316 THE SOUTH AFRICAN NATIONAL DEBT. 



the investor was reduced to 3.37 per cent. This was a large 

 saving to the Government, but, of course, it only meant that for 

 ten years Xatal had been paying an unusually high rate of 

 interest, which was reduced after that period to the contem- 

 porary normal rate. It remains, however, a valuable resource 

 in times of difficulty to issue short date bonds, and convert as 

 soon as possible. It was in this way that Japan financed the 

 great war with Russia. 



It is, of course, clear that opportunity for a saving by con- 

 version only exists when the conditions of credit have become 

 more favourable than they were at the date of issue of the loan 

 to be converted. But this may be due to either or both of two 

 causes — ( i. ) an improvement in the credit of the individual 

 borrower ( ic, a reduction in the insurance premium charged 

 against him) or (ii.) a fall in the international rate of interest. 

 Both these causes helped to bring about one or two favourable 

 conversions towards the end of the last century, but with regard 

 to ( i. ) Table A shows that the possibility of it nearly ceased 

 about 1888. For the twenty-two years from that date to the 

 extinction of the Cape and Xatal Governments, their credit 

 showed no improvement ; and though the Union Government 

 may in time occupy a slightly more favourable position the 

 margin for improvement is small, and it is doubtful enough 

 whether any improvement will be brought about. There is still 

 a large amount of four per cents., issued before that date, which 

 will become redeemable in the next fifteen years, and probably 

 a saving will be accomplished when they are converted. But 

 after that there is no prospect of economies due to enhanced 

 individual credit. 



The problem of conversion then becomes identical with that 

 occurring in old countries such as England. It depends on the 

 fluctuation of interest in the international markets. It is well- 

 known that this rate fell off in recent times to about 1896, and has 

 risen since. The subject has been discussed elsewhere*, and it 

 is not necessary to repeat the arguments here. It need only be 

 remarked that the belief, formerly so general, and even now 

 widely held, that the rate of interest falls steadily with the pro- 

 gress of industrial civilisation, is not true. The rate varies on 

 account of several causes, of which the most important is 

 the rate of gold production, and it is just as likely to rise as to 

 fall in the future. Colonial Governments, therefore, cannot 

 rely upon effecting economies in interest by conversion after their 

 credit has become well established and the early loans are repaid: 

 that is, in the case of South Africa, after a few years hence. 



The deduction just reached makes it all the more necessary 

 to consider the right policy with regard to payment for public 

 works carried out by means of loans. It is recognised that the 

 present generation cannot be expected to pay for extensive per- 



" Lehfeldt. "Public Loans." {Economic Journal, March, 1912). 



