Historical Context

A Sinking Fund was a device used in the 18th century to reduce national debt. While used by Robert Walpole in 1716 and was used effectively in the 1720s and early 1730s, it originated in the commercial tax syndicates of the Italian peninsula of the 1300's to retire redeemable public debt of those cities. (17th century - 18th century - 19th century - more centuries) As a means of recording the passage of time, the 18th century refers to the century that lasted from 1701 through 1800. ... Government debt (public debt, national debt) is money owed by government, at any level (central government, federal government, national government, municipal government, local government, regional government). ... The Right Honourable Robert Walpole, 1st Earl of Orford, KG, KB, PC (26 August 1676 – 18 March 1745), usually known as Sir Robert Walpole, was a British statesman who is generally regarded as having been the first Prime Minister of Great Britain. ... // Events August 5 - In the Battle of Peterwardein 40. ... Events and Trends Manufacture of the earliest surviving pianos. ... Events and Trends The Great Awakening - A Protestant religious movement active in the British colonies of North America Sextant invented (probably around 1730) independently by John Hadley in Great Britain and Thomas Godfrey in the American colonies World leaders Louis XV King of France (king from 1715 to 1774) George...

However, the problem was that the fund was rarely given any priority in government strategy. The result of this was that the fund was often raided by "hard-pressed finance minister" in need of funds quickly.

In 1772, the nonconformist minister Richard Price published a pamphlet on methods of reducing the national debt. The pamphlet caught the interest of William Pitt the Younger, who drafted a proposal to reform the Sinking Fund in 1786. Lord North recommended "the Creation of a Fund, to be appropriated, and invariably applied, under proper Direction, in the gradual Diminution of the Debt". Pitt's way of securing "proper Direction" was to introduce legislation that prevented ministers of raiding the fund in crises. He also increased taxes to ensure a £1 million surplus could be used to reduce the national debt. The legislation also placed administration of the fund in the hands of "Commissioners for Reducing the National Debt". Catherine IIs soldiers in the Russo-Turkish War, by Alexandre Benois. ... Richard Price (February 23, 1723 – April 19, 1791), was a Welsh moral and political philosopher. ... The Right Honourable William Pitt, the Younger (28 May 1759–23 January 1806) was a British politician during the late eighteenth and early nineteenth centuries. ... 1786 was a common year starting on Sunday (see link for calendar). ... Frederick North, 2nd Earl of Guilford (April 13, 1732–August 5, 1792), more often known by his earlier title, Lord North, was Prime Minister of Great Britain from 1770 to 1782, and a major actor in the American Revolution. ...

The scheme worked well between 1786 and 1793, with the commissioners receiving £8 million and reinvesting it to reduce the debt by more than £10 million. However, the advent of war with France in 1793 "destroyed the rationale of the Sinking Fund" (Evans). The fund was only abandoned by Lord Liverpool's government in the 1820s. 1786 was a common year starting on Sunday (see link for calendar). ... 1793 was a common year starting on Tuesday (see link for calendar). ... 1793 was a common year starting on Tuesday (see link for calendar). ... Robert Banks Jenkinson, 2nd Earl of Liverpool (June 7, 1770 - December 4, 1828) was a British statesman, Prime Minister of the United Kingdom from 1812 to 1827. ... Events and Trends Nationalistic independence movements helped reshape the world during this decade: Greece declares independence from the Ottoman Empire (1821). ...

Sinking funds were also seen commonly in investment in the 1800's in the United States, especially with highly-invested markets like railroads. An example would be the Central Pacific Railroad Company, which challenged the constitutionality of mandatory sinking funds for companies in the case, In Re Sinking Funds Cases in 1878.

Modern Context

In modern finance, a sinking fund is a method by which an organization sets aside money over time to retire its indebtedness. More specifically, it is a fund into which money can be deposited, so that over time its preferred stock, debentures or stocks can be retired. For the organization retiring debt, it has the benefit that the principal of the debt or at least part of it, will be available when due. For the creditors, the fund reduces the risk the organization will default when the principal is due. In some states, Michigan for example, school districts may ask the voters to approve a taxation for the purpose of establishing a Sinking Fund. The State Treasury Department has strict guidelines for expenduture of fund dollars with the penalty for misuse being an eternal ban on ever seeking the tax levy again. See also sinking fund provision in bonds. Within finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon). ...