In 1717 Walpole had been very desirous to diminish the National Debt. He established the first sinking fund, borrowing £600,000 at only four per cent., using this money to pay off liabilities bearing a higher interest, and applying the money thus saved to the extinction of the debt. He also, taking advantage of the value of Government credit, induced both the Bank and the South Sea Company to accept a lower rate of interest for the money they had already advanced, and to advance between them nearly £5,000,000 more, for the purpose of paying off as far as possible those holders of redeemable debts who refused to accept the lowered rate of interest. The great South Sea Scheme of 1720 was in principle nothing but a repetition of this manœuvre. The South Sea Company, believing devoutly in the power of credit, was anxious to extend itself as far as possible. The Government was so eager for the reduction of the debt that the King had made special mention of it in the speech with which he opened Parliament in the close of 1719. Under these circumstances the proposition of Blunt, director of the South Sea Company, found a ready hearing with the ministers. Between them an arrangement was devised, perfectly justifiable and harmless as far as the principle of it went. The bulk of the Government debt consisted in redeemable and irredeemable annuities, on all of which large interest was paid, and on which that interest must continue to be paid unless the holder of the annuity voluntarily reduced it. There is said to have been about sixteen millions of each class of security. Government wished to bring the whole mass into one general fund, bearing a lower rate of interest, and the South Sea Company was so greedy of the Government credit, that it expressed itself anxious to add the whole of this enormous amount to its capital. It is plain that any transaction of the sort, as far as regarded the irredeemable annuities, must have been entirely voluntary. All that the Government could do was to allow the Company to persuade the holders to exchange their annuities for shares in the Company. With regard to the holders of redeemable annuities, payment in full must be offered, but that payment might be given in shares of the Company. In other words, those who accepted the exchange became proprietors in the Joint-stock South Sea Company to the amount of their claim on the Government. With regard to the Government, the South Sea Company alone became creditor, instead of a multitude of old annuitants, and was contented to receive henceforward, instead of the seven or eight per cent. the annuitants had received, five per cent. till the year 1727, and after that four per cent. till the capital as well as the interest should be returned, for the fund was made a redeemable one. If the transaction were thoroughly successful the capital of the South Sea Company would be increased by about thirty-two millions, advanced to Government at five per cent., and Government would