a provision made by parliament, consisting of the surplusage of other funds, intended to be appropriated to the payment of the national debt; on the credit of which very large sums have been borrowed for public uses.

As the funding system had been adopted in other countries long before it was referred to in Great Britain, a provision of this kind had appeared necessary at a much earlier period, and had been established in Holland in 1655, and in the ecclesiastical states in 1685. These funds were both formed by the reduction of the interest on the public debts, and by appropriating the annual sum thus saved to the gradual discharge of the principal.

In the reign of King William, when the mode of providing for extraordinary expenses was first adopted in this country, the particular tax on which money was borrowed, generally produced much more than was sufficient to pay the annual interest, and the surplus was applied in sinking the principal, which was generally effected in a few years. Had this plan been pursued, there never could have been any great accumulation of public debts; but, as the expenditure increased, and the necessity of loans of still greater amount became more frequent, it was found difficult to provide for the annual interest of the sums thus borrowed; and the repayment of the principal was either put off to a distant period, or left without any provision to the chance of more flourishing times.

Some of the effects of an accumulating public debt soon became evident in the discount at which all government securities sold, and in the difficulties experienced in providing for the annual expenditure; the propriety of reducing, and even of wholly discharging, the debt, was generally acknowledged; and the plan of a sinking fund was recommended in a pamphlet published in 1701. In 1713 Mr Archibald Hutchison presented to George I. a plan for payment of the public debts. In 1715 different projects for this purpose were published by Edward Leigh, Mr Algill, and others. And in 1717 a plan for the gradual discharge of the debt was actually adopted, which was afterwards generally known by the name of the sinking fund.

For a few years the fund was strictly applied to the purposes for which it was established; and so well were its nature and importance then understood, that money was at the same time borrowed for extraordinary expenses. In 1724, the sum of £5,144l. 19s. was taken from the fund, to make good the loss to the treasury from the reduction of the value of gold coin; and within 12 years from its establishment it was charged with the interest of new loans. In 1733, the gross sum of half a million was taken from it towards the supplies, at which time the medium annual produce of the fund for five years had been £1,212,000l. This amount would have fully discharged the debt which then existed, but the alienation of it was continued.

This was succeeded by the consolidated fund, one object of which was, to lay the foundation of a new sinking fund, and consisting, like the old one, in the application of the principle of compound interest. On this occasion Mr Pitt consulted the late Dr Price, who communicated three plans, one of which was afterwards adopted, but with such alterations as greatly affected its efficacy, and which it has been since found necessary to correct. By the act passed for carrying this scheme into execution, the annual sum of £1,000,000l. was placed in the hands of commissioners, to be issued in four equal quarterly payments, and to be applied either in paying off such redeemable annuities as were at or above par, or in the purchase of annuities below par, at the market-price.

On the 17th of February, 1792, Mr Pitt proposed that the sum of £400,000l. should be issued in addition to the million, for the purpose of accelerating the operation of the fund; and stated that it might be expected that 25 millions of 3 per cents would be paid off by the year 1800; and that in the year 1808, the fund would amount to £4,000,000l. per annum, the sum to which it was then restricted. The injudicious restriction of the fund to £4,000,000l. per annum, was done away by an act passed in 1802, which directed that the produce of the two funds should continue to accumulate, without any limitation as to its amount, and be from time to time applied, according to the former provisions, in the redemption or purchase of stock, until the whole of the perpetual redeemable annuities, existing at the time of passing the act, shall have been completely paid off. At the same time, the annual grant of £200,000l. in aid of the fund, was made a permanent charge, to be issued in quarterly payments from the consolidated fund, in the same manner as the original million per annum. In consequence of these improvements, the increase of the fund has been much greater than it was originally Sinking originally estimated; and on the 1st of February, 1806, was as follows:

Annual charge by act of 26 Geo. III.

Ditto 42 Geo. III. L. 1,000,000

Annuities for 99 and 96 years, expired 1792

Short annuities, expired 1787

Life annuities, unclaimed and expired

Dividend on 98,386,402l. at 3 per cent.

Ditto on 2,617,400l. at 4 per cent.

Ditto on 14,000l. at 5 per cent.

One per cent. on capitals erected since 1723

Total, L. 7,596,249

This sum is exclusive of the fund for the reduction of the public debt of Ireland, which at the above period amounted to 479,937l. 8s. and of the fund for reduction of the imperial debt, which amounted to 56,960l. 9s. 4d.

The progress of the fund from the commencement of its operation on 1st August 1786, to the 1st February 1806, will appear from the following statement of the total amount of the stock redeemed by the commissioners up to the latter period.

Consolidated 3 per cent. annuities

Reduced 3 per cent. annuities

Old South sea annuities

New South sea annuities

Three per cents 1751

Consolidated 4 per cent. annuities

Navy 5 per cent. annuities

Total, L. 101,145,302

The total sum which had been paid for this amount of stock was, 62,842,782l. 7s. 10d. the consolidated 3 per cents having been bought up on an average at 61l. per cent. and the reduced at somewhat less.

The progress already made by the fund, and the important effect it has had in supporting the value of the government securities at a time when it has been necessary to borrow unprecedented sums in almost every year, sufficiently demonstrate the great utility of this measure. As its increase will be continually augmenting, it will, if steadily persevered in, and faithfully applied, become ultimately capable of discharging a debt of any amount with which it is possible to suppose the country will ever be encumbered.