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• Preface
• Studies In the Theory of International Trade
• Chapter I: English Theories of Foreign Trade, Before Adam Smith: I
• I. Introduction
• II. “ Mercantilism” and “bullionism”
• III. the Balance-of-trade Doctrine
• IV. Reasons For Wanting More Bullion
• V. Employment and the Balance of Trade
• Chapter II: English Theories of Foreign Trade, Before Adam Smith: Ii
• I. Legislative Proposals of Mercantilists
• II. the Collapse of Mercantilist Doctrine
• III. Some Modern Interpretations of English Mercantilism
• Chapter III: The Bullionist Controversies: I. The Inflation Phase
• I. the Participants In the Controversy
• II. the Factual Background
• III. Premium On Bullion As Evidence of Excess Issue: the Bullionist Position
• IV. Qualifications Conceded By the Bullionists
• V. Possible Objections to the Bullionist Position
• VI. the Anti-bullionist Position
• VII. the Balance of Payments Argument
• VIII. the Possibility of Excess Issue By Banks
• IX. Responsibility For the Excess Issue: Bank of England Vs. Country Banks
• X. Responsibility For Excess Issue: the Credit Policy of the Bank of England
• Chapter IV: The Bullionist Controversies: II. The Deflation Phase
• I. the Resumption of Cash Payments
• II. Responsibility of Resumption For the Fall In Prices
• III. the Economic Effect of Changing Price Levels
• IV. Ricardo's Position On the Gold Standard
• V. Reform Without Departure From the Metallic Standard
• VI. Paper Standard Currencies
• Chapter V: English Currency Controversies, 1825–1865
• I. Introduction
• II. the “currency School” -“banking School” Controversy
• III. the “palmer Rule ”
• IV. the Bank Act of 1844
• V. the Possibility of Overissue of Convertible Bank Notes
• VI. the Role of Deposits, Bills of Exchange, and “credit” In the Currency System
• VII. the Technique of Credit Control
• VIII. the Relation Between Bank of England Operations and Specie Movements
• IX. Currency Reform Proposals
• Chapter VI: The International Mechanism Under a Simple Specie Currency
• I. Introductory
• II. the Mechanism According to Hume
• III. an Omitted Factor? Relative Changes In Demand As an Equilibrating Force
• IV. Prices In the Mechanism: the Concept of “price Levels ”
• V. the “terms-of-trade” Concept
• VI. the Prices of “domestic” Commodities
• VII. the Mechanism of Transfer of Unilateral Payments In Some Recent Literature
• VIII. a Graphical Examination of Pigou's Analysis 1
• IX. Some Elaborations On the Basis of Pigou's Analysis
• X. an Alternative Solution
• XI. Types of Disturbance In International Equilibrium
• XII. Specie Movements and Velocity of Money
• XIII. Commodity Flows and Relative Price Levels
• XIV. Exchange Rates
• XV. A Criticism of the Purchasing-power Parity Theory 1
• Chapter VII: The International Mechanism In Relation to Modern Banking Processes
• I. Automatic Vs. Managed Currencies
• II. Primary and Secondary Expansion of Means of Payments
• III. Short-term Loans In the International Mechanism
• IV. Primary and Secondary Expansion In Canada , 1900–13
• V. the International Mechanism and Business Cycles
• Chapter VIII: Gains From Trade: the Doctrine of Comparative Costs
• I. the Nature and Origin of the Doctrine
• II. the Division of the Gain From Trade
• III. Trade In More Than Two Commodities
• IV. Trade Between More Than Two Countries
• V. Transportation Costs
• VI. Increasing and Decreasing Costs
• VII. Prices, Money Costs, and Real Costs
• VIII. Dependence of Comparative Cost Doctrine On a Real-cost Theory of Value
• IX. Differences In Wage Rates In Different Occupations
• X. Variable Proportions of the Factors and International Specialization
• XI. Variable Proportions of the Factor and Comparative Real Costs
• XII. “ Opportunity Cost” Analysis As a Substitute For Real Cost Analysis
• Chapter IX: Gains From Trade: the Maximization of Real Income
• I. “ Mass of Commodities” and “sum of Enjoyments”: Ricardo and Malthus
• II. Reciprocal Demand and the Terms of Trade
• III. Terms of Trade and the Amount of Gain From Trade
• IV. “ Net Benefit” In International Trade: Marshall
• V. Total Net Utility Derived From International Trade: Edgeworth
• VI. the Gain From Trade Measured In Money
• Appendix: a Note On the Scope and Method of the Theory of International Trade

I. The Participants in the Controversy

The suspension of specie payments by the Bank of England in 1797, and the currency, exchange, and price phenomena which followed it, gave rise to a controversial literature of great extent and, on the whole, of surprisingly high quality. Until the resumption of specie payments was approaching, the general trend of prices and of prosperity was upward; but resumption was followed by a long and trying period of falling prices and of economic distress. The change in circumstances led to a marked difference in the distribution of emphasis on the issues involved, and, in a number of instances, to a sharp reversal of doctrinal position by participants in the controversies of both periods. It will be convenient, therefore, to deal separately with the literature of the earlier and the later periods, which can be distinguished as the inflation and deflation periods, respectively.

Of all the older controversies in the field of international trade theory, the inflation phase of the bullionist1 controversy has probably been most fully and competently canvassed by modern writers.2 But there is still room for a resurvey of the controversy.

The contemporary literature of the bullionist controversy is of great importance for the history of the theory of international trade in its monetary aspects. The germs at least of most of the current monetary theories are to be found in it. It embodies the first detailed analysis of the relationships between currency phenomena and international balances, exchange rates, and price levels, under both metallic and inconvertible paper currencies. Foreign exchange theory is carried substantially forward, and the theory of the mechanism of adjustment of international balances is advanced substantially beyond the stage at which it was left by Hume. There are also discussions of a truly pioneer character of the functions of a central bank in a complex credit economy with respect to the maintenance of international monetary equilibrium and of internal business stability.

The contemporary participants in the controversy arrayed themselves fairly sharply in two opposing groups: the “bullionists” or “anti-Restrictionists” on the one hand, who criticized the course of monetary events, and the “anti-bullionists” on the other hand, who defended the government and the Bank of England against the attacks of the bullionists. But as will be seen, there were important divergences of opinion within each group. The essential doctrines of the bullionists were expressed by a small group of writers, of whom Boyd,3 King,4 Thornton,5 Wheatley,6 and Horner,7 were most important, during the first period, 1801 to 1803, of marked premium on bullion and fall in the exchanges. Similar phenomena, even more marked in degree, in connection with the Bank of Ireland gave rise to a parliamentary inquiry8 and to the bullionist publications of John Leslie Foster,9 Henry Parnell,10 and Lord Lauderdale.11 The reappearance from 1809 on of a high premium on gold and a substantial fall in the exchanges gave rise to a flood of tracts and pamphlets, of which the most important on the bullionist side, in addition to the Report of the Bullion Committee of 1810, were the contributions of Ricardo, his first appearance in print as an economist,12 T. R. Malthus,13 Robert Mushet,14 and William Huskisson.15

The most effective statements of the anti-bullionist position were in speeches in Parliament by Nicholas Vansittart16 and George Rose,17 and in tracts by Henry Boase,18 Bosanquet,19 Coutts Trotter,20 and J. C. Herries.21

Ricardo made but few additions to the analysis of his predecessors,22 and, as will be shown later, on some important points he committed errors from which some of the earlier supporters of the bullionist position had been free. But the comprehensiveness and the force and skill of his exposition and the assurance and rigor of his reasoning made him at once the leading expositor of the bullionist position. It was largely through Ricardo's writings, moreover, that the bullionist doctrines exercised their influence on the subsequent century of monetary controversy. Special attention is given, therefore, to Ricardo's position in the following account of the bullionist controversy.

[1]The participants were distinguished as bullionists or anti-bullionists according as they accepted or rejected the appearance of a premium on bullion as a demonstration of depreciation of bank notes and mismanagement of the currency. There is, of course, no relationship between the “bullionists” of this period and the sixteenth century “bullionists” whose doctrines were examined in chap. I.

[2]N. S. Silberling, “Financial and monetary policy of Great Britain during the Napoleonic wars,” Quarterly journal of economics, XXXVIII (1924), 214–33; 397–439; ibid., “British prices and business cycles, 1779–1850,” Review of economic statistics, prel. vol. V, suppl. 2 (1923), 219–62; R. G. Hawtrey, Currency and credit, 3d ed., 1928, chap. xviii: J. H. Hollander, “The development of the theory of money from Adam Smith to David Ricardo,” Quarterly journal of economics, XXV (1911), 429–70; J. W. Angell, The theory of international prices, 1926, pp. 40–79, 477–503; E. Cannan, the paper pound of 1797–1821, 1919; H. S. Foxwell, preface to A. Andréadès, History of the Bank of England, 2d. ed., 1924.

[3]Walter Boyd, A Letter to ... Pitt, 1801; 2d ed., with additions, 1801. The edition of 1811, often referred to as the second edition, is merely a reprint of the first, and lacks the important additions made in the true second edition.

[4]Lord King, Thoughts on the effects of the Bank restrictions [1st ed., 1803], 2d ed., 1804.

[5]Henry Thornton, An enquiry into the nature and effects of the paper credit of Great Britain, 1802.

[6]John Wheatley, Remarks on currency and commerce, 1803.

[7]Francis Horner, review of Thornton, Edinburgh review, I (1802), 172–201; review of Lord King, ibid., II (1803), 402–21; review of Wheatley, ibid., III (1803), 231–52.

[8]Report ... from the Committee on the circulating paper, the specie, and the current coin of Ireland [1804], 1826 reprint.

[9]An essay on the principle of commercial exchanges, 1804.

[10]Observations upon the state of currency in Ireland, 1804.

[11]Thoughts on the alarming state of the circulation, 1805.

[12]Three letters to the Morning Chronicle, August-November, 1809, reprinted by Hollander as Three letters on the price of gold, 1903; High price of bullion, a proof of the depreciation of bank notes [1st ed., 1810], 4th ed. with appendix [1811], reprinted in J. R. McCulloch ed., The works of David Ricardo, 1852; Reply to Mr. Bosanquet's practical observations [1811], reprinted in Works; and three additional letters to the Morning Chronicle, September, 1810, reprinted by Hollander, in Minor papers on the currency question 1809–1823 by David Ricardo, 1932.

[13]“Depreciation of paper currency,” Edinburgh review, XVII (1811); “Review of the controversy respecting the high price of bullion,” ibid., XVIII (1811).

[14]An inquiry into the effects produced on the national currency ... by the Bank restriction bill, 3d ed., 1811.

[15]The question concerning the depreciation of our currency stated and examined, 1810.

[16]Substance of two speeches, 1811.

[17]Substance of speech ... on the report of the bullion committee, 1811.

[18]A letter ... in defence of the conduct of the directors, 1804.

[19]Practical observations on the report of the bullion committee, 2d ed., 1810.

[20]The principles of currency and exchanges, applied to the report, 2d ed., 1810.

[21]A review of the controversy respecting the high price of bullion, 1811.

[22]This is also the conclusion of Hollander: op. cit., Quarterly journal of economics, XXV (1911), 469.