silver is as one to sixteen, in the other as one to fifteen, gold being worth more, silver less, in one than in the other, it is manifest, that, in their reciprocal payments, each will select that species which it values least to pay to the other, where it is valued most. Besides this, the dealers in money will, from the same cause, often find a profitable traffic in an exchange of the metals between the two countries. And hence it would come to pass, if other things were equal, that the greatest part of the gold would be collected in one, and the greatest part of the silver in the other. The course of trade might, in some degree, counteract the tendency of the difference in the legal proportions by the market value; but this is so far and so often influenced by the legal rates, that it does not prevent their producing the effect which is inferred. Facts, too, verify the inference. In Spain and England, where gold is rated higher than in other parts of Europe, there is a scarcity of silver; while it is found to abound in France and Holland, where it is rated higher in proportion to gold than in the neighboring nations."-To understand all the causes which have affected the relative price of gold and silver, it would be instructive to trace the history of the successive changes of each nation, and their contemporaneous valuations. This is not easy to do, because the legal rating of the coins seldom corresponds with the relative amount of bullion necessary to be brought to the mints to obtain them, by reason of deductions for seigniorage to the sovereigns, and fees for the mint officers and workmen. Some of the more important changes have been as follows: For twelve hundred years prior to the time of Xenophon (400 B. C.) the ratio of gold to silver is stated to have been 13.33 to 1. The Greeks and Romans established in their coinage a value of 12 to 1; although it is said that at the time of the return of Julius Cæsar to Rome the value of gold had fallen to the ratio of 7.5 to 1. For the first centuries of the Christian era the relative value of gold in the Roman empire appears to have been as 12.5 to 1. Different countries have from time to time established different ratios, none of which permanently stood, and the rate of valuation was about or a little above or below 12 to 1 until the close of the fifteenth century. But early in the seventeenth century the valuation of gold was raised, first by England to about 13.7, and subsequently by Holland to 13.62, and again raised about the middle of the century by Holland to 14.93, and later, in 1665, by edict of Charles II., to 14.5 in England; and the coinage of both gold and silver, in the succeeding year, was made free to all at current rates, at which time the valuation in Italy and Spain is stated to have been 15 to 1.-The value of gold and silver in European countries in 1640 is reported by reliable authorities to have been : France, 13 to 1; Flanders, 12 to 1; Germany, 12 to 1; Netherlands, 12 to 1; Milan, 12 to 1; England, 13 to 1; Spain, 13 to 1; France (1726), 14 to 1. - In the eighteenth century Great Britain, in 1717, made the value 15.21 to 1.

France, nine years later, established the ratio of 14.42 to 1, and Spain, in 1730, 16 to 1. In 1785 France adopted the ratio of 15 to 1, Portugal had increased the valuation of gold compared with silver to 15.8 to 1, and Spain, first to 16 and then to 16.5 to 1. In 1798 England suspended silver coinage, without, however, changing the ratio. The average valuation during the eighteenth century was a little less than 15 to 1, while the United States adopted as the basis of its value 15 to 1.-In the nineteenth century the most notable change was made by Great Britain, which demonetized silver, increasing its valuation and the amount to be offered in legal tender, and excluding the public from the right to deposit it at the mint for coinage. In 1834 the amount of pure gold in the gold coins of the United States was reduced, bringing the relative value as nearly 16 to 1. In 1835 gold was demonetized in British India, and silver made the only legal tender. In 1847 Holland demonetized gold, and adopted an exclusive silver standard. The increased production of gold, after its discovery in California and Australia, affected prices in Europe, and largely increased the imports from India, necessitating a greater export of money to that country to settle balances of trade. As silver only was legal tender coin; gold having been demonetized, the demand for silver for transportation raised its price in the London market above the French mint value, as compared with gold, of 1 to 15; and for some years, until a greater supply from the mines was able to satisfy the demand, silver was generally higher in London than its coining value at the European mints open for public coinage. The countries giving the lowest legal valuation to silver were denuded of their silver coins. The scarcity of the latter induced the United States, in 1853, following the example of Great Britain, in 1816, to commence the coinage of silver on government account, and to issue fractional silver coins of reduced weight and limited legal tender. All United States silver coins of less denomination than one dollar, issued since that date, are of a weight that makes the value of the silver contained, compared with gold, as 1 to 14.88.- -In 1870 Germany, and in 1873 the United States, passed laws demonetizing silver and discontinuing the privilege to the public of coining it at their mints. This action was followed later by the states of the Latin union agreeing to suspend the coinage of silver, which, following the large increase in the production of silver from the mines of the United States, largely depressed its value, which, compared with gold, has averaged in the London market, for the eight years subsequent to 1875, about 1 to 18.

HORATIO C. BURCHARD.

SILVER BILL. (See HAYES, R. B.)

SINKING FUND. This fund may be defined as a financial arrangement intended to redeem or extinguish the public debt upon certain determined

conditions, by means of a sum to be annually set aside from the produce of taxes, and to be used in sinking or paying a part of the debt through the purchase of a portion of the public indebtedness. Historically, this is not a strictly accurate definition, but it is generally correct when applied to the financial methods of the present day. The sinking fund has ever been regarded as an instrument for reducing the public indebtedness, but through false systems it has sometimes proved fallacious, and has often even increased the debt. The simplest method of creating such a fund would be by economizing in the expenditures of government, and setting apart the sum saved for the purchase and the cancellation of the state's securities or certificates of indebtedness. But the more common method is to create a special fund, to be controlled and managed by a special board or commission, and to be supplied out of the receipts of taxes. Before the beginning of the eighteenth century the general practice in England was to provide a special tax for each new loan, so that the particular loan was said to be "" funded," or provided for by a tax. In 1716, however, on the suggestion of the earl of Stanhope, Sir Robert Walpole carried a measure which rendered the taxes formerly distributed among the South sea aggregate and general funds perpetual, and consolidated whatever surplus might be collected by these taxes into a sinking fund, that was to be applied to the discharge of the national debt, and to no other purpose. This fund was still further augmented by what had been saved through successive reductions in the interest of the debt, and between the period of its formation and 1733 discharged £11,648,000 of the debt. Soon after, however, what should properly have gone into the sinking fund was applied to other purposes, and this practice became general. So that, according to the figures of Dr. Price, the amount of debt canceled by this fund between 1733 and 1775 was only £8,500,000. the whole," says Hamilton, in his Inquiry concerning the National Debt of Great Britain," "this fund did little in time of peace, and nothing in time of war, to the discharge of the national debt, The purpose of its inviolable application was abandoned, and the hopes entertained of its powerful efficacy entirely abandoned." This fund was, in 1786, superseded by Mr. Pitt's new fund.The rapid increase in the amount of the debt during the eighteenth century had directed attention to the burden, and not a few predicted national bankruptcy as a result. In 1713 the total debt, funded and unfunded, was nearly £35,000,000. The Spanish, the seven years' and the American wars ran the debt up to a total of £245,300,000. On the proposal of Dr. Price, a parliamentary inquiry into the national finances was instituted, and, as a result, a sinking fund was established, but on a different system from that embodied in the fund of 1716. Under this new system the sum of £1,000,000 was to be annually appropriated by parliament to the fund, and this amount was to be expended, either in the redemption of stock, if

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at par, or, if under par, in the purchase of it in the open market at the current rate. The interest arising from all stock so redeemed was to be added to the principal, and laid out in the same manner, until, by their joint accumulation at compound interest, they should amount to the annual sum of £4,000,000, when this fund should thenceforth continue to be laid out at simple interest only, leaving the amount of interest annually redeemed at the disposal of parliament. (26 Geo. III., cap. 31. See Speech of Mr. Huskisson, March, 1813.) The most extravagant expectations were formed of this law, and the writings of Dr. Price, which had wide circulation, tended to foster such beliefs. "The smallest fund of this kind," he wrote, "is, indeed, omnipotent, if it is allowed time to operate." In order to secure the inviolability of this fund, its management was intrusted to a commission composed of the speaker of the house of commons, the chancellor of the exchequer, the master of the rolls, the accountant general of the court of chancery, and the governor and the deputy governor of the bank of England. In 1792 a change was made in the manner of accumulating this fund, and at the same time a permanent provision was made for future debts by the framing of a permanent system of a sinking fund. "It was enacted," says Ricardo, "that, besides a provision for the interest of any loan which should thenceforward be contracted, taxes should also be imposed for a 1 per cent. sinking fund on the capital stock created by it, which should be exclusively employed in the liquidation of such particular loan; and that no relief should be afforded to the public from the taxes which constituted the 1 per cent. sinking fund, until a sum of capital stock, equal in amount to that created by the loan, had been purchased by it." The wisdom of this provision can not be questioned, as it tended to maintain confidence in the credit of the government, which was then at a low point. It made the government not only a seller of securities (while issuing loans), but also a buyer (while purchasing with the sinking fund). And while the expectation was, that every loan would, under the operations of a 1 per cent. sinking fund, be redeemed in about forty-five years, yet the lower the price of the securities fell, the more efficient would the fund become; so that in proportion to the depression existing at the time, would this sinking fund operate as a check to prevent a further fall, and as a lever to produce, at no distant period, a probable rise in the market. Mr. Huskisson said of Mr. Pitt's plan, that it was "framed with the specific view of holding out to the public a guarantee, that any future debts which the states might have occasion to contract, should from the moment of their being incurred, be placed in a course of liquidation, uniform and unalterable. This plan contained within itself a principle of permanency, which being applied to every loan at the time of making the contract, could not, from that moment, be varied or departed from, without a breach of such contract. * * That every future

loan should, from the moment of its creation, carry with it the seeds of its destruction; and that the course of its reimbursement should, from that moment, be placed beyond the discretion and the control of parliament." From 1786 to 1793 the fund effected some reduction in the debt; but in the following years, when through the war the expenditures of government greatly exceeded the income, it was attempted to maintain the annual reductions, it became a wretched piece of jugglery, although the form and machinery were continued. - It remained for Dr. Hamilton to expose the fallacies of such a sinking fund, and he showed that so far from reducing the debt it had really increased it. The extent of the sinking fund is artificial, and may be brought, by a mere change in the arrangement of the public accounts, to bear any proportion to the amount of debt, without the slightest advantage, or any tendency to promote its discharge. In time of war we raise a certain sum by taxes for the expense of the year, and borrow what further is wanted. If a sinking fund be maintained, the sums appropriated are deducted from what would have otherwise been expended on the war, and a greater loan is required. We may throw into the sinking fund any share of the revenue we please. We have only to add as much to the loan, and we shall raise a larger sum in the form of loan with the same facility, by the effect of the sums thrown into the money market for the stock purchased by the commissioners. In time of war the sinking fund is nominal; in time of peace a large sinking fund will discharge the debt more quickly; but this amounts to no more than that a continuance of the taxes which we paid in war, after peace is restored, will be attended with a speedier reduction of debt than what would take place if a large part of these taxes were repealed." Hence he was led to assert that the excess of revenue over expenditure was the only fund by which any part of the public debt could be discharged. The increase of revenue, or the diminution of expense, are the only means by which this fund (sinking) can be enlarged, and its operations rendered more effectual; and all schemes for discharging the national debt, by sinking funds operating at com pound interest, or in any other manner, unless in so far as they are founded upon this principle, are completely illusory." - Dr. Hamilton's work was first published in 1813, the very year in which important changes were made in the fund under the administration of the finances by Mr. Vansittart. But the farce of borrowing to supply the requirement of the fund continued. In 1819 Dr. Hamilton's views were so far recognized as to in duce the house of commons to resolve, that to provide for the exigencies of the public service, to make such progress in reductions of the national debt as may adequately support public credit, and to afford to the country a prospect of future relief from a part of its present burdens, it is absolutely necessary that there should be a clear surplus of the income of the country over the expenditure,

of not less than £5,000,000. In 1822 the committee of public accounts recommended that the an nual sinking fund loans be discontinued, and that the whole of the redeemed capital stock of funded debt remaining in the name of the commissioners be canceled. In the following year their recommendation was carried into effect, but the last remnant of the fund was not abolished before 1828. This sinking fund had proved an unfortunate and costly experiment; but how costly it had been was not proved until 1869, when it was made the subject of parliamentary investigation. "During the whole period, from Jan. 5, 1793, when the French war broke out, up to 1829, there was only one year (1817) in which money was not raised by loan, in order to aid the sinking fund, besides what was required for war expenditure. After excluding the period from Aug. 5, 1786, to Jan. 5, 1793, during which £8,147,631 was applied to redeem £10,241,100 of 3 per cent. stock, bearing an interest of £307,263 per annum, there remains £321,902,824, which was applied between 1793 and 1829 to redeem £472,942,703 capital stock, carrying £14,488,388 annual interest, the mean rate on the sum paid being almost exactly 4 per cent. per annum. During the same period the total sum of £702,163,075 was raised by loans, for which £1,052,536,700 capital stock of funded debt was created, carrying £35,301,392 annual interest, or a mean rate of about 5 per cent. per annum. The actual result of all these sinking fund operations, therefore, was, that the total amount of £330,050,455 was raised at 5 per cent. to pay off a debt carrying 4 per cent. The difference in these two rates amounted, upon the total capital sum of £330,050,455, to £1,627,765 per annum, which may be set down as the increased annual charge of our funded debt, and a real loss to the public from this deceptive sinking fund system; without taking into account the expenses of the management of the sinking fund, and the increased amount of capital of debt consequent upon the practice of borrowing on less advantageous terms for larger sums than were required to meet the actual public expenditure." -I have described somewhat at length the English sinking fund, because the principles which governed its formation were early adopted in this country, under the leadership of Alexander Hamilton. In December, 1782, he introduced into the congress of the confederation the following resolution. "Whereas, It is essential to justice and to the preservation of public credit, that whenever a nation is obliged, by the exigencies of public affairs, to contract a debt, proper funds should be established, not only for paying the annual value or interest of the same, but for discharging the principal within a reasonable period, by which a nation may avoid the evils of an excessive accumulation of debt; therefore, Resolved, That whenever the net product of any funds, recommended by congress and granted by the states, for funding the debt already contracted, or for procuring further loans for the support of the war, shall exceed the sum requisite for paying