land. They lie, with their big sheets of uncut coupons, in the dusty pigeon-holes of desks. Occasionally, in settling up an estate, they come to light and are put upon the market. They command just about such a price as they are worth as historical curiosities. You can buy a gorgeously engraved and highly colored bond of the State of Louisiana, stamped with the State's seal and signed by the State officials, bearing the State's formal promise to pay $1,000, and interest which would now amount to over a thousand dollars more-you can buy this, or the bond of any of these repudiating States, for from five to fifteen dollars. It is ten of such bonds that figure in the present suit between South Dakota and North Carolina.

EFFECT OF THE DECISION.

The plain effect of that judgment, the law relating to repudiated bonds as it stands to-day, is this: Whenever, by any sort of transfer which, so far as the records show, is bona fide, any State finds itself the owner of repudiated bonds whose conditions are sufficiently analogous, in a legal sense, to the bonds in the present suit, that State can sue the repudiating State in the Supreme Court, and recover judgment. The perversion of public policy, the gross abuses, which may readily arise from this state of the law, can best be understood by a close examination of the statute by which South Dakota acquired the bonds in the present suit.

POSSIBILITIES OF ABUSE.

For this purpose, it will be sufficient to quote five lines of the statute to which Mr. Justice White called emphatic attention in his strong dissenting opinion, in which he opposed permitting South Dakota to recover, italicizing the words which he italicized:

"The Attorney-General is authorized to employ counsel to be associated with him, in such suits or actions, who, with him, shall fully represent the State, and shall be entitled to reasonable compensation out of the recoveries and collections in such suits and actions."

Now, what is the magic of these italicized words, which, alone, Justice White declares, make the suit one which the court ought to refuse to lend its aid to. Their significance can best be illustrated by a supposititious case.

A SUPPOSITITIOUS CASE.

Suppose I buy ten thousand, or a hundred thousand, dollars of the bonds-unless this present decision has raised their pricefor I per cent. of their face value. Suppose I go to the proper official of South Dakota and say: "I am going to give you these bonds. I see by your statute that you are authorized to employ a lawyer to collect them. Now, I know a lawyer, A. He is my personal counsel. He is perfectly familiar with all the legal conditions of these bonds, and is altogether the best man you can employ to collect them." It is only reasonable to suppose that the recipient of so bounteous a gift would be amiable enough to employ my friend A. And, without a doubt, as fees for lawyers go in the world of high finance, what the statute calls a reasonable compensation for the services of my friend, A., would be at least 30 per cent. of the face value of the bonds. And when A. has got his handsome fee, might not some generous impulse actuate him to come to me and thank me for having put him in the way of picking so rich a plum? Might he not even give me half the fee he got? The net result, then, would be this: I should have paid I per cent. for the bonds, and received 15 per cent.; my friend A. would have 15 per cent., and South Dakota would have 70 per cent. Decidedly, there would be a general sense of peace and satisfaction in every quarter, except North Carolina.

Now, under the plain wording of this statute, and under the decision in the present case, every one of these things could happen to-morrow. The feeblest imagination can picture the avenues of financial and political corruption which this opens up.

ANOTHER POSSIBILITY.

Still another possibility follows this decision. Suppose that South Dakota had bought these bonds, instead of receiving them as a gift. The decision hangs entirely on the fact that South Dakota was the bona fide owner of the bonds. There is no magic in the fact that she got them as a gift; she would be equally the bona fide owner if she had bought them. This decision opens up endless opportunities for speculatively minded States to trade in the obligations of sister States. Can any imagination exaggerate the scandals, the corruption of Legislatures and State officials, the limitless possibilities of graft which would follow, if States should start to trade on the power which this decision gives them?

THE BONDS OUGHT TO BE PAID.

It may be inferred, from what has been said, says Mark Sullivan, that I do not think these bonds ought to be collected at all. This is far from the truth. What is to be protested against, and what the dissenting justices disapprove, is this beating the Constitution about the stump and sacrificing the dignity of sovereign States, to serve sordid ends. The Southern States ought to pay every cent of these repudiated bonds. It is possible that, in due time, these States will see this matter in the same light. But the day when they shall see it, and pay their repudiated obligations of their own free will, will not be hastened by making them the victims of legal jugglery with the Constitution.

Note.-Up to 1907 the court and South Dakota had found no way to enforce the judgment. In effect the court holds that in such a case the debtor State can get all the judgments and all the decisions it asks for; but a sovereign debtor, whether it be North Carolina or the United States, cannot be made to pay against its will, under the law. It may be compelled by war; but in case of war, such is a qualification of a State's sovereignty, the United States must defend it; while such is another qualification, the Constitution forbids one State-South Dakota, for example-to make war on another State, or, indeed, to make war at all.

PART II

Municipal Bonds

Advantages of Municipal Bonds as Investments.-The savings-banks and other institutions paying interest on deposits were complaining only a short time since of the difficulty they encountered in securing returns on their investments so as to be able to pay depositors over 3 per cent. The returns on Government bonds and other high-class securities had been so reduced that the savings-banks had great difficulty in keeping up their usual income. There were many speculations made as to the reduction of the interest rate, and as to what might be the lowest limit if the reductions should continue. There has, however, been a change, and the savings-banks are finding themselves able to return to a 4 per cent. rate on deposits. This may show that with less demand for securities the prices fall,

and the amount realized in interest is greater; but there is no doubt that the great increase in municipal securities issued by counties, cities and towns for purposes of improvement has had its effect in strengthening the general and steady demand for money upon which the average rate of interest must depend. The lessening demand for Government securities, which although gilt-edged as to credit, bear a low interest rate, and the higher interest rates which Japan and Russia had to pay for recent loans, show that the public have learned that it is possible to obtain investments sufficiently secure which afford an income much better than Government bonds.

No doubt there is much choice among municipal securities, and they range from the bonds of great cities to those of comparatively small towns. When a number of municipalities of various kinds in the United States is taken into account, the possible extent to which this form of investment may mount up shows such an unlimited demand for capital for many years to come that may well inspire confidence as to the continued strength of the average interest rate.

The advantage of municipal securities considered as a whole consists in their being so well distributed as to the basis on which they rest. A nation as a whole may meet with difficulties arising from war, or other calamity, and its bonds may become less secure in consequence, or it may become so high in credit that its securities are in such demand as to bring little profit to the ordinary investor, making them desirable only to the class of capitalists who use them as a temporary investment where their money will be secure, in the intervals when it is not employed in enterprises bearing larger returns. The investor who looks to income solely, who desires freedom from anxiety and a steady interest rate, does not care to hold Government bonds which, especially in the United States, are so competed for, for special purposes, that the realized rate, if the bonds are held purely for the interest paid, is at all times almost nominal.

Municipal bonds give a wide choice in the rate of interest. The investor for income can take almost any degree of risk he wishes to, and can obtain the largest possible income from a given capital by a wise selection of municipal bonds. It must be remembered that the municipalities of the United States are most of them well established and prosperous, and almost sure to become richer and more prosperous with the growth of the country as a whole. The investor by purchasing the securities of a county or town just struggling into prominence, may obtain an interest rate which gives a good income, and in most cases he is also sure to obtain an increment in his principal by

reason of the improvement in the credit of that particular municipality.

To investors for income on a large scale, such as savingsbanks and trust companies, municipal securities offer many advantages. The risks that can be taken can be averaged. But since the methods of issuing these securities have been scrutinized from a legal standpoint, and the proportion of issues any municipality shall bear to its population and wealth carefully fixed by State law, and provisions made for the sanctioning of such issues by the vote of the inhabitants, there is in fact very little risk taken. The only contingency that might cause a fall in value of municipal securities, is a general and permanent decline in the prosperity of the whole country.

This legitimate opening for the investment of the surplus wealth of the country is likely to continue available for some time to come. If the doctrine of municipal ownership of many of the public enterprises now furnished by private enterprise should make progress, there would seem to be hardly any limit to which the safe issue of municipal securities might not extend. Very often a higher rate of interest indicates a greater risk, but the fact that municipal securities pay a higher rate than other first-class securities does not seem to be due to this cause. It is the competition for money caused by the free borrowing of municipalities that makes the rate of interest on their securities more profitable to the investor; a plain instance of the working of the law of supply and demand. As railroad securities formed the chief form of investment during the last half of the nineteenth century in the United States, so to-day municipal securities now occupy a similar position. The losses and disappointments which often came to those who invested their money in railway stocks and bonds are not so likely to be experienced in the case of municipal securities. The nature of the basis of investment is entirely different. Even losses by municipal corruption and misgovernment do not injure the investor to the degree experience has proved the holders of railway stocks and bonds may be injured by the manipulations of railroad wreckers.

The municipality in a prosperous country has a vitality that cannot be easily wrecked.

Attitude of New York State Savings-Banks to Municipal Bonds as Investments.-The savings-banks of New York State on January 1, 1904, had aggregate deposits of $1,131,281,943, and their aggregate resources amounted to $1,238,800,468.

The total investments of the banks making up the above totals amounted to $1,099,987,362.