Early Forms of the Funded Debt
THE early forms of funded debt were annuities and the perpetual loans from the Bank and the East India Company and later from the South Sea Company given in exchange for their charter privileges.
The annuity loans were made on the same theory as that upon which annuities are sold today by insurance companies.
The seller of an annuity agrees, in consideration of the receipt of a given sum of money, to make the purchaser annually or otherwise, during his lifetime, or for a specified period, a definite payment. This payment is larger than the interest would be upon the principal sum because upon the death of the purchaser, or upon the expiration of the annuity period the sum which he originally paid, or what may remain of it becomes the absolute property of the seller. That is, in the case of a pure life annuity, the seller and the purchaser speculate upon the probable life of the purchaser, the latter to increase his income, the former with a view to profit. Present- day tables based upon a study by insurance actuaries of the expectancy of life are remarkably accurate in indicating the average expectancy of life at a given age. The whole principle of insurance is based on this theory of averages.
The tontine policy was invented by an Italian of the name of Tonti. He devised a plan by which a group of individuals would agree with the seller of an annuity and with each other