Government Bonds

At the head of this class stand Government bonds, of which there were at one time outstanding over $2,500,000,000, but of which there are now only about $1,000,000,000. These are held chiefly by national banks as security for their circulation, or for government deposits, and by trustees for funds in cases where safety is a more important consideration than profit. They are as safe as anything on earth and always marketable, but they scarcely call for our consideration, because they no longer offer any attraction to ordinary investors.

One of the striking marks of our national prosperity is the fact that American investors have recently been offered and have readily accepted participation in loans to foreign countries. Russian government bonds issued in connection with their great railway were taken at a price yielding 4 1/8 to the investor; the German loan of 1901, 3%; the English short-time loan of 1900, 3.4; and the English irredeemable consols issued in 1902, about 2.6 per cent. Our own governments now yield less than 2 per cent. to the purchaser.

State Bonds

Next in order come State bonds. Their history is not one of the things we are proud of. A total of over $300,000,000 (principal and interest) of them is now delinquent by reason of repudiation on the part of their makers. A large part of this delinquency is made up of what is known as "carpet-bag" bonds issued by Southern states during the period of reconstruction and later repudiated on the ground that the government creating them did not properly represent the people. But that is not true at all. Virginia, for example, has old bonds outstanding which were created before the war and which you can buy for a few cents on the dollar. This is possible because the Eleventh amendment to the Constitution took away the right of private parties to sue states for payment of their debts.

It is probable that the days of repudiation are past, but history sometimes repeats itself, and it is well for the purchaser of state obligations to remember that their payment depends entirely upon public morality. If he confines himself, however, to the bonds of states whose good financial reputation is necessary to the business interests of their citizens, the risk of loss which is inherent in all investments will be reduced to a minimum.

Municipal Bonds

What has just been said regarding state obligations applies with equal force to the obligations of municipalities. There has been much repudiation also on their part, but most of it has been of bonds for which the people of the municipalities never received any consideration, the bonds having been issued during the speculative period succeeding the war in support of railroad schemes.

Unlike states, municipalities can be forced to pay through the courts, and so numerous have such cases been that almost every point concerning the legality of municipal obligations has been finally decided by the courts. The opinion of a competent lawyer as to their validity is now enough to satisfy investors, and such an opinion is always offered by bond dealers when offering the bonds. Beyond that it is only necessary to ascertain the population, and the general prosperity of the municipality, and the relation these bear to its total indebtedness, in order to decide upon the desirability of its obligations as an investment.

In many states the legal limit of such indebtedness is only 5 per cent. of the assessed value of the property within the municipality, and this is perhaps only 1 per cent. of the real value. With this safeguard, with our population increasing at the rate of 4,000 per day, and with the prevailing prosperity of our country, municipal obligations are now very popular investments. They yield, according to their grade, from 3/5 to 5 per cent. to the investor, and as a class they are one of the best investments in the market.