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SINKING FUND 13 May 1819 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence [1819]

Edition used:

The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 5 Speeches and Evidence 1815-1823.

Part of: The Works and Correspondence of David Ricardo, 11 vols (Sraffa ed.)

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SINKING FUND
13 May 1819

Mr. Grenfell moved for a committee on the sinking fund. The present system was for the commissioners for the redemption of the national debt to go four times a week into the city to purchase stock, which in effect ‘they bought with borrowed money—the money borrowed from the loan-contractors.’ ‘This was creating a new debt for no other purpose than to destroy an old one: selling new stock cheap in order to buy old stock dear.’ His object was to convince the House of the expediency of applying the sinking fund to diminish the loan which was to be raised for the service of the year. The saving to the public which might have been effected if this method had been applied from 1793 to 1813 amounted to 20,000,000l. and on the loan of 1815 the saving might have been upwards of 2,000,000l. Amongst those who differed from him in this opinion some were under a bias from self-interest. ‘Loan-contractors were not in his judgment exactly that description of persons by whose advice in these matters a chancellor of the exchequer ought to be governed. In 1814, the right hon. gentleman had stated in his place, that, having conferred with a number of gentlemen contracting for the loan with regard to the propriety of acting on his (Mr. Grenfell’s) suggestion, they all, with one exception only, signified their disapprobation of it, and recommended a loan of 24,000,000l. instead of 12,000,000l. The exception to which he alluded was that of his honourable friend (Mr. Ricardo),1 who, greatly to his credit, observed to the chancellor of the exchequer, that if he considered his own interest merely, he must agree with his brother contractors; but if he were to consult the advantage of the country, he should advise the application of the sinking fund, and a loan of 12,000,000l. only.’

The Chancellor of the Exchequer objected to the motion, on the ground that it would fetter the discretion of government. As to the case of the loan in 1815 ‘it was true that a great profit had been made upon the loan alluded to, but it was contracted for previous to the battle of Waterloo, and the profit was derived from conquest, and the successful termination of hostilities.’ With regard to the supposed saving of 20,000,000l. upon all the loans contracted for during the war, if the system of applying to the sinking fund had been adopted, the sum mentioned did not exceed two per cent of the amount borrowed in that period. ‘Instead of a profit, however, a loss had been sometimes incurred, which would probably have balanced the amount of the saving. The contractors, too, would have objected, and offered less favourable terms.’ ‘One great advantage attending the present system was, that it produced a general steadiness of prices.... Were it not for the regular purchases made by the commissioners, there would be few real buyers, and persons under the necessity of selling would be at the mercy of stock-jobbers.’

Mr. Ricardo said, that he understood the hon. mover to have argued, not that the commissioners, if subscribers for the loans, would have procured for the public the profit which arose from the events of war or peace; but that they would have retained for the public that regular premium which the contractors obtained independently of the events of peace or war—which they were entitled to for undertaking the risk of such extensive undertakings, but which of course, under the present plan, was lost to the public. In that opinion he heartily concurred, as he could not conceive the advantage which could arise from giving the commissioners sums to lay out in the purchase of stock, while sellers were sent by the government to supply them with the stock which they were to buy. The contractors for the loan brought their stock to market just in the same degrees as the commissioners purchased it: they did not dispose of it in the mass, but brought it weekly and daily to market to provide for their instalments. Any gentleman who supposed that if that process did not go on, it would be in the power of the jobbers to make hard terms with the sellers of stock, must have been perfectly ignorant of the stock market [Hear! hear!], for competition was no where carried to such an extent, and no where operated with more benefit to the public. His hon. friend had alluded to the opinion which he (Mr. Ricardo) had given before the chancellor of the exchequer in 1814. He had certainly then given the opinion which he had long entertained. He should have shrunk into the earth before those who had long known his sentiments if he had given any other; but he knew that those gentlemen who gave a contrary opinion, had given it just as conscientiously; for great and sincere differences of judgment on this subject existed in the city. To him it certainly appeared, that if the process of the sinking fund had an effect on the stock market, a similar process must produce an effect on all other markets in the country, and that, for instance, it must be contended that the chancellor of the exchequer could produce an effect on the corn-market, by sending a commissioner to buy a quarter of wheat, while he sent a contractor to sell the same quantity.

The House divided on the motion: Ayes, 39; Noes, 117. Ricardo voted for the motion.

[1 ]That Ricardo was the individual alluded to had already been stated by Grenfell in the preface to his pamphlet of 1817, mentioned below, p. 22, n. 1.