THE CONVERSION OF THE FUNDS.

[nom ODII SPECIAL CORRESPONDENT.]

A PORTION of the programme of M. Fould has already been carried out, namely, the conversion of the Renter:. Although you have already devoted a special article to the subject, we think it worth while to return to it, with a view to discuss the nature of the measure more closely, as well as its motives and results. The Public Debt of France amounts to a sum of 10,000,000,000 francs (400,000,0001.) in round numbers, the interest of which in- volves an annual outlay of 35,000,000 fr. About one-half con- sists of Three per Cents, the other of Four and a Half per Cents. Ten years ago the latter paid fiveiper cent. But the conversion of 1852 took off one half per cent., a reduction which diminished the expenses of the Treasury by 18,000,000 fr. Now the aim of a sound policy of administration should have been to complete the operation thus begun, and to have consolidated the whole of the public debt by the conversion of the Four and a Half into Three per Cents. Had the Government effected this conversion, thanks to a good credit and a satisfactory financial position, an annual and permanent saving of 50,000,000 fr. would have been realized upon the budget. But the very fact that such a transaction cannot possibly be carried out without a prosperous state of finance and a well-grounded credit, proves demonstratively that the Empire is not, and probably will not for a long time be, in a position to achieve such a result. What has just been done under the name of the conversion of the .Rentes is another matter altogether. When a spendthrift has reached the end of his tether, and all he has left is the hope of a large legacy, which seems to lag desperately on its way, he has recourse to amiable money-lenders, who imme- diately advance him a small portion of the capital expected, in con- sideration of all the remainder when it falls due. This is M. Fould's expedient. The Government wished to have at its immediate dis- posal a certain number of millions. To obtain these the State gave up the prospective benefit of a compulsory conversion, and offered in its stead to the holders of Four and a Half Stock the same revenue in Three per Cents, if they would only pour into the Exchequer the difference between the actual prices of the two species of.funds. Suppose, for instance, that in order to buy in the Four and a Half per Cents an annual income of 4 fr. 50 c., it were necessary

to pay 100 fr., and that in order to buy the same annual income in Three per Cents, it were necessary to pay 108 fr., the State offered to give those fundholders who consented to pay the difference (viz. 8 fr.) a title to inconvertible Three per Cede, guaranteeing them a fixed revenue of 4 fr. 50 0., which in the event of an ulterior conver- sion might otherwise have suffered diminution.

Manifestly, therefore, the Proposition made to the fandholclers was that of a guarantee for the future against the possible disadvantages they might incur from a compulsory conversion. On the other hand, 'what the State promised to itself was the immediate 'fruition of the

FossFoss amount of the premiums paid by the fundholders for such security. M. Fould announced, in his report, that he expected the grand total of these premiums to ainount- to between 200,000,000 fr. and 300,000,000 fr. (12,000,0000. And, in consideration of this sum, the State engaged for the future not to operate a conversion, which would have reiIlizéd an annual and . permanent saving to the country of 50,000 000 fr. It must be plain, therefore, that we were right, when, in our last letter, we said, that the optional eonversion ima- gined by M. Fould was, after all, nothing more than a bidden loan which fell heavily upon the Exchequer.

But, it may be said, at all events the immediate result aimed at by M. Fonld is attained.

Far from it. II. 'oul4 originally conceived that the premium 'which the landholders would have to pay would be one of 8 fr., and he concluded that the gross amount of the premiums would be about 30%000,000 fr. But, as it turned out, the premiun only rose to 4fr. 40 c., and at this rate, had the operation been even thoroughly successful, the Exchequer would have realized only 180,000,000 fr. But this sum was not realized. M. Fould confesses in his repoit that the aggregate of the premiums reaches only to 155,000,000 fr. (6,200,0000 ; that is to say, just one-half of that upon which be had originally reckoned.

Nevertheless it would be a serious mistake to imagine that the Ex- chequer has in reality obtained 155,000,000 fr. by the transaction. If we look' attentively to the way in which the conversion was effected, we shall see that such a result is far from having been achieved.

In order that the holders of funds in the Four and a Half per Cents should lend a willing ear to the proposal of the Government, they must have had serious grounds for dreading the event of a compulsory conversion—in other words, of the compulsory option between a re- duction of their revenue or the repayment of their stock at par. But such fears on their part could have no groueds, unless the Current price Of the Four and a Half per Cents should rise to 100 fr:, and that of the Three per Cents should exceed 70 fr. But on the 31st December, 1861, the Three per Cents were at 67 fr., which there- fore yielded 4 fr. 48 c. per cent.; and the Four and a Hal/per Cents were at 95 fr., which therefore yielded 4 fr. 73 c. per cent. Any fear regarding a compulsory conversion was thus absolutely chimerical, and the operation was rotten at the root. Then it was that the Government had recourse to a line of policy (which yoti.b4ye your. selfrelated in detail), and bought ny a large quantity of Three per Cents, with a view to produce a factitious rise. A very considerable part of tbe155,000,000 fr. obtained by the payment of the premiums was employed in producing this effect?, and must be subtracted from the aggregate produced by the conversion. It must be added, if we are to believe a very prevalent report, that of what remained out of the 155,000,000 fr., about 40,000,000 fr. were taken to pay the debts of the civil list. We may judge how much is left to meet urgent Claims.

To arrive at this result, a debt of 12,000,000,000 fr. Inconvertible Three per Cents has been substituted for a debt of 10,000,000,000 fr., about half of which (the Four and Half) was convertible, and a portion (the trentenasy bonds) repayable in a few years. Now, it is admitted b.y all competent judges, that to increase the capital of the debt is to incur a more burdensome liability than to borrow at high interest. With heavy interest and a restricted capital, it is still possible, under favourable circumstances, to free oneself by means of a sinking fund; whereas an immense capital at a low rate of interest renders all hopes of liberation nugatory.

We should add, moreover, that within a yery short time a con- siderable fall in the funds cannot fail to bring about the sale Of the funds which were bought by the agents of M. Fould for the purpose of producing the fictitious rise required to operate a successful con- version. Till then, these funds will remain at their fixed value in the hands of their actual holders, figuring in the amount of the floating debt, and diminishing in a given proportion the available re- sources.

If M. Fould's operation has been productive of little good to the Exchequer, it was none the more welcome on that account to the fundhoIders. Those who held Four and a .ffalf per Cents were for the most part people of moderate fortune, who had sought to place their capital on a stable and definite security, and who wished for a fixed income. Many of them were unable, without great inconveni- ence, to obtain the -supplementary capital required to pay the premium, and cared little, to boot, for a shift which brought no in- crease to their revenue. Accordingly, not a few of them got rid of their shales, to invest the proceeds in other securities, and especially in railway debentures. The run upon these securities caused a con- siderable rise in their prices, and, as a consequence, diminished the advantages which the purchasers had expected to derive. In short, a large nunaber of private fortunes underwent a radical disturbance, and very keen dissatisfaction was excited among a class of men essentially steady and conservative, whose sympathy is, above all others, essential to the Government.

The opposition of the fundholders to the conversion was so earnest, that the Government, feeling the success of its measure compro: mised, put a strong pressure upon the solicitors and stockbrokers, (notaires et les huissiers); who, in the country, are frequently con- sulted on the investment of money, and by means of secret circulars enjoined Upon them to lend all them efforts and counsels to the suc- cess of the conversion.

Upon all the charitable institutions, which are more harshly dealt with every day by the Government, it may fairly be said that the conversion was literally imposed. These establishments, the charges upon which are continually increasing, and whose resources are abso- lutely inadequate, have been compelled to submit to an outlay which was entirely unproductive, and to make a transfer to the Exchequer, the sole result of which was to be the increase of a capital, the nominal augmentation of which can be of no earthly use to them. Thus at the very time when the public misery claimed immense sacri- fices on their parts, they have been compelled to yield up a capital of at least 45,000,000 fr. So mach for the beneficial result of M. Fould's manipulations, both for the State and for private individuals. This failure reacts upon the whole of his system. The floating debt is not appreciably diminished. The consolidated debt has not been reduced to uniformity (uniflje). How are these desirable results henceforth to be attained?

In the present state of things in order to unify the public debt, the State must needs incur fre4labilities. These would only swell the floating debt. Again, to reduce the floating debt, it would be

necessary to Make fresh loans or to create new taxes. "

Assuredly a new loan is not impossible. On the burdensome eon- ditions for the State, and the advantageous conditions for the sub- scribers which would necessarily be made, several successive loans might easily be made. I3ut by such conduct the future fate of France is staked, the resources of future generations are forestalled to satisfy the spendthrift outlay of the.present ; and if that is to be the end of it all, how cruelly does the 14-mister give himself the lie who modestly proclaimed himself as the "Necker of the Empire." As for new taxes, we do not think that they can be loolced to for new resources, under pain of falli into such socialistic imposts as those which the Emperor has already caressed in his thoughts, and towards which, it is said, he is again turning his attention. Much was said some time ago, and people begin to talk again about a new impost to be laid upon successions to property, and which would consist in admitting the State in every succession on an equal footing with the heirs of deceased persons in the character of orignus; owner o f all the property of citizens.

Will this attempt be made ? For our part we must continue to doubt. But if the Empire entered upon such a course, it would escape for a season from its financial embarrassments only to strand