23. We must now explain the difference between Securities for Money and Convertible Securities.

A Security for Money always means an Obligation, or Security, for the payment of a definite sum of Money from a definite person at a definite time. There is, therefore, always some Obligor, or Debtor or some person who is bound to pay it. There are different forms of such Securities, such as Bank Notes, Promissory Notes, Bills of Exchange, Exchequer Bills, Navy Bills, and Debts of all sorts.

Convertible Securities are securities which no particular person is bound to pay, but for which under usual circumstances a purchaser can readily be found in the open market. Thus any Property which can readily be sold is called a Convertible Security, because it can be readily converted into Money. This species of Property includes the Public Funds, Shares in all sorts of Commercial Companies, and all title deeds to Property of a movable description of which the Property passes by simple delivery, such as Dock Warrants and Bills of Lading. The fundamental distinction between these latter and Instruments of Credit will be clearly explained in a future chapter. Now as Convertible Securities mean Property which is readily convertible into Money, of course there are all degrees of convertibility. There is no absolute distinction in principle between the different species of Property. But of all species of Property the Funds are the most readily convertible: and the Land or Real Property, the least readily convertible, mainly in consequence of the difficulty in its transfer.

Thus Securities for Money never represent any specific Money: but are always a claim on the person. Convertible Securities are never a claim on the person, and certain kinds of them are always a title to certain specific goods. Sometimes a Security for Money may be changed into a Convertible Security. This is done in what is technically called funding the unfunded debt. The Government often raises money on its bills like an individual, and is of course bound to pay them at maturity. These Exchequer Bills, therefore, as they are called, are, like any other Bills of Exchange, Securities for Money. Sometimes when these bills amount to a large sum, it is very inconvenient for the Exchequer to pay them in full, and it gets its Creditors to agree not to demand repayment of the whole debt, but to receive only the interest on it in perpetuity. When this is done, the Creditor loses the right to demand the principal sum from the Government, but he may sell the Eight to receive the Annuity to any one else in the open market. It then becomes a Convertible Security, and is called the Public Funds, or Stock. This operation is termed funding the unfunded debt. In a similar manner, Railway companies have been allowed to borrow money on their bonds, termed Debentures. But finding it inconvenient to repay these large sums they have formed them into Debenture Stock, upon which they are only bound to pay the interest, like the Public Funds.