experiment attempted a year or two previously by the Metropolitan Board of Works, had set them thinking of a new departure in their system of finance. Formerly, the Board of Works had raised money, like other borrowers, by the cumbrous method of mortgaging the rates; but, having exhausted its credit in that direction, it had obtained permission in 1869 to make a direct appeal to capitalists by the issue of a Consolidated Three-and-a-Half per-cent Stock, the service of which was made a first charge on the whole of its property and revenues. The advantage of this plan was that, in lieu of renewable mortgages at various rates of interest, differing in priority and charged upon different securities, the entire debt became merged into one homo- geneous class of obligation, which was simple, uniform, and intelligible in all its conditions, and which was secured on the whole body of the assets without distinction. Though a stock based upon rates, instead of on taxes, was a distinct novelty to investors, it had grown greatly in favour since its attributes came to be better understood so much so, indeed, that an issue of 2,600,000 offered in 1874 at 94J had been subscribed for eight times over, and, before the Local Loans Bill became law, the stock had risen to 102. It needed little insight on the part of the local authorities to discover that the true solution of the problem "how to borrow cheaply, quickly, and conveniently", had now been found, and, turning their backs on the facilities placed at their disposal by the Local Loans Act, they were soon busily at work drafting private Bills, which should bestow also upon them the coveted right and privilege of issuing the new-fashioned Corporation Stock. The borrowing powers of corporations are derived either 79 from the general law, or from private Bills. Under the former they may borrow with the sanction of a Government Depart- ment, in virtue of the authority conferred by the Public Health Acts, the Elementary Education Act, the Artisans' Dwellings Act, and numerous others, for the purposes authorized by the respective statutes ; but, under the latter, they may borrow for any purpose that Parliament can be induced to approve of. Under the former, again, they may borrow either from the State or from the public ; under the latter, from the public only. When borrowing from the public under the general law they had formerly to choose between issuing a mortgage-deed, or adopting one of the methods authorized by the Local Loans Act ; but in private Bills they almost invariably asked for authority to issue Corporation Stock. Until quite recently the power to create Stock, other than Debenture Stock, could only be obtained by a special Act, and, as the expense of promoting a private Bill is very considerable, the smaller corporations were practically debarred from issuing it. In 1890, however, an Act was passed "The Public Health Acts Amendment Act" which authorizes its creation by all urban sanitary authori- ties. The enabling clause, s. 52, is as follows : " Where any " authority, whether a municipal corporation, local board, or " improvement commissioners, which is an urban authority, have " for the time being, either in their capacity as urban authority, " or in any other capacity, any power to borrow money, they " may, with the consent of the Local Government Board, exercise " such power by the creation of stock, to be created, issued, " transferred, dealt with, and redeemed in such manner, and in " accordance with such regulations as the Local Government " Board may from time to time prescribe." This Act has been very freely taken advantage of, and, since 1890, many small towns have been able to borrow by issuing stock at 3 per-cent, while if they had applied to the Public Works Loan Com- missioners they would probably have had to pay 3J per-cent for the money. Such control as is exercised over the borrow- ing powers of Corporations rests almost entirely in the hands of the Local Government Board. This Board, the duties of which extend far and wide, and which is the mainspring of the sanitary organization of the country, was established in 1871, with the object of concentrating in one department of the Government the supervision, which till then had been shared between the Home Secretary, the Privy Council, and 80 the Board of Trade, of the laws relating to the public health, to the relief of the poor, and to local government. No loan can be raised by a sanitary authority under the general law without its express sanction, which is only given after enquiry to show that the money is required for a proper purpose, that the works proposed are sufficient for their object, and will, without doubt, last good for at least as long a time as that limited for the repayment of the loan, and that the estimates, of which full details must be supplied, are fair and reasonable. This enquiry is held in the district concerned by one of the Local Board inspectors, and public notice is given of it, in order that the ratepayers and other persons interested may have the opportunity of expressing any objection they may entertain to the scheme. If land should be required for the proposed works, the purchase of which is hindered by the caprice of its owners, the Board may also grant a Provisional Order for its compulsory acquisition; but the Order only becomes operative after its confirmation by Parliament. In the case of private Acts that comprise borrowing powers, a copy of the Bill must be lodged with the Board, which reports upon it to the Select Committee of the House appointed to hear the evidence on the subject. Its recommendations always have great weight, even if they are not invariably adopted. Borrowers under private Acts are also required to furnish the Board with annual returns showing the exact position of their loan accounts. It is hardly necessary to say that local Acts never confer unlimited borrowing powers. The corporation must specify the amount it requires and prove its estimates before the committee. As already mentioned, it is an axiom with the Local Government Board that the time allowed for the repayment of a loan should be regulated by the probable duration of the work to be constructed, so that the burden of the expenditure may be borne by the generation that chiefly benefits by it; but, with regard to private Bills, Parliament appears, for many years, to have observed no fixed principle in its practice, and cases were not uncommon in which local authorities were allowed as much as a full century in which to pay back the money borrowed for gas and water works. There can be little doubt, in fact, that the expectation of obtaining a longer term for the repayment of their loans under private Bills than would have been permitted them under the general law, operated as a strong inducement to some of the local 81 authorities to include in their local Acts powers of borrowing for the execution of works which ought, in strictness, to have been carried out under public Acts, and that the laxity displayed by Parliament in this respect led to much money being spent on objects which might very well have waited a few years longer. It will hardly be disputed that the ease with which the Governments of civilized and semi-civilized States have been able during the past thirty or forty years to contract permanent, or quasi-permanent, debt, and to bequeath to posterity the fetters forged by their folly, or their misfortune, has been a fatal facility, and in too many instances has proved to be an abiding curse. There is all the more reason, therefore, why, with this experience before us, our local authorities should be restrained from drawing at too long a date on the ratepayer of the future. That unfortunate individual will have quite enough to do to provide for his own wants and require- ments, without having to repay money in the expenditure of which he had no voice, and which, for any benefit that he may derive from it, need very likely never have been spent at all. Besides, the very fact of being able to incur debts for others to settle opens the door to extravagance and jobbery. With borrowing rendered so easy that it is but to ask and have, and repayment so easy that the money will scarcely be missed, it is hardly to be wondered at that local authorities should shrink from the hard and thankless task of opposing expenditure on betterments and embellishments which, whether justifiable or not, are always popular and plausible. That " Borrowing dulls the edge of husbandry" is as true now as in the days of Polonius. Then, again, to have the handling and disposal of these enormous sums means the wielding of great power and influence, and, in more ways than one, must be a very agree- able thing ; so that it would be irrational to suppose that Town Councils will ever be found over-jealous in their advocacy of a wise and prudent economy. One hundred years is, in fact, much too long a time to keep open any municipal liability, and, for all practical purposes, is little better than no term of repayment at all. Even in the case of water works, which are perhaps the most durable of the purposes for which long loans have been granted, it is doubtful whether they can be con- structed to last for a century without extensive and costly repairs ; while as to gas works it is obvious, in view of the growing competition of the electric light, that the cost ought 82 to be written off at a far more rapid rate. In 1882, the atten- tion of Parliament was directed to the urgent need of checking this great evil, and the House of Commons determined, by a new Standing Order (No. 173a), that the extreme limit for the repayment of loans to be henceforth authorized by local Acts should be sixty years. For the future, therefore, fresh borrow- ing powers for a longer period than sixty years can only be given by the suspension of the Standing Order, which ran as follows : " In the case of any Bill promoted by " or conferring powers on a Municipal Corporation or Local " Board, Improvement Commissioners, or other local authority, " the Committee on the Bill are to consider the clauses of the " Bill with reference to the following matters : (a) Whether " the Bill gives powers relating to police or sanitary regulations " in conflict with, deviation from, or excess of the provisions or "powers of the general law. (\)) Whether the Bill gives " powers which may be obtained by means of bye-laws made " subject to the restrictions of general Acts already existing. " (c) Whether the Bill assigns a period for repayment of any " loans under the Bill exceeding the term of sixty years, which "term the Committee are not in any case to allow to be "exceeded, or any period disproportionate to the duration of "the works to be executed, or other objects of the loan. " (d) Whether the Bill gives borrowing powers for purposes "for which such powers already exist, or may be obtained "under general Acts without subjecting the exercise of the " powers under the Bill to approval from time to time by the "proper Government Department. The Committee are to "report specially to the House in what manner any clauses " relating to the "several matters aforesaid have been dealt with "by them; and whether any Report from any Government "Department relative to the Bill has been referred to the " Committee ; and, if so, in what manner the recommendations " in that Report have been dealt with by the Committee, and "any other circumstances of which, in the opinion of the " Committee, it is desirable that the House should be informed ; "and the Report of the Committee is to be printed and " circulated with the Votes." Sixty years, it may be mentioned, is the period fixed by the Metropolitan Board of Works Loan Acts, as well as for loans under the Public Health Act. The term cannot be regarded as a hardship by corporations, seeing that it only entails an annual sinking fund of f per-cent (invested at 3 per-cent) to pay off the debt. 83 Notwithstanding the fact that the considerations advanced by those who oppose the creation of long-term local debts have gained acceptance to the extent of influencing legislation, it would be a mistake to infer that nothing remains to be said 011 the other side of the question. It has been maintained, for instance, that, though it may be right to insist on the early repayment of debts created for local improvements or other unremunerative purposes, the reasoning that leads to this conclusion does not apply with equal force to loans raised for the acquisition of water works, tramways, &c., which stand on an entirely different footing. Outlay of this description being essentially an investment of municipal capital in co-operative business enterprise, it is held that the treatment of the capital account ought to be governed by the usual commercial principles that would obtain in the case of a well-managed joint-stock concern of similar nature. The capital of an ordinary water or tramway company is represented by the plant in which it has been invested, and, so long as the original good order and condition are strictly kept up out of revenue, it is not expected that the cost of the property should be systematically redeemed, though it is, of course, wise to set up a reserve fund as provision against contingencies. Without going so far as to assert that a corporation should be allowed to issue perpetual stock against its investments in trading undertakings, it has been submitted that these grounds justify much longer terms of repayment than are now usually granted. That is not the only argument, however. At the present time another and far more serious contention is being urged, which threatens to become one of the burning questions of the day. It is contended, namely, that the incidence of local taxation is grossly unfair, and that, until it has been re-adjusted 011 a proper basis, the ratepayer ought not to be burdened with heavier repayments than are absolutely necessary. By local taxation is meant the charges levied on denned localities for supposed local purposes. Its principle is that the cost of such matters as concern only the dwellers in a particular neighbour- hood, and not the nation at large, ought to be borne by the district affected ; and the grievances to which it has given rise are that personalty does not bear its share, that the division of rates between occupier and owner is unequal, and that ground rents almost escape. It originates with the poor rate imposed on occupiers in the reign of Queen Elizabeth, at which time, and for long afterwards, the number of occupying owners was very large. The property of these occupying owners was the natural and obvious quarry of local levies ; but owing to the comparative rarity of the tenant farmer class, the question of a division of the rate between owner, as such, and occupier, as such, was not raised, or if raised was disregarded. At first, relief of destitution was almost the only purpose for which a charge was made on occupancy ; but in course of time other imposts came to be levied on the same assessment, and still continued to be exacted from occupiers, though these, in the great majority of cases, had ceased to be owners, and were now tenants. How anomalous the incidence of local taxes has become strikes one forcibly on contrasting it with that of the national taxes. In both cases the true principle is that all classes should contribute in proportion to their means. To this end the Chancellor of the Exchequer spreads his net as widely as possible, and always makes at least the pretence of distributing his attentions equally over the community, taxing both directly and indirectly, and taking tribute as well from real as from personal property. But the whole burden of rates falls on a particular class. Personal property has nothing to fear from them ; but the moment capital is invested in landed property it falls a victim, and, though there is no doubt that a large part of the local outgoings directly affects and benefits houses and land, it cannot be claimed that any gain is derived from the expenditure on such matters as poor relief or elementary education. Hence, owners of real property complain of the injustice to which they are subject, and call for contributions from personalty. Then there is also the great wrong that, when owner and occupier are different persons, the occupier, and not the owner, is taxed. Thus, if money is borrowed for, let us say, necessary sewage works, the whole cost of paying the interest and extinguishing the principal is thrown upon householders, who are thereby compelled to improve the estate of the ground landlord at their own expense. The theory is, of course, that the tax ultimately falls upon the owner, because, if it were not imposed, he would be able to charge a higher rent for his house. This may be doubted; but if it be true that the owner pays all the rates in the end, it is a pity he cannot see his way to pay them in the beginning, and thus end the dispute. Certain it is that the discontent resulting from the belief of occupiers that they are made to 85 pay for the improvement of other people's property is growing every day, and that local bodies now hardly dare undertake many useful works, because they dread the indignation that will be aroused by an increase of the rates. The favour with which investors were from the first inclined to look upon corporation stocks, and of which the absorption within the last twenty years of upwards of 100,000,000 is substantial proof, was confirmed and increased by their inclusion in the list of stocks authorized by the Trust Funds Act of 1889; for, as it was known that the select committee, to whom the Bill was referred, had made searching enquiry into the soundness of local loans, and had satisfied itself that the security they offered was practically unexceptionable, any little doubt that the public may have felt on that score was entirely removed. Unless expressly forbidden by the instrument creating the trust, a trustee may now lawfully invest " (m) In nominal or inscribed stock issued, " or to be issued, by the corporation of any municipal borough, " having, according to the returns of the last census prior to " the date of investment, a population exceeding fifty thousand, " or by any county council, under the authority of any Act of "Parliament or Provisional Order;" and the permission has been widely taken advantage of. The clause calls for the remark that, as the stability of a corporation stock does not depend on counting heads, it is not very obvious why a taboo should have been placed on the loans issued by incorporated towns of less than fifty thousand inhabitants, unless on the principle that a line had to be drawn somewhere. Perhaps the most curious result of that exception is the fact that the stock issued last year by the Corporation of the City of London is not a trust stock, simply because the population of the City does not attain the requisite minimum. The security offered by a corporation stock is that of a charge on the rates, which the corporation has power to levy, and 011 the whole of the revenue arising from its lands, markets, gas works, &c., and all other property for the time being. In case of default, provision is made for the appointment by the Court of Chancery of a receiver, but it need hardly be said that no occasion to exert the power has yet arisen. The assets of the corporations are doubtless of enormous value (the City of Manchester, for instance, appraises its corporate property at upwards of 14,000,000), but the ultimate and real security 86 for the debt is the rateable value of property, and rates form the mainstay of local finance. The total Poor Eate Valuation of England and Wales is upwards of 160,000,000 and, if we assume that property is on the average worth from sixteen to twenty years' purchase of the assessment, it is obvious that the repayment of the debt of 235,000,000 is assured beyond all reasonable doubt. It must also be borne in mind, that, as rates are not limited in amount, a town must become absolutely bankrupt before the security fails. Good as rates may be, however, they are not equal to taxes as a debt security. Only death or emigration to a desert island will relieve the taxpayer of his burden; but the ratepayer can always shake off part of his load by removing to a less heavily rated district. The weak point about rates is, therefore, that if their pressure becomes too severe they inevitably tend to drive trade outside the municipal boundary, thus reducing both the rateable value and the local revenue. As high rates may thus prove to be the forerunners of local decay, their relative amount is a most important element in the prosperity of a borough, and is a point that should always be taken into consideration by the investor in corporation stocks. Another test of comparative value is the ratio which the unproductive portion of the debt that part which represents money spent and not money invested bears to the rateable value. To institute a comparison between the rateable value and the entire debt is of every little use, because a borough which has borrowed up to four or five times the amount of its assessment, may possess such lucrative assets as to be in a sounder position than another, the debt of which, though less than its rateable value, may be represented solely by unremunerative expenditure. Money spent in pulling down slums, building board schools, and laying out recreation grounds is money that has been well spent, and which in due season will return an ample yield in the shape of an increase in the health, happiness and intelligence of the people ; but from the investor's point of view a mortgage on health and happiness presents an unsubstantial aspect, and he is apt to remember that the entire charge of a debt incurred for such purposes falls solely on the rates. As yet the process of discrimination between the stocks of different corporations can hardly be said to have begun. All are still regarded as about equally good, just as Colonial Stocks used to be not many years ago. But there are signs that it may not be long 87 deferred, and when that time does come when the investor does at last begin to pick and choose those towns which have borrowed most largely for unproductive purposes (and especially such among them as may be dependent on the prosperity of one particular industry), are likely to receive a rude reminder that they have long been treading on dangerous ground. THE LONDON DAILY STOCK AND SHARE LIST. SIXTH LECTURE. [Delivered 7 March 1891.] our last meeting I was endeavouring to impress upon your minds the magnitude of the proportions attained by our Local Debt, which, though contracted by urban and rural authorities, solely for what are supposed to be local purposes, constitutes just as much a charge upon the national prosperity as do the Imperial obligations. Two hundred and thirty-five millions would be a large sum to owe, even if we had no National Debt. It means that every child born in England and Wales begins life 7. 16*. 7d. behindhand. It is as large as the Public Debt of India, or as that of all the Australasian Colonies combined, and even exceeds the total of the Public Debts of Germany, Holland, Sweden, Norway and Denmark, all added together. And yet, serious as is the fact of our handicapping the rising generation with so large an additional liability, its rapid growth appears to give rise to very little uneasiness, and notwithstanding the persistent efforts of a few statisticians to direct public attention to it, is regarded with all but complete apathy, being neither followed nor understood. While Imperial finance and taxation seem to be everybody's business, local finance and taxation are nobody's. Let twopence be added to the Income Tax, and we are ready to wreck the Government; let it be added to the rates, and we submit with resignation, because conscious of our abject 89 ignorance and helplessness. Now, large figures such as these cannot be made to yield their true meaning without a certain amount of manipulation. Simply to know that so great a sum has been spent is not enough ; we must know how and why it has been spent. We ought also to know which of the purposes are remunerative, and which not, and, with regard to the capital expenditure for non-productive purposes, must ask to what extent it was justifiable. In the Local Taxation Returns for the financial year 1894-95, the outstanding debt in respect of reproductive outlay, so far as it is practicable to identify it, is stated to be as follows : Waterworks ... 43,970,490 Gas Works 16,931,943 Markets ... 5,771,076 Cemeteries and Burial Grounds . . . 2,718,133 Tramways ... 1,466,610 Harbours, Piers, Docks, and Quays . . . 32,777,992 Electric Lighting and Supply ... 1,378,818 Total 105,015,062 These amounts, it is necessary to observe, do not represent the present values of the water works, and gas works, &c., nor yet the original cost, but are merely the balances remaining open under the various heads. In other words, this is simply an analysis and apportionment of the undischarged debt, and does not purport to be the credit side of a balance sheet. A complete statement of the liabilities and assets of all the local authorities would be of inestimable value, if it were possible to procure it. There exists no such thing, however, and from the nature of the case, it does not seem feasible to draw one up. Some of the corporations have, it is true, published a valuation of their possessions, for the information of those who are able to put faith in such estimates ; but the great mass of the local bodies make no attempt to issue a balance sheet, and confine their book-keeping to accounts of income and expenditure. So far, however, as these profit-earning assets are concerned, it is quite certain that their actual value enormously exceeds the proportion of the debt by which they are here represented, and some writers have even affirmed that, if such a thing can be 90 imagined as the demunicipalization of the municipal trading undertakings, they would be valued for sale to companies at prices fully equal, in the aggregate, to the entire outstanding total of local indebtedness for all purposes. The first and most unexceptionable items in the table are the debts that have been incurred, with general approval, for the purchase or construction of water works and gas works. That water should be cheap, pure, and plentiful is, for sanitary reasons, of the utmost importance; and those local authorities who have taken the supply into their own hands, instead of leaving the consumer at the mercy of a commercial company, have acted with true wisdom. Gas, also, being almost a necessity, as well as an article in the supply of which competition is inadmissible, may legitimately be included in the scope of municipal socialism. The mode of acquiring such undertakings may be described as an application of the joint stock principle. The townspeople go into partnership, so to say, and the town council, as it has no power to issue shares, provides the necessary capital by borrowing. If the management is honest and efficient, there is no reason whatever why debt so incurred should entail any present or prospective expense on the ratepayer, and, as a matter of fact, most of the corporations can afford, after providing for interest, sinking fund, and working expenses, to apply a substantial sum out of the annual revenue iu relief of the general rates. To the consumer, the only difference the transfer makes is that his water or gas bill is payable to the town council instead of to a company. Whether corporations have the right to make profit out of their gas and water supply, without specific powers to do so, is a question that has never been tested, but which is considered doubtful. On economic grounds such profits are open to attack, because, firstly, the consumer is taxed, not according to his means, but according to the extent of his consumption; and secondly, because they constitute a tax on production, in the cost of which gas and water are usually important elements. It may be added that the profit derived from water is much less than that from gas, and that, in many instances, the accounts even show a loss, the service charge having been cut down below cost. As regards the remaining items, markets, cemeteries, and tramways are all concerns that are self-supporting, or that can be made so under proper management; while as to harbours and docks, &c., the majority of the loans are not charged on the rates at 91 all. Of capital expenditure that brings in no revenue, we have in the first place the building debt, consisting of : Schools 22,970,555 Poor Law purposes (Workhouses, Infirmaries, &c.) 7,773,504 Public Buildings, Offices, &c 4,958,954 Lunatic Asylums 4,262,968 Police Stations, Gaols, &c 1,254,469 Baths and Wash-houses 1 ,469,628 Hospitals 1,141,654 Fire Brigade Stations 693,736 Libraries and Museums ... ... 771,138 Slaughter Houses ... ... ... 154,445 Total 45,451,051 This class of outlay cannot, of course, be called productive; but if the necessity or the utility of the objects for which these various descriptions of buildings have been erected is once admitted and it would be difficult to take exception to any one of them it is impossible to blame the local authorities for having become their own landlords by capitalizing what they would otherwise have had to pay as rent. Then many millions have been spent on other unproductive purposes, such as these : Highways, Street Improvements, and Turnpike Roads ... 30,143,979 Sewerage and Sewage .Disposal Works 23,734,738 Bridges and Ferries 4,351,500 Parks, Pleasure Grounds, Commons, and Open Spaces 5,051,092 Artizans' and Labourers' Dwellings Improvements ... ... ... 4,351,532 Land Drainage and Embankment, River Conservancy, and Sea Defences . . . 3,014,270 Total 70,647,111 It is hardly correct, perhaps, to say that the whole of this outlay yields no return. In the case of street improvements, for instance, there is usually the direct advantage of surplus 92 lands, which can be either let or sold, and the indirect advantage of an increase in the rateable value of the property benefited. For the use of bridges and ferries, too, tolls are sometimes charged, and artizans' dwellings are certainly not let rent free. But, with these trifling exceptions, the whole of the expenditure is, in a pecuniary sense, unremunerative, and is represented by assets, most of which are unrealizable and possess no money value. Nevertheless, it cannot be stigmatized as waste. To spend great sums on great objects is often the truest and best economy. The construction of sewers and drains, the widening of streets, the clearance of slums, may be works that produce no income, yet their results, in prolonging human life and in rendering it better worth living, entitle them to our most generous appreciation, and the public gain in health and happiness is, let us hope, an ample set-off against the pressure of the additional rates. At the same time, we must not forget that however beneficial such improvements may be, they are based upon debt, and that borrowing with too great rapidity and on too large a scale can never be judicious, whatever the object be. Sanitary science, too, is progressive. What is held to be right to-day may be proved to be wrong to-morrow. Millions have been spent in collecting the filth of towns, and pouring it into our beautiful rivers, to defile and poison them; millions more may some day have to be spent in getting it out again. On every side, in fact, there are indications that money will have to be borrowed in the future to undo work for the doing of which money is still owing that was borrowed in the past. Hence, expenditure of this class cannot be undertaken too carefully ; but there is reason to fear that local authorities have not always gone very cautiously to work in the past, and that they have been apt to embark on ambitious, though well-meant, schemes of improvement without fully counting the cost. If it be asked what the prospects are as to the future growth and eventual proportions of the debt, I think the answer must be that the productive portion seems likely to exhibit a large further increase, but that the unproductive part, from which we have most to fear, has almost attained its maximum. Without borrowing, the local authorities could not have accomplished a tithe of what they have already done for the community ; and without still further borrowing they will be unable to discharge 93 the new duties which come with growth of population and with fuller knowledge of the laws of health. But, in most large towns, the heaviest works of this nature the great main sewers and the network of subsidiary drains have now been completed, and the amount annually repaid under the operation of the sinking funds ought soon to become greater than the fresh debt. The same is true of the outlay on education : the capital expenditure was greatest in the earlier years, and is now fast diminishing. The productive debt will, as I said, probably go on increasing. There appears every reason to believe that municipalities will not rest satisfied until they have given effect to the principle that no person or persons, except the corporation, shall have any right to interfere with public thoroughfares. Carried to its logical conclusion, this theory implies that all undertakings which meddle with, or claim a partial monopoly of, the streets such as tramway companies, and all those for the supply of gas, water, hydraulic power, electric light, &c. will eventually come to be taken over by the local authorities. The aspiration is, perhaps, a laudable one; but its realization, if ever it should come to pass, will mean the addition to local indebtedness of untold millions. The parent of the prolific family of Corporation Stocks, and the only one of sufficient importance to call for special notice, is the well-known Metropolitan Consolidated Stock, created nearly thirty years ago by the late Board of Works. The Metropolitan Board of Works was originally called into existence by Parliament to cope with the pressing problem of London's drainage, as well as for the prosecution of such other undertakings as the changing circumstances of the metropolis might render necessary. In order to provide a sufficient revenue for this purpose, power was given to levy a rate on the whole of the rateable property within the metropolitan area, as defined by the Metropolis Local Management Act of 1855, but, as might have been expected, it was soon discovered, after getting to work, that heavy capital expenditure could not possibly be met out of current income, and that recourse would have to be had to borrowing. Under these circumstances it was natural, seeing that all the operations of the Board were carried on in obedience to the mandate of Parliament, that the Government should feel itself called upon to assist ; and this it was decided to do by lending G 2 94 the credit of the State, to which end the Treasury was authorized to guarantee the repayment of any loans that the Board might find it necessary to contract. Aided by this guarantee, no difficulty was for some years experienced in raising all that was wanted at reasonable rates ; but, owing to the fact that the security offered was a bond of entirely unmarketable character, the only lenders, practically speaking, were the Bank of England and the National Debt Com- missioners, and, as time passed, it became clear that, sooner or later, other arrangements would have to be made, as these two bodies could not go on lending indefinitely. After a while, too, the G-overmnent grew anxious to get rid of its guarantee, as it now perceived that in extending the credit of the State to the metropolis, it had set a bad example to other towns in the kingdom, who might also be soon asking it to act as godfather to their debts. There was no great risk connected with the guarantee, but it formed a bad precedent. By 1869, the Board had run up a debt of eight millions, and, having undertaken works which would require an expenditure of two millions more, it was felt that the time had come to place its finances on a more permanent footing, in order that it might obtain funds with a facility commensurate with the security at its disposal. Accordingly, a Bill was brought in providing for the conversion, with the consent of holders, of all the existing loans into one uniform consolidated stock, the leading feature of which was that it would possess almost every attribute of the public funds, except that, instead of being charged 011 the Consolidated Fund of the nation, it would be charged on the Consolidated Fund of the metropolis. It also provided that all future loans should be raised in the same way. No actual guarantee was given, but, as the borrowing powers of the Board were placed under the stringent supervision of the Treasury, without whose express sanction no fresh loan could be raised, it might be held that there existed a moral guarantee. The stock was not to be perpetual; in the interests of the future ratepayer it was deemed expedient that the capital should ultimately be extinguished, and it was therefore directed that a sufficient annual instalment should be set aside to redeem all the stock in sixty years from the date of its creation, such sinking fund to be likewise under the control of the Treasury. At the suggestion of the Board, the Bill, as originally presented, 95 gave authority to trustees to invest in the stock, unless expressly prohibited from doing so, but Parliament thought it better to first see how the new security would be received, and therefore struck the clause out. Two years afterwards, however Metropolitans being then an established success the clause was re-introduced in a supplementary measure, and was duly passed. To strengthen the parallel with Consols, an Act of 1870 enabled the Board to compound for the stamp duty on transfers, so that since that date the stock has changed hands free of charge. The security consisted of a first charge 011 all the property possessed by the Board, and 011 the whole of its revenue from every source. This increases as fast as buildings increase ; and as the metropolis of a nation must stand or fall with the nation, its credit is practically the same, provided, of course, that the ratio of metropolitan debt to rateable value is not greater than that of the national debt to the national resources. In any case, it should rank higher than that of any provincial city, though, 011 the other hand, it must be borne in mind that the metropolitan debt has all been contracted for unremunerative undertakings, while the loans raised by provincial corporations have been partly, and in some instances largely, for productive purposes. The first ten issues of the stock, extending in date from 1869 to 1880, were made identical in their conditions, all bearing interest at 3J per-cent, and being redeemable in 1929, that is to say, in sixty years from the date of the first issue. It would have been quite feasible to bestow the full term of sixty years on each instalment, but this plan was attended by the drawback that it would have split up the stock into numerous divisions, all of different maturities and of com- paratively small amounts, and would thus have injured its marketability, as the balance of advantage between a stock having, say only fifty-two years to run, but forming part of a large issue, and a stock having the full sixty years to run, but of 110 great amount, would almost invariably be in favour of the former. If carried too far, however, this shortening of the term becomes an injustice, because it burdens the ratepayer with a heavier sinking fund than is necessary; and in 1881, when the Three-and-a-half per-cent Stock had attained the respectable total of 17,000,000, the Board thought it time to make a new departure, both because their improved credit justified a lower rate of interest, and because any fresh 96 addition made to the 1929 stock would have had to be paid off in forty -nine years. Tenders were therefore invited for a Three per-cent Stock, redeemable in 1941, of which the minimum price was fixed at ninety per-cent, and this description of Metropolitan Consols continued to be issued until the Board of Works was superseded by the London County Council. I may here mention, as a fact which is perhaps not generally known, that in 1877, the year in which Treasury Bills were first issued, the Board obtained leave to contract unfunded debt to a limited amount by raising the money needed for temporary purposes on short dated paper, somewhat in the form of the the new floating debt obligations, and repayable like them in not more than twelve months after date, and that the power conferred by the Act of 1877 has been renewed by each successive Annual Money Act, both of the Board and their successors, being kept alive in case it might some day prove useful. The considerations by which the Board of Works were influenced in deciding to lower the rate of interest on their stock in 1881, were equally applicable when their successors, the London County Council, brought out their first issue of 1,000,000 in 1889, and led to a repetition of the former proceeding. Since the introduction of the 3 per-cent stock, of which 10,850,000 had been placed on the market, the improvement in the Board's credit had steadily continued, as shown by the enhanced prices fixed for the successive issues, namely 1881 90 per-cent minimum. 1882 96 1883 954 1884 97 i 1885 964 1886 98 1887 984 and throughout 1889 the quotation had stood over par. Regard being had to the fact that the Council anticipated many and large future additions to their indebtedness, it was deemed advisable, notwithstanding the obvious disadvantage of having to bring before the public a third description of obligation, to adopt at the outset a form of stock to which it was thought certain, humanly speaking, that the Council would be able to permanently adhere, and a first issue of Two-and- 97 a-half per-cents was therefore announced at the minimum price of 88. In further justification of the course taken by the Council, it was pointed out that the majority of steady investors, and especially trustees, to whom Metropolitan Stock presents great attractions, greatly prefer an investment which is redeemable at a profit, and of which the value must necessarily appreciate, to one that will eventually be paid off below cost, even though the latter be actuarially cheaper, and that they would therefore be more inclined to take a Two-and- a-half per-cent Stock at a discount, than a Three per-cent Stock at a premium. The new Two-and-a-half per-cents or " Rosebery's" as they were dubbed now amount to 7,700,000, and have been even a greater success than the Three per-cents. In 1892 the minimum was only 85 J; in 1893 it rose to 89; in 1894 to 93J; in 1895 to 101; and in 1896 to 104. The date of redemption is 1949; but the County Council reserve the right to pay them off at par at any time after the 19 March 1920, provided that one year's notice of such repayment shall have been previously given. One feature that distinguishes the debt of the County Council from that of provincial corporations is the fact that a very large proportion of it represents money lent to other bodies. Powers have been given by statute to the London School Board, to the Managers of the Metropolitan Asylums District, and to vestries, district boards, guardians, and other public and local authorities, to borrow from it, and of the total debt of 35,000,000 upwards of one-third has been advanced to outside bodies. You will find on reference to the Official List that the entire stock only shows a diminution from its original amount of 71,686, and it may strike you as strange that the operation of the sinking fund should not bring about a steady-going reduction, such as we are accustomed to in the case of the funds. The reason is that the Council are permitted, instead of buying up their own stock with the annual surplus of income, either to invest it in advances to other bodies, or to employ it in capital expenditure for duly authorized purposes. It is expressly provided, how- ever, that the repayment from such loans shall be hypothecated to the redemption of their own debt, and that no such money shall be so used, unless provision shall be made, in such a manner as the Treasury approve, for repaying the same to the Consolidated Loans Fund at, or before, the date at which Consolidated Stock, redeemable by means of such money, is 98 required to be redeemed at par. In other words, if the funds applicable to the redemption of, say, the 1929 stock are lent out, instead of being used in cancelling the stock, it is essential that the loans should be made repayable before 1929, so that the money may be at hand when wanted. If power to invest the sinking fund in this manner had not been given, the Council would be a heavy loser, as it would have had to buy up its own stock at a heavy premium. Mention has more than once been made of the wide-reaching and constant supervision exercised by the Treasury over the financial arrangements in connection with the Metropolitan Stock. No provincial corporation is under control to anything like the same extent. In fact, beyond having to submit an annual statement of their loans' fund to the Local Government Board, whose suggestions they are expected to treat with due deference, they are left to their own devices. But, in the case of loans raised by the County Council, the fund constituted for paying the dividends and redeeming the principal is under strict supervision, and the Treasury controls the sum Avhich must annually be raised by means of the consolidated rate for the service of the debt. There still remain one or two minor questions to be noticed in connection with Corporation Stocks. The first is that of redemption. Most of the stocks are described as " Redeemable", and either the date of redemption is tacked on, or the period during which the right to redeem may be exercised. In no instance, it should be noted, is there a premium payable on redemption; the rate is always par. But there are also some stocks marked "Irredeemable," and this designation might lead you to infer that certain of the corporations have been absolved from the duty of repaying, and have been allowed to contract a perpetual debt. All it means is, however, that the stock-holder cannot be paid off against his will; and that, as neither time nor price is fixed for the redemption, the stock can only be cancelled by buying it up in the market at the price of the day. Whether redeemable or not, the borrower must set up a sinking fund, the accumulation of which shall be sufficient to extinguish the stock in a given number of years, as determined by the act authorizing the issue ; and the advantage of making it redeemable at a specified time and price is that he knows precisely how much money must be set aside each year in order to meet the obligation at maturity. On the other hand, if the stock be irredeemable, it is not the 99 nominal amount that lie must provide for, but the market value, which may be a very different thing. To the citizens of Manchester, for instance, it must be most gratifying to know that their promise to pay 4 per annum is thought so highly of in the market as to be now valued at fifty per-cent premium; but it cannot be equally agreeable to reflect that, owing to their Consolidated Stock not having been made redeemable at par, provision must be made out of the corporate revenues to pay back five-and-a-half millions sterling instead of the three and three-quarter millions, which they borrowed. The objection, therefore, to an irredeemable stock is that every rise in price, after par has once been passed, means a re- adjustment of the sinking fund, and that the borrower is made to suffer for the improvement in his own credit; and this objection has so much force, that power to issue stock of this description is now no longer given by Parliament. Its issue in former years was justified by the supposition that it commanded a better price, but it may be doubted whether any investor would ever distinguish between a stock redeemable at par in fifty or sixty years, and one not subject to redemption at all. Another line of demarcation between corporation stocks is that which separates them into stocks liable to stamp duty and those which are free of the impost. This distinction is of more importance than it looks. The price of a stock depends, to a great extent, on its negotiability, that is to say, 011 the facility with which the would-be seller can find a would- be buyer, and negotiability is undoubtedly hampered if a tax must be paid every time the stock changes hands. In fact, other things being equal, a stock which is subject to the restriction of transfer-duty will always be at a disadvantage as compared with one that escapes the imposition. The fact that taxation seriously detracts from facility of dealing', and hence from market value, impressed itself strongly upon the Metropolitan Board of Works, very soon after the original issue of their Consolidated Stock, and in 1870, the following year, they obtained powers by a special Act of Parliament to compound for transfer-duty by a single payment of 7s. 6d. per-cent (afterwards raised in 1880 to 12s. 6d. per-cent) on the whole amount of the stock, which at once benefited by the concession. In 1875, as you will remember, the Govern- ment brought in a Local Loans Bill, and the provincial corporations, having quite expected that whenever such a 100 measure was introduced they would be offered the same option, experienced some disappointment on finding that such was not the case. "The Metropolitan Board of Works", said Mr. Chamberlain, in opposing the Bill, " has been allowed " to compound for stamp-duty; and until Parliament chooses " to give to provincial corporations the same facilities, it need " not expect that they will take advantage of the Local Loans " Bill." The privilege was extended to them, however, in 1880, and in the Stamp Act of 1891, which is now in force, it is enacted that any county council or corporation may enter into an agreement with the Commissioners of Inland Revenue, if the Commissioners in their discretion think proper, for the composition of the stamp duties chargeable on transfers of their stocks on payment, half-yearly, of 6d. per-cent on the nominal amount. Advantage has been taken of this per- mission to a great extent, and in the prospectus of almost every new issue you now see it stated that transfers will be effected free of stamp duty or other charges, to be followed a week or two afterwards by a short paragraph in the " money article" to the effect that the Commissioners of Inland Revenue have entered into an agreement with the corporation of so-and-so for the composition of the stamp duties payable on transfers of their stock in accordance with the provisions contained in section 115 of "The Stamp Act, 1891." In addition to the question of liability or non-liability to stamp duty, there are certain other matters of detail associated with the transfer of corporation stocks which call for remark, but which will be found lacking in interest unless we clearly comprehend the principle involved in such arrangements, and the requirements that they ought to fulfil. When a corporation borrows money in order to meet expenditure, of which it is presumably right and proper that the repayment should be spread over a term of years, it would obviously expose itself to extreme inconvenience if the lenders had the right to call in their loans at short notice, and were to exercise such right at a time when the conditions of the money market were not favourable to fresh borrowing. To avoid this risk the loans are made redeemable at fixed dates, and the lender has no power to claim his money until the expiration of the agreed term, which may be anything from thirty years up to sixty or more. But, if that were the whole extent of the bargain, it is more than likely that capitalists would decline to lend on such 101 conditions, or, at any rate, that only very few would be found willing to place their capital beyond control for so long a period, and it is therefore essential that the lender shall be at full liberty, whenever he wishes to realize, to assign his claim to someone else who is willing to buy it of him. The borrower, moreover, must not only undertake to recognize, and act upon the assignment, but is expected to facilitate it as far as he reasonably can by adopting the most workable arrangement. In fact, the easier, the quicker, and the cheaper the claim can be transferred, the easier, the quicker, and the cheaper will the corporation find it possible to borrow. Now, if our cities were in the habit, as foreign municipalities are, of raising loans on bonds to bearer, the title to which passes by delivery, all troublesome transfer formalities would be avoided; but as investors of the class they appeal to mostly prefer (or, if trustees, are even restricted to) a specialized, and therefore safer form of security, they find it advisable to meet the requirements of the market by issuing what we know as stock. This is of the nature of a book debt, the name of the lender, or stock-holder, and the nominal amount of his loan, or stock, being registered by the corporation in a book, just in the same way that a merchant posts in his ledger the names of his creditors, and the sums for which he is indebted to them. In view of the importance of this record, which constitutes the evidence of the stock-holder's title, the duty of keeping a proper register (by register is meant, of course, the whole set of books necessary in connection with the stock), and of inserting therein the names and holdings of all proprietors, is enforced by law, and forms part of every act in which power to create stock is conferred. There are two ways in which stock may be transferred either by book or by deed. If transferable by signing an entry made in the register itself, the stock is usually designated " Inscribed;" if transferable by signing a separate document or deed of transfer, it is usually described as "Registered." The distinction is quite an artificial one, as ' ' inscribed " and " registered " mean the same thing. Consols are the type of an inscribed stock, and the manner in which they shall be transferred is set forth in section 22 of " The National Debt Act, 1870." " In the offices "of the respective Accountants-G-eneral of the Banks of " England and Ireland, books shall continue to be kept wherein "all transfers of stock shall be entered. Every such entry 102 " shall be conceived in proper words for the purpose of " transfer, and shall be signed by the party making the "transfer, or, if he is absent, by his attorney thereunto "lawfully authorized by writing under his hand and seal, "attested by two or more credible witnesses. The person "to whom a transfer is so made may, if he thinks fit, tf underwrite his acceptance thereof. Except as otherwise " provided by Act of Parliament, 110 other mode of transferring " stock shall be good in law." It is also enacted in section 24 that the banks, before allowing any transfer of stock, " may if "the circumstances of the case appear to them to make it " expedient, require evidence of the title of any person claiming " a right to make the transfer." In " The Colonial Stock Act, 1877 ", which provides for the inscription of stocks issued by the Colonies, and which appears to have been the chief means of bringing inscribed stocks into fashion, we find similar regulations in Section 4 : " Colonial Stock to which this Act "applies, while inscribed in a register kept in the United "Kingdom, shall be transferred as follows: (1) The transfer " shall be made only in the register, and shall be signed by the "transferor, or, if he is absent, by his attorney thereunto " lawfully authorized by some writing executed under his hand " and seal and attested. (2) The transferee may, if he thinks "fit, underwrite his acceptance of the transfer." Stock transferable by book is the safest form of security that ingenuity and experience have found it possible to devise. There is as much difference, in fact, between bonds to bearer and inscribed stock, in point of safety, as between a bank note and a crossed " not negotiable " cheque to order. The investor who holds bearer bonds or " scrip stocks " as they are commonly called, besides being exposed to the trouble of detaching and collecting the coupons, must also put up with the anxiety and expense attendant on their safe custody ; but in the case of inscribed stock, in addition to the convenience of having the dividend sent to him by post, or paid direct to his banker, it appears absolutely impossible to deprive him of his property without his knowledge. A would-be forger must, in the first place, attend at the office of the registrar and sign the register in the presence of an official, under which circumstances it would require astonishing skill to counterfeit the shareholder's signature sufficiently well to pass muster; and, secondly, he must be accompanied by a respectable 103 stockbroker, or by some one else well known to the registrar, who can answer for his identity. Whether these safeguards are ever overcome is only known to the registrars themselves, but I think I am right in saying that loss by forgery, if it does occur, is never allowed to prejudice the stock-holder. Though the buyer of inscribed stock is not required to attend at the office of the registrar when the transfer into his name is effected, he is at liberty to do so and to sign the register if he thinks fit ; and it is certainly advisable that he should be present, in order that a specimen of his signature may at once be on record for comparison. Failing his attendance, the registrar has no apparent means of knowing his signature until it comes in on a dividend warrant. Another precaution by which the safety of inscribed stock is increased is that of giving no certificate. There can be little doubt that the issue of a document containing all particulars of the proprietor's holding must tend to facilitate fraud, if fraud is intended. The distinctive characteristic of inscribed stock is, as I said, the transfer by signature in the register itself, and, as this necessitates the personal attendance of the transferor, or his legally appointed attorney, it would obviously be a great bar to negotiability if the register were kept in an out-of-the-way place. You will, therefore, find that in almost every instance, where stock is transferable in the books, the corporation issuing it has appointed a London banker to act as its agent, and to keep the register on its behalf. It should also be noticed that, practically, the whole of the stocks so domiciled are transferable free of charge and in any amount. This latter proviso is of special convenience to trustees, who, when effecting a change of investment, like to re-invest the exact sum in hand without having a fraction left over. As between inscribed and registered stocks, the great advantage of the former is the rapidity with which a transfer can be effected. The seller's broker, having found a buyer, sends to the bank the particulars necessary for preparing the transfer entry, and, an hour or so afterwards, calls in with his client, who signs the book and also a receipt for the purchase money. This receipt, which is on a form supplied by the bank, is witnessed by the bank clerk, and, on handing it over to the buyer in proof of the transfer having been duly made, payment is effected and the transaction is complete. Compare this procedure with the formalities that must be gone through on transferring property 104 in houses or land, and the perfection to which it has been brought will be better appreciated. Registered stock differs from inscribed stock in the two particulars already indicated, namely, that it is transferable by deed, without attendance, and that a certificate under the seal of the corporation and signed by its authorized official is issued to each stock-holder certifying that he is the registered proprietor of a stated amount of stock. This certificate is not in itself proof of ownership, and the object of granting it is simply to enable the holder to deal more easily with his stock. The only conclusive evidence of title is the entry in the register, the certificate being merely a solemn affirmation under seal that the person named therein actually is on the register as owner of stock to the amount specified. When selling registered stock, a transfer deed is prepared, which must be signed and sealed by both seller and buyer by the former in token that he transfers, and by the latter in witness that he accepts the transfer. " Sealing " the transfer, which consists in sticking a red paper wafer on a certain spot, is a formality which, nowadays, appears meaningless, but which can be insisted upon. By Stock Exchange custom, the seller that is to say, the seller's broker has to make the transfer, and the buyer has to pay the the charges (stamp duty and registration fee, if any). Considerable perplexity, not to say suspicion, is sometimes aroused in the mind of the inexperienced investor, on discovering, when signing a transfer for the sale of stock, that the consideration money named therein does not agree with the sum specified in the contract rendered to him by his broker. If he enquires the reason of the difference, he is referred to a note, which is usually printed at the foot of the deed, and which explains, not so clearly as it might, that " the " consideration money set forth in a transfer may differ from " that which the first seller will receive, owing to sub-sales by " the original buyer ; the Stamp Act requires that in such " cases the consideration money paid by the sub-purchaser, " shall be the one inserted in the deed, as regulating the " ad valorem duty." Notwithstanding the footnote, however, cases occur in which the transferor undoubtedly considers himself aggrieved in having to sign what appears to be an acknowledgment of a arger sum than he actually receives. The difficulty arises from the fact that stock may change hands again and again before settling day. A. B., the original holder, 105 may, for instance, sell to C. D., at say 99 f ; C. D. may re-sell to E. F., at par, and E. F. to G. H. at 100. As it would obviously be a waste of time and money to execute a chain of transfers, a clearing system is adopted, which there is not time to explain, but the effect of which is that C. D. and E. F. are eliminated from the transaction on payment to them of the respective differences, and that A. B. is represented as transferring direct to G. H. Then comes the question of the consideration money; A. B. sold for 99. 15s., G. H. bought for 100. 5s. ; if we insert 99. 15s., the deed must bear a 10s. stamp, if 100. 5s., a 12s. 6d. stamp. To save disputes, the Stamp Act settles the point by deciding that duty must be levied on the amount paid by the transferee. The transfer, therefore, reads : " I, A. B., in consideration of the sum of " one hundred pounds and five shillings, paid by G. H., herein- " after called the said transferee, do hereby bargain, etc.", and A. B. must console himself as best as he can. Registered corporation stocks differ widely in their conditions. Some corporations register transfers free of charge, others exact a fee for doing so; some keep their books open all the year round, others close them for a week or a fortnight at a time to prepare the dividends; some will accept the common form of transfer deed, others require a special form to be used; some will transfer any amount, including shillings and pence, others will only transfer multiples of 10, and so on. The golden rule for the corporations to bear in mind is that the fewer the restrictions the better the stock will be liked, and that, other things being equal, the market is sure, sooner or later, to differentiate in favour of stock which is transferable at all times, in all amounts, and free of all charges. LONDON : PRINTED BY CHARLES* AND EDWIN LAYTON, FARRINGDON STREET. ' 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. JUL 2 7 1966 7 6 JUt 25 '6620 LD 21A-60m,-10,'65 (F7763slO)476B General Library University of Californiz Berkeley