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341.: ricardo to place2 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819-June 1821 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 8 Letters 1819-1821.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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ricardo to place2
Gatcomb Park, Minchinhampton 1 Novr. 1819
My object, as well as yours, is the discovery of truth, and therefore there is no occasion for apology on either side, for freely commenting on each other’s opinions.
You say, that you do make a distinction between a Sinkg. Fund provided by taxes, and a Sinking Fund borrowed, but that in both cases there is nothing but delusion. “To a S F borrowed,” you say, “that there has been no other kind since 1793.” Now I cannot agree1 to this; I wish to ask whether during a portion of the time from 1793 to the present day, there was not, in consequence of that which you deem an unfounded and delusive name, less debt contracted than there would have been if no such name had existed. Twenty millions for example were required for the extraordinary expences of 1796. Besides a million a year for interest, 200000 pr. Annm. were also provided, by taxes, for what was improperly called Sinking Fund. Suppose this to go on for several years, say ten years is it not true that we shall, at the end of those years, be less in debt, than if we had continued our expenditure of twenty millions, and had provided only one million per annm. for interest? It is demonstrable that the difference of our debt would be precisely equal to the sum which £200000 pr. Annm. for ten years, another 200000 for nine years, another for eight years, and so on, would amount to, at compound interest, in ten years, and therefore in comparing these two modes of providing for expenditure together, it conveys no erroneous idea, to say, that we shall owe less in one case than the other, by all the amount of the sinking fund, and its accumulations. Strictly speaking there is no fund, for there can be no fund, and no accumulation, while we are in debt. All that is received2 is applied to the payment of debt, or to prevent the contracting of it, but still it is correct to say that the difference between A and B is equal to all the accumulations which a fund of any named amount would yield in a given time. Now suppose the S. F. to be borrowed every year, then indeed you may justly say that the whole is a delusion, for it may be demonstrated that with a given expenditure you will be just as much in debt at the end of 10, or any other number of years, without, as with a sinking fund. Is there not a very marked difference between the effects of one or other of these sinking funds, yet your language would lead us to suppose there was none, for you say “that neither in the one case nor in the other is there any thing but delusion.” Suppose Mr. Pitt’s plan to have always been fairly acted upon, and I should ask any of its supporters what benefit we had derived from it in diminishing or in preventing the accumulation of debt, would he not be correct if he shewed me the amount of stock standing in the names of the commissioners, and told me that but for the operation of the Sinking Fund the nation would really have owed that amount in addition to the unredeemed debt. How then can you call the whole a delusion? I say that the delusion is in ministers not having performed what they promised—they did not provide what they have always called a sinking fund from the taxes, but have for the last few years not only borrowed the sinking fund on the loans which they have created, but have not even provided the interest for them, and therefore it has become necessary to take the interest from the sinking fund.—I hope now I have made myself understood; I concede to you that there is no real fund, nor can there be, while we are in debt, but that no delusion will arise from considering the Sinking fund as a real fund, if we wish merely to make a comparison between the actual state of our debt, with a certain provision to check its accumulation, and its state if no such provision were made.
You deny that Mr. Vansittart took any thing from the S F when he made his arrangements in 1813, you say “there was nothing to take.” We will suppose a country to owe 20 mills. pr. Annm., and to consent to pay 25 millions pr. Annm. It pays the 5 millions with the intention of arriving at a term when it shall not be called upon to pay any thing, or in other words it prefers paying 25 millions pr. Annm. for a limited number of years to paying 20 millions pr. Annm. for ever. With the 5 millions pr. Annm. payments of capital are to be made, but without affording any relief to the country which is always to pay 25 millions, till the whole debt is paid. The first year 20 millions are paid to the public, and 5 millions to the Commissioners;—the second year 19,750,000 to the public, and 5,250,000 to the Commissioners; and so from year to year the payments to the public diminish, while those to the Commissrs. increase. Suppose that at the end of a certain number of years, 7 millions only are annually paid to the public, 18 millions to the Commissioners; and suppose at this time the minister requires a loan of 20 millions. If he provides 1 million from the taxes, for the interest of this loan, he will pay annually for interest and sinking fund on debt 26 instead of 25 millions, and though the debt will increase, the sinking fund will not diminish, but suppose he does not so provide the million for interest, he will only pay 25 millions pr. Annm.: instead however of paying as before 7 millions for interest, and 18 millions to the commissioners, he must now pay 8 millions for interest, and 17 millions to the commissioners; and if foreseeing that he shall want loans of an equal amount for several years to come he should obtain an act of Parliament allowing him to reduce the payment to the commissioners to 11 millions, and increase that to the public, by the creation of new debt, to 14 millions, will he not have made a substantial inroad on the plan for the payment of debt? This is what Mr. Vansittart has done, and yet you say, “Nothing was in fact taken, nothing could be taken, because there was nothing to take.”
If you say so because strictly speaking there is no fund, I will not dispute the matter, for it is in fact a dispute about words. But you observe that it is not a dispute about words, what then do we differ about? If we have not the means of paying off our debt so quickly as we otherwise should do, or if we cannot check its increase so effectually in consequence of the new arrangement proposed by Mr. Vansittart, then I say he has taken something, and not nothing. Call it S F, or call it what you please, he has diminished the necessity for laying on new taxes, but he has done so, by accelerating the increase of debt.
“A S F from taxes can only exist when the taxes produce more money than the1 current expenses of the Government consumes, and this has never been the case in any one instance since 1793, so there has been no sinking fund from taxes.” This is in other words saying “I call nothing a sinking fund which does not actually diminish debt.” My idea of a sinking fund is not so strict as yours,—it is a fund which holds out a fair prospect of one day being effective to the diminution and the annihilation of debt. If we had a surplus of permanent revenue above permanent expenditure of 20 millions, and for one year only expended more than our permanent income you would say that we had no sinking fund that particular year—I should on the contrary contend that inasmuch as we had 20/m pr. Annm. for ever to set against one single years expenditure of 21/m we had a very substantial and a very efficient fund. “If we had lent out a sum at compound interest, notwithstanding our continual borrowing, we should have a real sinking fund and might in time pay off our debts, but this we have never done, and never can do.” That we have not lately done it I agree, but why the thing is impossible, except from the bad faith of ministers or parliament I can not see.
What reason do you give why we can not do it? “because we can not create stock with the produce of the taxes” but the commissioners can appropriate the interest on stock already created with the produce of the taxes, and this will be attended with precisely the same effects as if they had lent the money at compound interest. If you admit which you unequivocally do that if we lent out a sum at compound interest notwithstanding our continual borrowing, we should have a real sinking fund and might in time pay off our debts, you must admit that an equal fund given to the commissioners to purchase stock in the market with the power of appropriating the dividends on the stock purchased to the making of new purchases, would be equally efficacious. You must withdraw your first admission or you must be prepared to yield the second—it is impossible consistently to maintain one of these propositions and to refuse one’s assent to the other.
I am Dear Sir Truly Yours
Be so good as to shew this letter to Mr. Mill that he may judge between us.
[2 ]Addressed: ‘Mr. Place / Charing Cross / London’. Franked by Ricardo ‘November two 1819’.
[1 ]Replaces ‘Now supposing that I agree’.
[2 ]‘All that is received’ replaces ‘The fund’.
[1 ]‘amount’ is del. here.