Sinking Fund, National
SINKING FUND, NATIONAL
SINKING FUND, NATIONAL, a fund established under the Funding Act of 1790 to pay off the public debt. Administered by high government officers, it drew its funds from surplus revenue from customs duties and $2 million of borrowed money. Alexander Hamilton checked the panic of 1792 by purchasing securities at market rate, below par, for the sinking fund.
On recommendation of Albert Gallatin, Thomas Jefferson's secretary of the Treasury, Congress reorganized the sinking fund in 1802. The years 1801 to 1812 brought America prosperity as chief neutral carrier during the Napoleonic Wars. Gallatin reduced the public debt by $40 million, although the War of 1812 ran up the debt to $119.5 million by 1815. Increased imports and mounting land sales after the war allowed Congress to make large appropriations to the sinking fund, and by 1837 the Treasury had a surplus of more than $42 million, of which it distributed $28 million to the states.
The prosperity of 1848 to 1857 ended with the panic of 1857, and the debt rose sharply during the Civil War. In the prosperous 1920s, appropriations to the sinking fund grew from $261 to $388 million, but the Great Depression ushered in an era of deficit spending, prolonged by World War II and the Korean and Vietnam wars. Congress regularly raised the debt ceiling and systematized refunding, and though Ronald Reagan made the public debt an issue during his successful bid for the presidency in 1980, the debt tripled during his administration. Surpluses in the late 1990s allowed President William Clinton to pay down the debt for the first time since 1972, but the debt stood at over $5 trillion in 1999.
Studenski, Paul, and Herman E. Krooss. Financial History of the United States: Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance. New York: McGraw-Hill, 1963.