Front Page Titles (by Subject) CHAPTER IX.: RISE OF PRICES—HOW TO OBVIATE. - The Works of Jeremy Bentham, vol. 3
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CHAPTER IX.: RISE OF PRICES—HOW TO OBVIATE. - Jeremy Bentham, The Works of Jeremy Bentham, vol. 3 
The Works of Jeremy Bentham, published under the Superintendence of his Executor, John Bowring (Edinburgh: William Tait, 1838-1843). 11 vols. Vol. 3.
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RISE OF PRICES—HOW TO OBVIATE.
I have already stated an extra rise of prices as among the conceivable results of the proposed measure. Taken by itself, it is evidently an undesirable result: it is a tax on income to the amount—a tax which comes out of everybody’s pocket, and goes into nobody’s. Being, with reference to the proposed measure, an unfavourable result, I may be believed with the less difficulty when stating it as a probable one.
Supposing the influx of the proposed paper not to be followed, or rather kept pace with, by an efflux of other money to an equal amount; and supposing it too sudden to be productive of an influx of vendible commodities, to an amount worth regarding in this view, within the assumed space of time; the result presents itself as a demonstrable one. For the price of the whole mass of vendible articles taken together, sold within the year, is, in other words, the same thing as the quantity of money given or undertaken for in exchange for them within that time; so that the quantity of those articles remaining the same, the greater the quantity of the money is that has been given for them, the higher has been the price.
It has already been observed, that it seems impossible to say with any precision to how small or how great a length the emission of the proposed paper may eventually be found to extend previously to the arrival of stock 3 per cents. at par: That, at some part or other of that interval, a small quantity at least can, however, scarcely fail to find acceptance; and that a small quantity, a very few millions for example, issued previously to the conclusion of it, would be sufficient to operate the conversion indicated, and thereby give the form of the proposed paper to the whole of the remaining mass of annuities composing the national debt: That, although the quantity of that species of property will be continually and rapidly on the decrease, while the demand for it will be as continually and rapidly on the increase, it will nevertheless be difficult, if not impossible, to prescribe any determinate limit to that portion of it which in this way may come to have introduced itself into the circulation, on the footing of current money; for the open issue will remain equally open to the customers for temporary income (who, when they have kept it as long as they can afford, will throw it into the circulation) as to the customers for permanent income; and it seems impossible to say in what proportions, at any given time, the quantity of annuity-note paper remaining at that time, will find itself distributed between the two classes.
On these considerations, it will be matter of prudence to be prepared for the several possible cases and degrees in which it may happen to constitute a clear addition to the mass of money in circulation, to any such amount as to be in a sensible degree productive of the apprehended inconvenience.
Of such preparation, the practical result will be, to take such measures as shall be effectual for the prevention—not of the rise of prices, which is impossible—but of any addition to that degree of rise, or rate of increase, which would have taken place in the natural course of things, independently of the proposed measure.
If after having expelled of itself the whole amount of paper money of other sorts, it were to keep on increasing without expelling metallic money to an amount equal to its own, it would thence forward, if not restrained, make a proportionable addition to the quantity of money of all sorts in circulation, and thence to the prices of vendible commodities. In this case, it would be necessary to apply the check to the proposed paper itself, by limiting the quantity that should be suffered to enter into the composition of the mass of money in circulation: for example, by stopping the issue of all annuity notes below a certain magnitude; say, for instance, the £102 : 8s. notes. By an expedient thus simple (the requisite powers being given to the executive government ab initio) the end might be accomplished, in the possible event supposed, without any fresh interference on the part of the legislature. That the means thus proposed would be adequate to the end, will appear clear enough (it is supposed) from what has been said on this subject in a former Chapter.*
That in proportion as the proposed paper advanced in circulation, country bankers’ paper and Bank of England paper would quietly withdraw themselves, is a result that appears more probable than the contrary, according to what has already been observed.†
Should it fail of taking place in the requisite degree of itself, it would require to be produced by means directed expressly to that end.
The first of the two species of paper attacked, would naturally be the paper of the country banks. Collectively modern, individually changeable, they have no such claims on government as those which plead in favour of the great incorporated bank.* Express prohibition would not be necessary: by taxation the same effect precisely might be produced—by a simple extension of a tax already imposed for other purposes. By this means, if necessary, about half the utmost possible amount of the supposed redundant mass of paper would be chased away.†
Secondly, and lastly, would come the paper of the Bank of England. In this case, as in the other, the same means would be sufficient to the same end. Perhaps, however, in this case, they would not be necessary. A simple refusal on the part of government, to receive at its own offices any other than its own paper, might be adequate to the effect.‡
It may be asked—to what end throw the whole burthen of the measure upon the two particular classes in question, instead of letting it spread over the community at large in the shape of a rise of prices?
My answer is—to reduce the amount and pressure of it to its minimum. At an estimate greater than any possible one, the former loss would not be to the latter in so high a proportion as that of interest to principal. To the banking class, it is not clear (as hath already been shown) that the loss would in fact amount to anything. But put an extreme case, and take it, in the instance of each individual, at the utmost possible amount it could rise to in the instance of any one. Call the total amount of bank and bankers’ paper 25 millions,∥ and upon the whole of this paper suppose a real profit of 5 per cent. annually made. Upon a supposition in a variety of points thus excessive, the total loss is but £1,250,000 a-year. Call, on the other hand, the total quantity of money of all kinds taken together 75 millions;§ —and suppose (according to the position brought to view at the commencement of this chapter) that the addition made to the prices of vendible commodities, taken together, is in the exact proportion of the supposed sudden addition to the mass of money; viz. as 25 to 75—as 1 to 3. On this supposition, the rise of prices being supposed equable, and therefore universal, every income which did not receive a rateable increase from the supposed sudden influx of 25 millions, would in effect be diminished by a fourth—the whole income of a man so circumstanced producing him no more than three-fourths of the quantity of vendible commodities it produced to him before. Call, with Dr. Becke, the annual income of the country (including income from day labour without stock) £217,000,000—or for round numbers £210,000,000; then will the annual burthen on the country, by rise of prices on the nonexpulsion of the paper money in question, be £70,000,000.*Per contra, the utmost possible annual loss to the bankers and bank proprietors by the expulsion, not so much as £1,250,000; the probable loss, scarcely so much as the odd £250,000.
The amount of the loss would, it is true, be made good in money, in a certain degree, to every person whose circumstances enabled him to make in money an addition to his income equal to the degradation thus sustained by it;—for although the real value of the total mass of money—its value in respect of the quantity of vendible commodities it purchases and conveys—is not greater after the supposed addition to the mass of money, yet on the other hand, neither is it less. The misfortune is, that although the pressure from the defalcation would be felt in all its force—and felt by all parties, indemnified as well as unindemnified—the indemnity would in comparison be scarcely perceived. The loss by the rise of prices would be felt as so much loss:—the gain by the share in that extra influx of money by which the loss had been produced—this gain not being coupled and set down per contra in the mind of the party, and confronted with the loss, would present itself in the shape of an independent gain, unconnected with any such effect:—and by an indisputable law of the sensible faculties of man, sums and circumstances equal, the enjoyment produced by gain is never equal to the suffering produced by loss: if it were, the main reason for affording protection to property would cease.
That an increase in the quantity of real wealth, i. e. of vendible commodities, has been produced by an increase in the quantity of nominal wealth—viz. current money, cash and paper together—seems by no means clear of doubt. But what seems not exposed to doubt is, that the quantum of such addition, if real, accruing in the compass of a year, cannot amount to more than the produce of the fresh quantity of unemployed capacity for labour brought into employment by the application of a proportionable quantity of the supposed fresh influx of money over and above that which would have been brought into employment:—so that if at the commencement of the year all hands capable of employment were full of employment, and so would have continued during the whole course of it, no addition could in the course of that time be made to the quantity of real wealth or vendible commodities by the influx of the money in question, howsoever copious. But whatever quantity of money being introduced into the circulation has not the effect of producing a correspondent quantity of vendible commodities, cannot but have the effect of producing a correspondent degradation in the value of the existing mass of money into which it flows, thereby producing, what is in truth no more than the same effect expressed in other words, a correspondent rise of prices.†
[* ]Chapter IV. Grounds, &c.
[† ]Chapter VIII. Particular Interests, &c.
[* ]The case of the incorporated banks of Scotland does not appear to differ materially in this respect from that of the incorporated and unincorporated country banks of England.
[† ]By the tax upon country bankers, government has already taken to itself a share in the profit on that paper. In so far as country bankers’ paper came to be extruded by the proposed government paper, the profit by this tax would fall of course to be deducted from the sum total of profits promised by the proposed measure.
[‡ ]In this case, nothing would be receivable at the annuity-note offices but cash.
[∥ ]The estimated amount of bank and country bankers’ paper in 1800.
[§ ]The estimated amount of money of all kinds in 1800, nearly.
[* ]Upon the whole, then, the result is, that by every £100 worth of paper issued by a banker, he imposes a tax upon the community, and that to an amount prodigiously greater than that of his own profit.
[† ]For example, let £6,000,000 be the quantity of extra influx money introduced into the circulation in the course of the year;—let the quantity of extra labour produced by this extra influx be equal to full employment for 100,000 fresh hands: the allowance would be perhaps sufficient as applied to the whole amount of fresh labour produced within the year by all causes, the existing quantity of money, and the supposed extra quantity taken together:—applied, therefore, to the latter alone, it will be excessive. It is not a matter of necessity that any addition at all to the mass of vendible commodities shall have been produced by the extra influx of money, since a particular application of the existing quantity of money in the country, without any accession to it whatsoever, is altogether adequate to the producing the utmost possible degree of accumulation. (But for illustration’s sake, the supposed state of things may serve as well as if it were more correct.) Call the average value of the produce of the labour of these 100,000 fresh hands 12s. a-week for each: this in round numbers will be £3,000,000 a-year. £3,000,000, then, is the quantity of extra influx money remaining, the efficiency of which is spent altogether in degrading the value of the mass into which it flows, and producing the correspondent rise in the price of vendible commodities.