FINANCE 183 land tax, the land tax being less than two-thirds of that obtained by indirect taxation. The form in which the loans were raised was annuities on lives or on terms of years, granted on disadvantageous conditions, lotteries, and the funding of floating debt. The latter operation was in part undertaken by the Bank of England, which thus con siderably enlarged its capital. The rate of interest was about G per cent., and it appears that the form in which the loans were contracted was the best method after all in which the Government could borrow. A still larger operation was attempted by Harley in 1710. A new company was formed, which was to take the unfunded debt, amounting to more than 19 millions, to receive 6 per cent, on the sum, with .8000 a year for expenses of management, and in consideration of having performed this financial operation for the Government, was to be invested with the sole privilege of trading to the South Seas. This was the origin of that famous company which ten years afterwards obtained so scandalous a notoriety. In 1715 the aggregate fund was established. Numerous taxes had been made perpetual, and the Act creating this fund directed that the proceeds of these taxes, with the surplus of other revenues, and all other public money, should be brought into the exchequer as a collective quantity. But by this time the whole revenue of the country, with the exception of the annual land and malt taxes, had been pledged to the various loans contracted during the two wars which followed on the Revolution. An attempt was made to lighten the burden of the debt in another direction of finance, i.e., by diminishing the rate of interest. Shortly after the peace of Utrecht the rate of interest began to fall, and continued to decline till it became pos sible to make use of the fact for the purpose of effecting a considerable reduction in the annual charge of the debt. An attempt was therefore made in 1717 to obtain a small loan at 4 per cent. The project was permature as yet ; only a trifling sum was subscribed, and at last it became necessary to raise the rate to 5 per cent. But in order to consolidate parliamentary credit, the Government of the day created three new funds in addition to the aggregate fund of 1715. These are called the South Sea fund, the general fund, and the sinking fund. The aggregate fund was the guarantee under which the Bank of England consented to accept 5 instead of 6 per cent, on their capital, and to circulate exchequer bills at a very low rate of interest. The Soutli Sea fund was the security afforded by the perpetual duties appropriated to the South Sea Company at the foundation of that corporation, the interest in this case being reduced also from 6 to 5 per cent. In order to pay off such public creditors as were unwilling to submit to the reduction, the two companies agreed to advance 44 millions at 5 per cent., and certain taxes granted heretofore for terms of years were now made perpetual, under the name of the general fund. By these financial operations a saving of more than 300,000 a year was effected. The sinking fund consisted of the surpluses derived from the several other funds, which were to be employed for the extinction of debt, and for no other purpose whatever. The policy of these arrangements, particularly the latter, was soon approved by a considerable rise in the value of stocks. Thus, for example, South Sea stock, which was worth lOOf at Lady day, rose by Michael mas to 111|. In the same year, too, the first vote of credit was taken, in expectation of a threatened invasion by Charles XII. of Sweden. The vote was indeed strongly resisted, and as the majority by which it passed was very slender, Townsend, Walpole, Methuen, and Pulteney were put out of office or resigned. In 1719 the surplus of the three funds referred to above, amounting to over 400,000, was applied to the reduction of debt In 1720 the celebrated South Sea scheme was projected. It gives some colour to the opinion of those who hold that commercial and financial follies are epidemic, that a scheme far more disastrous in its effects than the South Sea bubble was put into shape the year before in France, when Law floated the Mississippi Company. In the month of November 1719 the nominal value of the stock of the French company was 18,000 millions sterling, a sum which the statists of the age reckoned at 180 times more than all the currencies of Europe put together. Both projects were trading companies, and in both companies the grant of trade privileges was made the occasion for negotiating terms with the public creditor through the agency of the company. The immediate object of the negotiations entered into with the South Sea Company was the reduction of what were called the irredeemable annuities, created for long terms of years during the wars of William III. and Anne. It is probable that the proposals of the company would have been, to judge from the success with which the conversion of the various stocks in 1710 was effected, financially satis factory. But unluckily the other great financial corpora tion, the Bank of England, bid against the South Sea Company, and in this rivalry the latter offered terms, which were finally accepted, under which the company contem plated the purchase of the whole national debt, to be repre sented by a total capital of 43 1 millions, for which they were to receive interest at 5 per cent. The magnitude of the operation, the difficulty sure to arise when attempts were made to obtain lona fide subscriptions for the large amount which would be required in order to complete the bargain, and the reaction certain to ensue as soon as ever a check was given to the operation, were lost sight of. It was not perhaps so remarkable, when it is mentioned that the very manner of the negotiation between the company and the Government pushed up the price of the original stock much beyond its natural value, a rise which tho directors of the company were not slow to take advantage of, and that the stocks of other companies which could offer no exceptional prospects of profit were raised to nearly as absurd a price as that of the South Sea. The directors of the company took advantage of the fictitious price which the stock had reached, and created shares at or near tho market value of their stock. As the fever of speculation reached its height, the directors exalted the price of their shares, and it seems even contemplated an issue of stock at the price of ten times its nominal amount. By midsummer the advanced prices of all public stocks are said to have reached a market value of 500 millions. Before the book* of the company closed on June 22, the directors had negotiated for all the irredeemable debts of the Government. On August 12th they dealt with the redeemable debts, amounting to nearly 14| millions, at the price of 800. When parliament met in December, the price of Soutli Sea stocks had fallen to 200. In the interval, however, the directors declared a dividend of 30 per cent, at Christmas, and pledged themselves to a dividend of 50 per cent, for the next twelve years. This might perhaps have been pos sible had the subscribers made good their payments, had the directors been able to place all their stock at tho nominal prices, and if all their loans were repaid. But the payment would only have been temporary, and both principal and finally interest would have speedily been lost to the shareholders. The issue to the nation was that the South Sea stock was fixed at nearly 34 millions ; that this was divided into moieties, one half to be the trading stock of the company, the other to be a fund stock on which dividends should be paid ; and that the rate of interest payable by the Govern ment on the whole should be 5 per cent, till June 2, 1727, when it should be reduced to 4 percent. The nation suffered
