Internal War Loans Belligerent Countries

able funds has so far advanced that even governments and
companies with the very highest credit are now forced to pay
a rate of interest from 50% to 75% higher than during the
pre-war period. This increase in the rate of interest is not
necessarily a reflection on the credit of the governments and
companies, but is rather caused by simultaneous demands
from all parts of the world for capital, not to be used for the
production of new capital, but for the production of articles
which in large part are to be destroyed. Assuming that in
general the net interest rates of war loans reflect current
money rates, one might expect that an analysis of war loan
net yields would throw some light on the comparative internal
financial condition or "money economics" of the warring
nations. Such an analysis shows that Russia, Austria
and Hungary have consistently paid higher rates on their
loans than have the United States, Great Britain, France,
Germany and Italy.
Of scarcely less importance in the comparison of war loan
yields is the conversion privilege. Where loans carry the
unrestricted right of conversion par for par, into future higher
interest bearing obligations the issuing government may subsequently
be compelled to increase the rate of interest on a
large proportion of its debt. This potential factor of increase
in the net interest rate must be taken into consideration in
comparing rates and yields on war loans. The large conversion
from earlier loans placed the British Government in
a position of profiting very little from former loans at a lower
rate of interest. In this connection, it is interesting to note
that Great Britain and the United States did not grant the
right of conversion to the holders of their third loans. The
three war loans of France are non-convertible and have been
issued on a basis varying only one-fifth of one per cent.
While there was a decided disparity between the rates of the
first British loan and of the first French loan and a considerable
difference in the rates of the second loans of the two
countries, there is only a comparatively small difference in
the average rates on their total outstanding long term obligations
issued internally since the beginning of the war. The
loans made by Great Britain and the United States to their
Allies naturally tend to raise the rates in these two countries
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