The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-08-15
Get-Rich-Quick Schemes
Tried By Governments
GREAT BRITAIN TRIED TO PAY
OFF PUBLIC DEBT BY EsTAB-
LISTING FUND OF CREDIT"

The desire to make money speedily
IN ventures out of the beaten path of
conservative investment Is not con-
FINED to individuals. Governments
nave sometimes yielded to 1t. says the
BANKERS Trust Company of New York.
ana with discouraging results.
Such was the experience of the
British government some 200 years ago
when 1t undertook to get rid of the I'M
FUNDED national debt by backing an
operation into which 1t entered with
the south Sea Company The details
are presented in a study of "Enklish
Fuplic Finance" by the Bankers Trust
Company.
This venture according to tbe
study, was based upon the fund of
credit idea Fund of credit" was a
theory prevalent in the latter part Of
the 17th and earlier part of the 18th
centuries. It was the basis of John
Laws famous Mississippi Company
which about 1718 had such meteoric
career in France.
Also in pursuance of this idea the
Bank OF England was organized. The
entire original capital of the bank as
well as part OF the deposits were
loaned to the nation This left the
bank as a basis for conducting its
business fund of credit founded
upon its loan to the government. Sim
liar was the policy of parliament in
forcing the East India Company to
pass on to the government in exchange
for its obligations the proceeds of its
sales of stock
The fund of credit" theory was ap-
piled in the South Sea Company's
scheme by the granting by the British
government to the South Sea Com
pany a monopoly Of trading rights in
the Pacific Ocean, and almost exclu-
sive trading rights in the south west
ern Atlantic.
In consideration of these trading
rights, which were expected to have
great value, the company was to ex-
change its stock for the outstanding
unfunded government debt and in adj
dition was to pay the government
$4,000, 900. The government was to
pay the company interest at the rate
of per cent per annum upon all gov
eminent securities which it should
thus acquire and in addition $4,000 a
year for management.
The conversion offer was accepted
between I'LL and 1719 by holders of
about $50. 100000 of government obn-
cations. Then those associated in con-
troll Of the scheme decided upon con-
version OF the entire balance of the
British debt into the company's stock, |
which If successful would have given
the company a. capital OF around |
$3.50, 100000.
1t would also have secured a prac-
teal monopoly of the trading and
banking business of the nation.
The Rank of England and the East
India Company opposed this project
Competitive bidding by the bank led
the South Sea Company to offer to pay |
the government $37,50o.0oO In consid-
Grafton of all holders of government |
securities, except the Bank OF England
and East India Company, converting |
these holdings into South Sea stock.
The government in turn was to pay
at first per cent on its obligations
acquired by the South Sea Company.
then per cent. The advantage to the
government was to be the saving of
one per cent in interest and the re-
ceipt Of $37,500.000 cash. Profit TO the
promoters was to come from stock
market operations. BY manipulation
south Sea stock was forced up 2ooS
800, 500 and finally 1850 per cent.
AS their terms with the government
were for even exchanges. the promoters
a large amount OF treasury
stock which they We're able to sell at
the advanced prices. The magnitude
of the operation and the rapid advance
in South Sea stock brought other pro-
motion schemes into the field and a
Wild orgy of speculation ensued.
The collapse when it came was sud
den and severe. The exchange of pub
lie securities for the company's stock |
had been achieved, but the spectators
were most of them ruined.
The government. according to the I
Bankers Trust Company's study, had |
TO surrender its right to the S3I,5o0,0OO
and 10 make the company temper
airy loan of $5.o00,000 in the form of |
Exchequer bills. 1t also had to pay |
the interest at and later, per cent ,
on the companys holdings of govern
ment securities. Strangely enough,
the company itself remained solvent
though conspirators in the scheme
were punished and the public victim
ICED. 1t existed as a public debt hold
ing corporation until 1854.
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