Evening star. [volume] (Washington, D.C.) 1854-1972, 1920-09-11
LIBERTY BONDS.
MONEY-MAK|NC PLAN
ATTEMPTED BY ENGLAND

The desire to make money speedily
IN ventures out of the beaten path of
conservative investment is not con-
nned to individuals. Governments
BANKERS Trust Company of New
york. and with discouraging results,
oucn was the experience of the
british government some 200 years
ago. when it undertook to get rid Of
the unfunded national debt by back
ing an operation into which it en-
tered with the South Sea Company.
me details are presented in a study
OF English Public Finance" by the
bankers Trust Company.
| THIS venture. according to the
study. was based upon the fund of
credit" idea. fund Of credit" was
| theory prevalent in the latter part
or the seventeenth and earlier part of
the eighteenth centuries. It was the
basis OF John Laws famous Mis-
mad 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
wei as part of the deposits. were
loaned to the nation. This left the
business a fund Of credit" founded
upon its loan to the government.
Similar was the policy of parliament
In forcing the East India Company to
pass on to the government in ex-
eesds e. for or its its obieations the pro-
Z! The fund Of credit" theory was
applied in the South Sea Company's
scheme by the granting by the Brit
| lsh government to the South Sea
| Company of monopoly OF trading
| rights in the Pacific ocean, and al
most exclusive trading rights in the
| southwestern Atlantic.
In consideration Of these trading
| rights. which were expected to have
great value. the company was to ex-
! unfunded government debt and in ad-
dition was to pay the government
| $500. 00U. The government was to
pay the company interest at the rate
| or per cent per Annum upon all
government securities which it should
| thus acquire. and in addition $4,000
| a year for management.
The conversion offer was accepted
between I'LL and 1919 by holders Of
about $60.000,000 Of government OBJ
legations. Then those associated in
| control of the scheme decided upon
the British debt into the company's
stock which, IL successful, would have
given the company a capital Of
around $3.50, 900.
1t would also have secured a prac-
tical monopoly OF the trading and
banking business Of the nation.
The Bank of England and the East
India Company opposed this project.
Competitive bidding by the bank led
as s1 ee ssa e oer to
consideration Of all holders OF gov
eminent 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 5 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 1 per cent in interest and the re-
the promoters was to come from
stock market operations. BY manipu-
lation South Sea stock was forced up
zoo, 800. 500 and finally 1850 per cent.
AS their terms with the government
were for even exchanges. the pro-
Of treasury stock which they were
able to sell at the advanced prices.
The magnitude OF the operation and
the rapid advance In South Sea stock
brought other promotion schemes into
the field and a wild orgy of specu-
lation ensued.
The collapse when it came was
sudden and severe. The exchange of
public securities for the company's
stock had been achieved, but the
Spectators were, most OF them,
ruined.
The government. according to the
Bankers Trust Company's study, had
to surrender its right to the $S7, 1900
900, and TO make the company = tenn
porary loan of 100000 in the form
Of exchequer bills 1t also had to pay
the interest at and later, 4 per cent
on the company's holdings OF gov
eminent securities. Strangely enough.
the company itself remained solvent.
though conspirators in the scheme
were punished and the public victim
lied 1t existed as a public debt.
holding corporation until 1854.