payment of the 5 per cent. difference in the price of issue, into the 4 per cent. Still less was there any obligation to allow holders of Consols to exchange in the proportion of £75 Twoand-a-half for £50 Four-and-a-half. But in neither case was the advantage available without a preliminary investment in the new Loan. The option is open until the end of October, and we must wait till then to see to what extent holders of the senior securities have availed themselves of it. The one thing certain is, that the number of conversions and their amount can only be in a corresponding ratio to the new subscriptions, so that every conversion means a preliminary contribution to the Loan, and the £600,000,000 already subscribed is "new money.' The practical effect of the scheme will be this: the Government will pay on converted first War Loan for the whole of its duration 1 per cent. more in interest, in return for the cash equivalent of five years of such payments; and it will pay 4 per cent. on £50 of the New War Loan Stock given in exchange for £75 of Consols; that is to say, for every £100 of Consols converted, the Government will pay £3 in interest as against £2 10s. This is not quite such a one-sided bargain as it may seem. Not only must the holder of the converted Consols subscribe to the New Loan in the proportion of £100 of the latter to £75 of the former, but his converted stock will be redeemable in or before 1945, and no longer, as now, a practically irredeemable annuity.

Persons who exercise the options will not only receive on December 1st a full half-year's interest on the New War Loan issued in lieu of the stock they surrender, but also part dividends on the latter; viz., £1 10s. 11d. per cent. (payable September 1st) in respect of the 3 per cent. loan; 12s. 6d. per cent. (payable October 5th) in respect of 2 per cent. Consols; 13s. 9d. per cent. (payable October 5th) in respect of the 22 per cent. Annuities; and 12s. 6d. per cent. (payable October 5th) in respect of the 2 per cent. Annuities. A subscriber of £100 (paid up) New Loan who converts £75 in Consols will thus receive in the first halfyear 2 per cent. on £150 New Loan, that is, £3 7s. 8d., and 9s. 43d. on the Consols, making £3 16s. 103d. and a subscriber of £100 who converts an equivalent amount of Three-and-a-half War Loan (on paying £5 in cash) will receive £4 10s. on £200 New Loan, and £1 10s. 11d. on the first Loan, making £6 Os. 11d. Arrangements are being made whereby subscribers through the Post Office for smaller amounts than £100 will be given the right to convert Consols standing in their name in proportion to their holdings in the New Loan. Thus, if a man has only £37 10s. in Consols, he can convert them into £25 New Loan by first subscribing for £50 of the latter.

This conversion principle has introduced a rather troublesome element. It has, at any rate, evoked an expression of discontent. Trustees and other holders of Consols and Three-and-a-half Stock who have no available funds to qualify them to convert, seem to think that they have a grievance against the Government. Their case, particularly that of small holders, is no doubt unfortunate, but they have no real ground of complaint. What they lose is an uncovenanted benefit obtainable only on conditions with which they are unable to comply. Their covenanted annuity of 23 per cent. will continue to be paid. It is on the cards that when the war is over and normally prosperous conditions once more prevail -say five or six years hence-Consols, having been reduced considerably in supply by the conversion scheme, may be in more active demand and recover some of their lost ground. This is at the best a problematical advantage compared with that offered by conversion, and in the meantime, as soon as the artificial minimum is taken away, Consols are likely to go a good deal lower than 65. In a case of "Hobson's choice," however, it is just as well to take the cheeriest view of the outlook.

It was sought to get over the difficulty with regard to trustees by the introduction of a Bill empowering them to borrow for the purpose of conversion. Such a course cannot be anything but repugnant to the most conservative views on trusteeship. But there is still a more practical objection to the plan. Its ultimate tendency, if advantage were largely taken of it, and the interest payable on the borrowed money at all approximated to the present Bank rate, would inevitably be to prejudice the market value of the New Loan, Take the case of trustees holding £750 (nominal) of Consols, producing interest of £18 15s. per annum. To convert these it would be first necessary to subscribe for £1,000 Four-and-a-half Loan, and assuming this amount to be borrowed, the rate, in the present conditions of banking, could hardly be less than 5 per cent., which would be £50 per annum. By the conversion operation the £750 Consols would be exchanged for £500 New Loan, so that the trustees would then hold £1,500 of the latter, bringing in an income of £67 10s., less the £50 interest, or £17 10s. net. That would put them in a worse position than at first, but if they sold the £1,000 War Loan at par and thus got rid of the interest liability, they would still have £22 10s. a year interest on the remaining £500, showing a profit income of £3 15s. as compared with that of the original holding. If it were possible to borrow the £1,000 at 41 per cent., the net income would be the same as if they sold that stock again and retained only the new £500, and there would be no advantage in selling. A great deal, then, would depend on the rates for

borrowing and on being able to sell at par to pay off the Loan. But the possibility of a large number of such sales being imminent could not fail to have a depressing tendency on the War Loan quotation.

In connection with this question of conversion, a less creditable development has arisen. It has brought to the front a class of financiers who appear to regard the Loan mainly as an opportunity for making a market turn. The intention of the Government in allowing conversion at all was to encourage subscriptions to the New Loan, and the condition precedent of conversion, in all cases, is new subscription. The official announcement says that until November 2nd there will be two classes of 4 per cent. War Loan, the one Cum Conversion Rights, i.e., consisting of stock issued in respect of cash applications in regard to which no right of conversion has been exercised, and the other Ex Conversion Rights, i.e., consisting of stock issued in respect of cash applications in regard to which the right of conversion has been exercised and stock issued in lieu of stock converted. On November 2nd these two classes will be automatically amalgamated into one stock. This does not constitute official recognition of a vicarious arrangement by which the disability of a Consol holder through lack of funds is to be overcome by the purchase of conversion rights from a War Loan allottee who does not want to use them. To the scrip certificate of the New Loan will be attached, in addition to the interest coupon, a Conversion Rights talon. "A scrip certificate without the relative talon, or a talon without the relative scrip certificate and stock resulting from the inscription of a scrip certificate, from which the talon has previously been detached, will carry no conversion rights." The confusion caused by a temporary misunderstanding has not, of course, made any difference to the Government as regards the success of the Loan, but if they had limited their conversion option to holders registered on or before the date of the prospectus, they would have prevented any of this huckstering about rights. But the option apparently extends to holders of convertible stocks acquired at any time up to the end of October, and advantage has been taken of the opportunity thus provided for nimble Stock Exchange finance by a class of men who do not think it unbecoming to utilise a great patriotic occasion for their own sordid ends by buying Consols and first War Loan and subscribing for New War Loan simply to make a profit by conversion. The possibilities arising out of this traffic can be better explained by one or two illustrations. Early in July Consols could be bought at 65 and Three-and-a-half War Loan at 93.1

(1) The latter has since been dealt in as low as 92

Anyone subscribing for £1,000 New Loan at that time would have acquired the right to convert £750 Consols (nominal) into £500 New; or £1,000 3 per cent., with a cash payment of £50, into £1,000 4 per cent. In the former case, he would pay £1,000 for the New Loan and £487 10s. for the Consols, and on December 1st, after receiving £38 8s. 9d. in interest, he would (assuming the new stock to be still at par) be able to sell it for £1,500, making a profit of £12 10s. In the second case, he would pay £1,000 for the New Loan and £930 plus £50 for the converted stock, making together £1,980, and he would be able to sell for £2,000, making a profit of £20, irrespective of the half-year's interest of £45 on the New and of £15 9s. 2d. on the Three-anda-half. It may be said that since the offer of conversion was only intended to stimulate subscriptions, the national cause is bound to be advanced in proportion to the extent to which subscriptions were sent in with a view to exercising the option during the next three months. Nevertheless, it is not amiss to point out that the more freely conversion is carried out, the heavier will be the new interest charge on the revenue of the future. Every million of converted Consols will cost the country an additional £5,000 per annum in interest, and if £100,000,000 were converted, we should have to find an additional £500,000 per annum. In connection with this aspect of the matter, an episode in the House of Commons may be referred to. Mr. Will Thorne put the question: What would be the loss to the nation if all the money invested in Consols were converted into War Loan? Would it be about £100,000,000? Mr. McKenna replied that, in his opinion, that figure was "ten or twenty times an exaggerated sum"; and at a later sitting he explained the matter thus: There was, on June 21st, in the hands of the public, £352,688,000 nominal of Consols, and if the whole of these were converted they would be exchanged for £235,125,332 War Loan. The annual interest liability, as a result of such operation, would increase from £8,817,200 to £10,580,640; in other words, we should have to pay £1,763,440 a year more at least until December 1st, 1925, and possibly until December 1st, 1945; and on the latter of these dates, if not before, the whole of the £235,125,332 would have to be paid off at par. On the other hand, this total conversion of Consols would involve subscriptions of no less than £470,255,000 to the New Loan, and it would also mean that the now perpetual interest of Consols would be entirely extinguished by 1945 at the latest. The hypothesis of total conversion is, of course, absurd, but the figures given of its cost are none the less interesting. The same reasoning applies, mutatis mutandis, to the conversions of the 2 per cent. and 2 per cent. Annuities.

Holders of these who have subscribed £100 to the War Loan have the right to convert £67 nominal or £78 nominal respectively for £50 of the new security. £100 nominal of the former would thus be converted into £74 6s. 6d. of War Loan, and £100 of the latter into £64 2s., the differences in annuity being £3 10s. 8d. against £2 15s. in the one case, and £2 17s. 8d. against £2 10s. in the other. Here, again, the converted stock is repayable in 1945 at the latest, when the interest terminates, whereas the annuities in ordinary circumstances are not terminable except by periodical purchases. No provision is so far made for the repayment of the New Loan. If a sinking fund is not established after the war, the only alternative will be the raising of another loan-probably at a more favourable rate of interest in 1925 or later. That method, however, is rather in the nature of borrowing from Peter to pay Peter. It is interesting to speculate how redemption at par in 1945 will work out in the case of Consols and the other annuity stocks. £100 nominal of Consols is convertible into £66 13s. 4d. of New Loan, which was just about their market value at the time of the latter's issue, and £1 13s. 4d. in excess of the minimum price at which dealings have since been permitted. This £66 13s. 4d. of New Loan is repayable in full in thirty years, or earlier if conditions warrant, and after the fluctuations caused by speculative transactions have ceased, there is not likely to be any permanent shrinkage in its value. But unconverted Consols must, at least in the immediate future, be governed by their ratio to the Four-and-a-half stock, and such a ratio shows them to be not worth more than 55. Ultimately, no doubt, they may improve, but that, again, will be only in connection with a general improvement in fixed value stocks and will not affect their proportional value.

The same advantage which holders of Consols and the 3 per cent. Loan enjoy of converting into a higher interest-bearing security. is prospectively extended in an equally liberal fashion to the holders of the New Loan. If any future War Loan should be issued at a higher rate than 4 per cent., the stock and bonds of the present issue will be accepted at par plus accrued interest as the equivalent of cash for the purpose of subscribing to such future issue. There is not even the obligation to subscribe before conversion; one stock will be simply exchangeable for another. In the remote, but possible, contingency of the Government having to borrow at 5 per cent., the whole of the holders of the 4 per cent. Loan, including those who have converted, would only need to tender their stock in payment for equivalent amounts in order to get the full benefit of the extra per cent. One object of this proviso is to prevent the 4 per cent. stock from falling to