"CAPTAIN COB'S CONSOLS."
IN view of the possible necessity of another War Loan, the Daily Mail and some other newspapers are now booming the idea of what are called bonus bonds. In substance a bonus bond means a State lottery. The investor is to be enticed into subscribing to a loan by the prospect of obtaining a prize if he draws a lucky number. The idea is not a novelty. It is commonly- practised in many other countries, notably in France, and was practised in this country for at least a century. The earliest lottery loan recorded in our history was in the year 1612, but apparently this loan, though of great con- temporary importance, had not the authority of the State behind it. It was set on foot to provide money for estab- lishing the settlement of Virginia. Yet even at this early date it is notable that there were two currents of opinion, for, while on the one hand money wag being raised for an admittedly laudable purpose by means of a lottery, the State was simultaneously condemning lotteries as immoral. At the end of the same century the State, without changing its opinion as to the immorality of lotteries, proceeded to use them for its own profit. Throughout the greater part of the eighteenth century lottery loans were common. It cannot, however, be said that they were brilliantly successful. Naturally the sums to be raised were very small in comparison with the sums which we must contemplate now, but there is certainly no definite evidence that money was obtained any more cheaply by adding the inducement of a gamble to the ordinary motives of investment. Towards the end of the century and for nearly the first quarter of the ninetenth century, the State, while still emphatic as to the immorality of gambling, actually developed a system of raising not loans but revenue by means of an annual lottery. The lottery was generally fixed at a million pounds, rather more than half was given in prizes, and the expenses of working the lottery and advertising it we re very con- siderable, so that the final profit obtained by the State was about 000,000 a year. As a method of raising revenue it was almost as fatuous as the Land Value Duties of the present era. All that can be said in relative defence of the lottery, as compared with this modern invention, is that it did at least bring in a, balance on the right side. It is useless, however, in dealing with a problem of this kind, to appeal only to historical experience. The kind of person who is affected by the agitation for bonus bonds, or, as we should prefer to call them, "Captain Coe:s Consols," knows very little, if anything, of his country's history, and is seldom affected by any argument drawn from past experience. We have, therefore, to look at the problem quite dispassionately from the strictly financial point of view. From that point of view the only advantage that "Captain Coe's Consols" offer is the possibility that they might attract the class of person who is a gambler by nature and not an investor. There are doubtless a good many such people in the country, but the practical question to be considered is how much money are they good for. At the outside the most we could hope to obtain from people of this type is, say, £20,000,000. Next, we have to ask ourselves what is the price to be paid for attracting their subscriptions. The price is the offering of prizes in the shape of some additional pecuniary advan- tage to the drawer of the lucky number. But unless the operation is to be obviously uneconomical the prizes must be paid for, not by the State, but out of the pockets of the persons who draw the unlucky numbers. It would be absolutely futile to offer a loan on sueh terms as to attract the ordinary investor, and in addition to offer at the expense of the State prizes sufficient to attract the gambler. Therefore the whole proposition presupposes that the ordinary rate of interest for the bonus bonds must be fixed at a lower rate than the State would otherwise have to borrow at. For exa mple, a lottery loan might be issued at 21 per cent., with a pro- vision that the drawers of lucky numbers, in addition to the 21 per cent. should obtain as a bonus either a free assignment of further stock, or 5, 10, or 15 per cent. on their investment, according to the number they drew. There are, indeed, numberless ways of giving the bonus, but they are all based upon the primary condition that the ordinary terms of the loan must be lower than the rate necessary if there were no bonus. In other words, in order to attract the gambler it is necessary to repel the investor. Consequently, what the Chancellor of the Exchequer has to ask himself is whether he is likely to get more money out of gamblers than out of investors. To that question, even in times of peace, there can be only one answer. Although it is true that English men and. -women as a body are less economical in tendency than Frenchmen or Scotsmen, or possibly than Germans or Russians, yet it is certain that the great majority of English people are more drawn to sober business than to gambling speculations. At a rough guess it may be stated that for every 120,000.000 that the Chancellor of the Exchequer might entice from the gambler by offering bonuses, he would lose £200,000,000 from the investor by lowering the rate of interest on the body of the stock. The above considerations would, we contend, hold good even in time of peace, and are a fatal objection to "Captain Coe's Consols" as a regular system of national finance. In time of war the argument against them is even stronger. Above the ordinary motives of human conduct operating in peace time we now have to take account of the fact that the spirit of patriotism is operating probably to a greater extent than in any previous period of our history. That spirit is essentially a spirit of sacrifice, and it would be a real mischief to the country if it were diluted with the idea of a gambling profit. In passing it may be said that in certain phases of the war already there has been too much of the spirit of gambling. Instead of making careful inquiries and adequate Preparations for the supremely difficult task of forcing the Dardanelles, we rushed at the enterprise, and, in the very phrase of the author of that enterprise, we made a gamble with the lives of our soldiers on the off-chance of winning a big prize. The result does not encourage us to make further gambles, either in a military or in a monetary sense. Success in war, as in the industries of peace, is finally only won by hard work and careful fore- thought. To adopt any device which will tend to obscure this fundamental truth, and will also tend to make the masses of the people believe that there is some easier road to victory, might do incalculable harm to the country. As regards the more general problem of how to raise money for the necessities of the war, the opinion may be expressed that conceivably there is no need for a new loan at all, but that the wiser course would be to maintain some system of regular borrowing which would provide the necessary funds day by day or week by week. To a certain extent this is already being done by means of the 5 per cent. Exchequer bonds, which are the best device for borrowing that the Government have yet tried. Possibly the new scheme for attracting small investors by means of one-pound. bonds sold for present cash at 15s. 6d. may also bring in a little money regularly. If new devices are necessary to attract more money, we suggest that greater use should be made of life annuities. In a sense a life annuity partakes of the nature of a gamble, but it is based on a consideration which affects all of us and from which none of us can escape—the uncertain duration of our own lives. Just for this reason public opinion in this country, while in the main condemning ordinary forms of gambling, has never treated life insurance or life annuities as subject to the same censure. In our opinion, the Government have unaccountably failed to make sufficient appeal to persons who wish to seek an investment based upon the duration of their own lives. It is true that many investors, perhaps indeed most, want a permanent invest- ment which they can bequeath to their children ; but there are also many eases of individuals, both men and women, who would like during youth to make some pro- vision for old age. They can do this by buying deferred life annuities, which are as a matter of fact on sale at the Post Office. But very few people know of the existence of this convenience because it is not advertised, and, what is more to the point at the present time, the conditions on which such annuities are offered are financially out of date. More than twelve months elapsed after the war began before the National Debt Office issued new terms for ordinary life annuities based on the increased rate of interest ; apparently the new tables for deferred annuities have not yet been worked out. At any rate, public attention has not been called to them. We suggest that the Government should make a feature of deferred life annuities with the object of attracting a special class of investor. The terms offered would naturally be based upon the ordinary rate of interest at which the Government could borrow.
But the main stand-by of the Chancellor of the Exchequer at the present time must be the 5 per cent. Exchequer bond. That is already being very largely taken up, but we suggest that in order further to enhance its popularity an arrangement should be made for accepting Exchequer bonds at their face value in payment of Death Duties. The difficulty of realizing an estate in order to pay the Death Duties out of it is often a very serious one which has embarrassed many executors. If, however, it were part of the law of the land that all the Exchequer bonds held by the deceased person at the date of his death would be accepted as cash by the Government in payment of Estate Duty, it would become the practice for every prudent person to buy at least as much in Exchequer bonds as would cover his probable Estate Duty. This alone would tend to enhance the value of these 'bonds as an investment, while removing a real difficulty with which many executors have to struggle.
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