LOOKING BACKWARD.

Dominion, Volume 3, Issue 900, 20 August 1910, Page 9

LOOKING BACKWARD.

LOAN REDEMPTION SCHEMES. AN INTERESTING SPEECH. Speaking during the Budget debate. OB the public debt extinction scheme Mr.. Newman, M.l\ for llanawatu, iii the , , course of an intercstins review of the experiences of older lands in this regard said that one spoko on the subject with a certain amount of hesitation, because . it was an extremely difficult question.'. To us here, at all .events, it was a new. question. 'The Government proposed.to create a .scheme for the liquidation of - am-.present debt and future loans/by ' providing tor an annual payment which, ; when invested, would'wipe out the public debt in seventy-live years; so that , when Halley's Comet next paid its peri- ' ' odical visit to this part of the world it ■ would find.Now Zealand in the position i of being practically'. freo of debt. . If it! I did so, and ilia conditions wero as ho . said, the probability was that it would : not bu a Liberal Government that was [ pn the benches. Personally ho had never [ been able to seo the advantage of.'fonii-" ing a sinking fund while the country" was still borrowing money. It seemed an i , to borrow.witn one hand aud : . 1 establish a sinking fund with the other. ■, ■ Ot course, the whole question was where •, i the £150,000 a-year was to come from. , Ihe Prime Minister had stated emphatict ally that it was not to be from bor- [ rowed money and had also stated that he' , -" . could not retrench more without impairl wig the efficiency of the 'public service. Ihen, where was it proposed to get the .£150,000 from? Jf it was neither. out , ot loan nor from retrenchment it must • | come from taxation. .It seemed to him 1 that this scheme was one that wanted ' to'be very carefully scrutinised.' To hisi mind, the only way to reduce honestly. ! our debt.would bt to create a properly- 1 i constituted authority and transfer' to it [ a portion of our surpluses, and this' could only be properly done after we : j had stopped borrowing.. .. ■'. ; I ■ A Failure in England. ■■■'-. ) Continuing his remarks, Sir. Newman,. . said that he would like to quote the ; . opinions of a few financial authorities oa . the subject, because, though it was a j new question in New Zealand, it was not i now in oilier countries. In England and . ' America sinking funds had been. tried,- ■ and the 'subject .had been most exhana-' 1 tively written about by financial experts.' ■ ' On turning, up a book entitled "Piiblica- ! i tions of the- American Economic Associa- •. tion," , aiid an article written by Pro-' • fossor Edward Ross, Ph.D., Professor of Political Economy and Finance at' the ■ | Cornell University,, he found that in . England, for instance, during a period ' dating as .far'back as lTlli, when the Wnl- _ pole-Stanhope Sinking Fund was formed, ; there was' a system of sinking funds in ' operation. In 1772 Dr: Price, enunciated ' '■ a sinking fund scheme which startled the l whole of England and aroused an' enormous amount of excitement. The Govern- ■ r ment took it up, and. like the New Zea-"'.: I land Government of the present day, were . ; extremely interested to find that" they : , could liquidate their, debt practically 'out ■/■ . of a very .small sum annually set nsidc/ It was demonstrated that an extremely small amount of money by way of sink-.': ing fund accumulated enormously if left invested: . In. 17SG Pitt approved of. tlie-; scheme, aud Parliament sanctioned it, and it was adopted i with' general conBratulation and enthusiasm. In a life , of Pitt.it was stated'.that-"Never was vho admiration of any: public measure more warm and ; general, and never wag there fuller .confidence in the soundness of the principles upon- which,- it was founded." Huskisson .declared-•Pitt's sinking fund 'Terhaps the proudest -munumcut raised by the 'virtues and genius of Mr. Pitt to his own fair name, and one that should 1:c preserved unmutilated and entire in air the strength and symmetry of. proportion assigned to ..' it by the hands of its immortal author."' This sinking fund was thus established, ' Pitt doing it with, the"best of objects, 1 because he was alarmed at the ■accumulation of debt. Tho funds were vested in a Board , of. Commissioners, and the: inauguration of the .scheme was regarded •; as .a matter for congratulation of- the • Government of. the daj*..'■'.. .',•■■■'

Compound Interest Schemes Illusory. .'. . However, a feu- years after . this, in :■: 1813, Professor Hamilton, of Aberdeen, i published auothor book' dealing with tho." . sinking-fund question. , His' diary was J condensed, into, tho following words:—' '\ , . "He pronounced-all schemes for wiping , ., out the public, debt ',by sinking -fundi operating by compound interest illusory. ■''; Tho excess of revenue over expenditure, he maintained, is the only real sinking" . fund by which the public debt ran be ■ ■ discharged. Amortization during, borrow-. ing. periods is a purely fictitious opera-. » tion which:in no wise reduces debt, but v ■ really adds to"ii." ' 4 When this new theory .'was propounded: .', a Committee was set up by Parliament to.'; ; inquire into the matter, and' it was de-.' cided that-the sinking funds should be • abolished. .The) recommendations of the... Committee in 1813 were practically as fol- '■{ low:—"It was enacted that the formal' ■■'• sinking fund be abolished; that in place-'.\~ of it any surplus as it was,realised should ■ be applied.'quarterly, to the :redemption ,..-•■: of debt; and that money, should ou . no'.,. ; account be borrowed for the fund." ~. Again, in'lßs7, a regular ''sinking fund ['"■' was established in England, but as it., was found to necessitate, the old practice of borrowing bf .money in order topay ~ debt it was.abandoned. This brought-us ■-,- to comparatively recent In 1875 ... another attempt was made to .create :& ... > sinking fund by 'which the public debt. .-, could .bo .reduced. Tile ;•: principle on v which this was founded was that tho ■-. sinking fund should' come within the accounts as an ordinary, expenditure, .'-the. v surplus: or '-deficiency of tho'year ..only / being reckoned after it had been in.cludtid. A fixed slim' larger than;, the '■■'■ interest-charge of the debt was, permaii- ■ cntly appropriated. The excess was' for ... .-■ payment of the public debt.'.'. '. :.,.■..

f'Don't Spend, More, than'you Receive.", . In America also this question had received attention.' A. distinguished auIhovity, Jlr. Hcnvy C. Lodge,., referring,, to a proposal under 'review, at the ..time, of his writing, said:' '...■■■ ■ ■ "It is merely a plan for actual sayings, to be applied to the extinction of debt, but coming at a time when l'itt used sinking funds as-a term to'conjure with, and by ingenious calculations of. tho rate of interest, was perfecting a juggle which served to blind a whole generation of Englishmen, and which actually led.them to believe that debts could be extinguished not by .payment, but by nuttier borrowing." '"' ■•, And Jlr. Gallatin laid down a principle not acknowledged by English statesmen till Hamilton's expose in 1813. ne said:. "I kno.v but one way tint a nation' • Ins of paying her debts, uu]d that, is precisely the same which individuals practice": 'Spend less than yon receive,'.. and you may then'apply the surplus': of " your receipts to the discharge of: your debts. But if you spend more than you' receive you may have recourse to sinking funds; Ton may modify 'them , as ■ you', please, you may render your accounts ex-, tromely complex, you may give a scicriti T !ic appearance to additions and subtractions,: you must still necessarily increase your debt. If yon spend more than- you receive, the rtilTorenee must be 'supplied' by lons, and if out of those receipts yoii havj sot a sum apart to pay your debts, if you have so mortgaged; or disposed of lhar sum that you cannot 'apply it : to your'useful-expenditure, you must borrow: so much more to meet your expenditure." . , '■.....'■ Personally, he trusted. that any frare hr- had expvessed would lie dispMled by tho Govprnment when the Rill' came down. If so he would'fool relieved personally because if the Government, cou'd .demonstrate that' borrowing and the establishment of a sinking fund could rilvnnlagco.Ußly go on at the same time, if they conld slw.v this was a sound principle, he (the speaker) proposed to borrow as much money as he could lay his hands, on. He would then .establish a smalls sinking fund, his creditors could watch the accumulation of'.that fund and the operation would be one of considerable interest, to them, and of profound satisfaction to him (Mr. Newman). • ■ '.'