mately impoverish if not ruin the people who accepted it. Nevertheless, she is at this writing still continuing the practice and as recently as December, 1923, that present-day Republic has a funded indebtedness of 64 billion marks, which is worth in gold, at the present valuation of the mark, only 12 cents.

This reference to a nation's currency is strikingly similar to a custom practiced by the Chinese. The merchants were most particular to make certain that every silver dollar they handled contained the metal that it was supposed to represent. Consequently, tradesmen, shopkeepers, and bankers who received a dollar, promptly subjected it to a stroke of a small-headed hammer, and if the sharp point of the hammer went completely through the dollar, they would reject it in the knowledge that some previous holder of that dollar had skilfully cut it in two and taken out The some good metal and substituted a core of lead. writer recalls one experience where he went to a bank and obtained several packages of wrapped silver dollars bearing the bank's seal. He wanted the money for the purpose of making a trip into the interior of the country. Upon his return from that trip he went to the same bank and asked the cashier to take back two of the packages which he had not used and which still bore the original seals of that bank. The cashier promptly broke open the packages and subjected each dollar to the hammer test and rejected nine as being spurious out of a total of 50. When the cashier was told that the money was being returned in the same packages which he had previously issued he replied that the coins should have been tested before being accepted from him. He couldn't be responsible for another's carelessness, and, therefore, it was not his loss. Perhaps if the Germans had been as solicitous and as careful as the Chinese were to protect the value of their money, America today would not be the indirect victim of its allies' dilemma regarding reparations and indemnity collections.

You know how the government borrowed the money to

carry on the war. You remember how the Liberty loans were offered for sale and how patriotically they were subscribed for by the banks, business houses, and public at large. No section of the country was overlooked and the appeal for subscriptions was carried into every household throughout the length and breadth of the land. The Investment Bankers Association of America, with the cooperation of the Federal Reserve banks, designated some individual to organize every state in the Union, and under that individual's supervision other men were appointed to select and supervise the men who organized volunteer committees to solicit subscriptions in every county, city, town, and hamlet. Not one spot was neglected. As often as each recurring new loan was announced, just as often the result showed a vast oversubscription. Every loan was sold at a price of par net to the government. Every subscriber and purchaser of those securities knows that he will receive back his money with accrued interest at the date those bonds mature; and, in the meantime, he can sell them in the market any day if he wishes to receive his money back sooner. Government bonds are the only securities which are so marketable that they can be "sold on a Sunday." There were allotted $21,435,370,600 par value of different Liberty and Victory loans up to October 31, 1920, exclusive of notes, certificates, and War Savings securities, and since that time, with but one exception, all the refunding issues have been in the form of short-term Treasury notes or certificates. The problems now faced by the government are similar to those of any business organization. The Treasury must find the money with which to pay off these loans and finance its requirements in the same manner as the Treasurer of any business corporation. Out of taxes which are levied annually for governmental purposes, there is appropriated approximately 300 million dollars each year as a sinking fund for the purpose of gradually reducing the debt by buying bonds in the open market and canceling them. It is estimated that fully 25 years will be required

to cancel the major portion of the debt in that manner and the balance of the debt can be paid when our allies are able to repay their obligations to us. To reduce the annual interest on the public debt offers just the same problem as reducing the annual interest on a mortgage on a house. It can be accomplished by paying off part of the mortgage or trying to get a lower rate of interest on the balance due. Both methods are employed in the handling of our national interest charge.

The debt which our government incurred for the benefit of the American people and the world at large, actuated as America was by the highest ideals at that time, was created within a period of two years, but it would be a rash guess for any of us to predict when that debt can or will be paid in full.1

SELF-TEST QUESTIONS

UNITED STATES GOVERNMENT BONDS

I. What is the ultimate basis of the investment strength of government bonds? The direct basis?

2. Why do nations seldom default on external bonds? Is it less desirous that internal loans be paid promptly?

3. Why do governments need money? Why don't they raise money by taxation rather than by bond issues? Are there other ways of mobilizing industrial energy for war purposes?

4. How was it possible to raise 26 billion dollars by bond issues when our national income was but 50 billion?

5. Why will it take so long to extinguish our national debt if our national income is 50 billion a year?

6. How does our debt compare with England's? Germany's? France's? Account for the difference.

7. Do you favor cancelation of foreign debts due the United States? Would such cancelation imperil the investment standing of "United States bonds"?

8. Is there any precedent for cancelation?

FOREIGN GOVERNMENT BONDS

1. What is the security of French bonds? German bonds? 'This lecture was delivered March 27, 1924.

English consols? Do they sell to yield different returns? Explain such differences.

2. What does a nation's currency have to do with the investment status of its bonds?

3. What factors determine the investment status of foreign government bonds and why?

X

STATE AND MUNICIPAL BONDS

By CHARLES L. STACY

Stevenson, Perry, Stacy & Company

Popular and correct usages of term "municipal bond." Varying factors in municipal bonds. Taxing subdivisions. Purpose of bond issue. History of state bonds. Federal debt assumption. Restrictions in debt-creating. What should determine the maturity of a bond? Bonds of various political subdivisions. County bonds. Municipal bonds. Bonds of tax districts. Special assessment bonds. Work of Investment Bankers Association of America. Tax-exemption features.

THE term "municipal bond" is quite generally, if not correctly, applied to any bond issued by a state or a political subdivision of a state. A more accurate usage would be to refer only to bonds of cities, towns, and villages when using the term "municipal bonds," and refer respectively to the other bonds of a state or its taxing subdivisions as state bonds, county bonds, township bonds, school district bonds, road district bonds, sanitary district bonds, special assessment district bonds, and so on.

In this discussion, however, for the sake of brevity, the term "municipal bonds" will be used in its general usage, but all such references will apply to bonds that are secured by the full taxing power of the political subdivision that issues the bonds. Such bonds are payable by an ad valorem tax; that is, a tax levied on all property within the state or within the community that issues the bonds. The term "municipal bonds" will not apply in this discussion to those special assessment district bonds which are payable only by a special assessment against the property benefited and are not payable from the general taxes of the community that issues the bonds. Some special assessment bonds are payable