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THREE LETTERS TO THE MORNING CHRONICLE ON THE BULLION REPORT 1810 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 3 Pamphlets and Papers 1809-1811 [1809]

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The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 3 Pamphlets and Papers 1809-1811.

Part of: The Works and Correspondence of David Ricardo, 11 vols (Sraffa ed.)

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THREE LETTERS TO THE MORNING CHRONICLE ON THE BULLION REPORT
1810

[THREE LETTERS ON THE BULLION REPORT] REPORT OF THE BULLION COMMITTEE1
To theEditor of the Morning Chronicle.

Sir,

The able Report of the Bullion Committee can leave no doubt, in the minds of all unprejudiced persons, that there exists at this moment a great depreciation in the paper currency of this country; and though the Committee have treated the Bank Directors with a great degree of lenity, they justly attribute to their ignorance of the principles which should regulate them in their issues of paper, all those consequences which we at present deplore, and the remedy for which is now sought with so much anxiety. The fatal effects attending the interference of Government in commercial concerns, and which has been so frequently and so ably insisted on, are in this instance fully exemplified. Had the Bank, at the period of their difficulties in the year 1797, been suffered to have extricated themselves as well as they were able, they might possibly, under the peculiar pressure of the times, have been obliged for a short time to have ceased paying in specie, and their notes might in consequence have suffered a trifling discount; but as they could easily have convinced the public that their assets were fully equal to the discharge of all demands on them, it would in all probability have been of short duration, for who would have consented to accept much less than twenty shillings in the pound, when, by the delay of a few weeks, the Bank would have been enabled to pay him that amount. The creditors of the Bank would have seen how little foundation there was for alarm. That opulent Company would in a short time have resumed their payments in specie, and would have continued to be what Sir F. Baring in his evidence before the Committee represented them to have been for above a century previously to 1797, highly conducive to the prosperity of England.1

The law which gave the Bank the power of refusing to pay their notes in specie, has entailed upon us the evil of a depreciation in our currency of nearly 20 per cent., and has rendered it extremely difficult to restore it to the true standard by which it should be regulated—the value of the gold which is actually contained in the coin for which it is a substitute.

We have advanced so far in this ruinous path, that we are beset with dangers on every side;—to proceed will inevitably plunge us into increasing and accumulated difficulties, from which we shall be unable hereafter to extricate ourselves; and to return, though by far the safest course, will be attended with trials which will require a great degree of ability, integrity, and firmness to surmount.

The Legislature has, by the restriction law, sanctioned for many years a most unjust interference in all contracts, benefiting one of the contracting parties at the expence of the other. No complaint has been so common as the increased prices of every commodity, but very few know, or can be made to understand, how large a portion of the inconvenience2 which they suffer, is to be ascribed, wholly, to the improper use which the Bank Directors have made of the extraordinary powers with which the Legislature has entrusted them. The evil is not less real because its source is concealed from ordinary optics.

The Bullion Committee has most ably illustrated the principles upon which a paper currency should be regulated; and I trust the day is not far distant when we shall look back with astonishment at the delusion to which we have so long been subject, in allowing a company of merchants, notoriously ignorant of the most obvious principles of political conomy, to regulate at their will, the value of the property of a great portion of the community; in a country, too, justly famed for the protection which it affords to the produce of the industry of the meanest of its inhabitants.

In treading back our steps we must necessarily again interfere, not only in contracts already made, but in those now making; this is an evil inseparable from the situation in which we are involved, it must ever attend the reformation of a debased or of a depreciated currency, and, I fear, admits of no equitable remedy.

It is by many supposed that the mode recommended by the Bullion Committee for the adoption of Parliament, namely, to oblige the Bank to pay their notes on demand in specie, at the expiration of two years, will materially lessen the amount of our exports and imports. If it is meant that the nominal amount will be less, it cannot be denied, because they will be estimated in undepreciated money, but the real amount, the number of pieces of cloth, for example, exported —or the number of hogsheads of sugar imported—they must for ever be independent of the quantity or value of the circulating medium. If a merchant has a monied capital of 1000l. with which he can purchase and export 50 pieces of cloth— and if the Bank by increasing the amount of circulating medium by advances to B. and C. so affect its value as to enable A. to purchase and export with his 1000l. only 40 pieces of cloth, they, in fact, enable B. and C. to purchase and export the remaining 10 pieces; and if they withdraw their advances to B. and C. and thereby lessen the amount of the circulating medium, the 1000l. of A. will regain its original value, and he will again become the exporter of fifty pieces of cloth.

The effect of the late great advances of the Bank has been precisely this, and is the same as if A. had contented himself with the employment of 800l. only, in the purchase and exportation of cloth, and had lent the 200l. to B. and C. and thereby enabled them to export the remaining ten pieces. There is this difference, indeed, that in the latter case A. would have received the interest on the 200l.—whereas in the former the Bank would have received it, and it would have been divided amongst the Proprietors of their Capital Stock.

If the Bank had doubled the circulation, A.’s 1000l. would have purchased only 25 pieces, but the new holders of the Bank paper, would have been enabled to purchase and export the remaining 25. As in all these cases the 50 pieces of cloth would be exported, the proposed remedy for restoring the standard currency cannot have the effect of lessening the real amount of exports.

In the same manner it might be shewn that the amount of imports will not be diminished. This principle is perhaps only strictly applicable to the regular export trade of the country, as it is founded on the supposition that the speculators, who are called into existence by the abundance of paper, will be governed by the same prudence and circumspection which had before guided the transactions of real Capitalists; but, unfortunately, this is not the case. They wish to acquire fortune by a coup-de-main, and are enabled to force exportation, unnaturally, to every part of the world; not waiting for the regular demands of trade, but forestalling it, and thereby inverting its regular course. They forcibly divert a part of the National Capital to a trade which it would not otherwise seek. The markets abroad become glutted— no returns are made, and these speculative exporters, if they are unable to renew their bills when they become due, are not only ruined themselves, but involve in their fall the whole chain with which they are connected. This I conceive to be the true history of the present failures. Exportations so injurious can well be dispensed with.

Experience has, indeed, proved, that every alteration in the regular routine of commercial concerns, is attended with some shock to general credit. If a war break out, though no loss of capital should be sustained, the employment for that part of it which is diverted from the old channels of trade, must be sought in new directions; and the consequence generally is attended with convulsions in the commercial world, in which those who are trading on borrowed capitals, and who depend on the continuance of commercial credit, cannot answer the demands suddenly made on them. As the paper system, pushed to the extravagant length which it now is, affords great facilities to this description of persons, there can be no doubt that every measure which tends to correct that system, every material reduction in the quantity of paper, will greatly embarrass and cause much distress amongst those who depend upon its continuance; and though the misfortunes of every part of the community must be deplored, it is to the pernicious system which has lately prevailed, that it will be alone to be ascribed. The remedy may be postponed, but can never be effectual without risking the safety of those individuals.

But whatever may be lost in consequence of the difficulties to which the persons of whom we have been speaking may be exposed, cannot be regarded as a national loss, as the capital which they could command by the credit which the abundance of circulating medium afforded them will revert to those hands which have been heretofore dispossessed of it, and where it will at least be as profitably employed as in those where this ruinous system has placed it.

A merchant trading with a monied capital has been injured by the depreciation of money, as his capital has not been equal to the same extent of business as before the depreciation; but there are few merchants in this situation:—their capitals, as well as that of tradesmen, are invested in goods, ships, &c. they are rather debtors than creditors to the rest of the community. A varying circulating medium, though injurious to every class of the community, is least so to mercantile men; as the prices of their commodities will undergo the same variations as the prices of all others, their comparative value will, under all circumstances, be the same, and their nominal, not their real value, will be affected.

The depreciation of the circulating medium has been most injurious to monied men.—By monied men I mean, that class whose property consists wholly of money, the amounts of which must, in this country, far exceed the total amount of the circulating medium.

It may be laid down as a principle of universal application, that every man is injured or benefited by the variation of the value of the circulating medium in proportion as his property consists of money, or as the fixed demands on him in money exceed those fixed demands which he may have on others. Thus the farmer is injured by any increase in the value of money, from whatever cause it may arise, whilst he has a fixed money rent, and fixed money taxes to pay. His produce will in consequence of the increased value of money sell for less, whilst his taxes and his rent continue the same. He must sell a greater number of quarters of corn, or whatever may be the produce of his land, to pay the same rent and the same taxes. He, more than any other class of the community, is benefited by the depreciation of money, and injured by the increase of its value. He has contracted to pay certain fixed sums,—the merchant and tradesman have done the same, but they have perhaps equal demands on others. The farmer trusts wholly to the sale of his produce; whatever, therefore, lowers the price of produce is injurious to him, without any corresponding benefit. The landlord will gain a great part of what the farmer loses, he will receive a greater real rent than he contracted for.

The landholder will be no loser, as the price of his produce will conform itself to the price of other commodities. Inasmuch as his taxes will be really increased in the same proportion as those of the farmer he will be a sufferer. But he cannot complain of injury—because, if the Bank had continued since 1797, to pay in specie as it had done before, he would not only now have to pay this amount of taxes but would have been obliged to do so for some years past. He has had an exemption which it would be unjust to continue to him.

Applying the principle which I have already noticed to the monied man, he must of course be greatly benefited by the restoration of the currency, as he stands in relation of creditor to all those with whom he has dealings. The rate of interest, it is true, is not affected by the increased value of the circulating medium, but the value of that interest is. He may receive in both cases 500l. for the use of 10,000l. but he will be sensible of the real increase of his revenue, by the fall in the prices of all the commodities which he consumes. He will, as well as the landholder and farmer, have increased taxes to pay, though the same nominal amount, but he will be amply compensated by the real increase of his income. He will re- gain by the restoration of the currency to its original standard, that portion of his revenue of which he has long been unjustly deprived, and which has been enjoyed by the issuers of paper money. The stock-holder and annuitant will, for the same reasons and in the same degree, be benefited.

The revenue will no doubt suffer some diminution, as an increase of 20 per cent. on all the existing taxes, can scarcely be paid without a considerable defalcation; in addition to which we must calculate on a deficiency in those taxes which are levied on the value of goods, such as many of the export and import duties,—the duty on houses by the rent,—the Income tax, and several others. It is certain that there will be a great deficiency in the amount of those taxes. But those who should, on account of these difficulties, contend for a continuance of the present system, should consider that a much less annual amount of loan and war taxes would be adequate to carry on the present expensive contest than what is now necessary. The loans and taxes being paid in a depreciated medium, and prices being affected in exact proportion to the depreciation, larger loans and larger taxes are requisite than what there would be, if the circulating medium were restored to its standard value. This is capable of an easy illustration. They should also consider that the longer the remedy is delayed, the more will the nation have ultimately to pay for it. We shall have to pay on every loan which may be raised, and on which the dividend shall hereafter be paid in standard currency, not only the interest really contracted for, but also the difference between the value of the dividends estimated in the present depreciated medium and their future value to which it is intended that they shall attain. This is a consideration of no trifling importance. Will it be contended that it would be wise and prudent to render the present system permanent?—Should such a plan be adopted, it is easy to foresee that we shall fare the fate of all those countries who have run the same ruinous course before us. It is impossible that a paper-money issuable by Government, or by a char- tered company, at pleasure, and which is not exchangeable for specie, at the will of the holder, can retain a permanent value. Its value must be constantly vacillating, and it is not difficult to foretell what the consequences must be of uncontrouled power remaining in the hands of the issuers of paper, whilst their interest and that of the public must necessarily be at variance.

R.

[ON SIR JOHN SINCLAIR’S ‘OBSERVATIONS’] BULLION REPORT1
To theEditor of the Morning Chronicle.

Sir,

I have read with attention the observations of Sir John Sinclair on the Report of the Bullion Committee,2 and am surprised that his ingenuity could not furnish him with any arguments against their conclusions, but such as have been again and again refuted.

It is not possible in the limits, to which, notwithstanding your indulgence, I must be confined, to point out all the false principles and uncandid statements with which the observations abound; neither would it be necessary, as the Bullion Report, though attacked, is itself an able, a satisfactory, and a conclusive answer.

Sir John takes much pains to inform us, that the increase of our commerce and of our public revenue require an additional amount of circulating medium. Who has denied it?— Did he suppose that the Bullion Committee would refuse its assent to this principle? But might they not have successfully contended, that if no increase of Bank Notes beyond such necessity had taken place, no depreciation could have occurred? That it is the excess above this amount, only, whilst the Bank possesses the confidence of the public, which causes depreciation.

Before 1797, when the Bank paid in specie, increased commerce, and increased taxation might have required, precisely as they do now, an addition to the circulating medium, which the Bank might have supplied with their notes without causing any depreciation in their value as compared with gold; but if they had refused or neglected to do so, the increased demand for money would have raised the foreign exchange above par, and the mint price of gold above the market price; or in more popular language, the market price of gold would have fallen below the mint price, and would have so continued till the Bullion Merchants had availed themselves of the advantage attending the importation of gold at the favourable exchange, and the subsequent coining of it into money, and thereby supplied the demand for currency. The exchange would then have been at or about par, and the market and mint prices of gold at the usual level. The paper given in to the Committee by Mr. Pearse, and on which Sir John rests his assertion, that it is proved [“]as a matter of fact, that there is no connection whatever between the amount of paper currency issued by the Bank of England, and the rate of exchange[”]1 , appears to confirm this reasoning. This paper attempted to prove, that “from January 1803, to the end of the year 1807, a period of not less than about four years, the amount of Bank Notes fluctuated from 16½ to 18 millions, and the exchange on Hamburgh varied from 32.10 to 35.6, becoming more favourable as the amount of Bank Notes increased.”1

To which I answer, that no such additions could have been made in those years to the circulating medium, without lowering the foreign exchanges, and raising the price of Gold Bullion, if our increased commerce, and increased taxation, had not rendered an addition to the circulating medium necessary.

That this country has since 1797 greatly increased in wealth and prosperity, is not denied; but it cannot be justly estimated by a comparison of the nominal amount of our exports and imports, at that period and at this, because they are now estimated in a depreciated circulating medium. If the currency were now doubled, the nominal value of the exports and imports would double also, but some more solid proof would be required of the country having increased its wealth in the same proportion.

The difference of the rate of interest at which the loans have been raised, is an argument of much more weight.2

Sir John informs us, on the authority of the Bullion Committee, that the exchange was greatly unfavourable to this country during the reign of King William, and that in consequence guineas were then as high as thirty shillings each. Here his information ends, but it would have been candid if he had added from the same authority, that at that period the silver coin (which was then the standard measure of value) was greatly debased, and Bank Notes were in excess. “At length,” says the Report, “the true remedies were resorted to: first by a new coinage of silver, which restored that part of the currency to its standard value, though the scarcity of money, occasioned by calling in the old coin, brought the Bank into streights, and even for a time affected its credit; secondly, by taking out of the circulation the excess of Bank notes.”1

Sir John dwells with much complacency, in his own opinion, that coin or bullion ought to be considered merely as merchandize, being sanctioned by the authority of many respectable witnesses examined before the Committee. I cannot find this principle questioned in the Report, though when Sir John informs us, that under the influence of respect for the Report of the Committee, he provided himself with some gold on his journey from Edinburgh to London, but found that the depreciated currency was equally useful with the coin, he seems to have forgotten its value as merchandize, as in that state it would certainly have procured him a few additional luxuries on his journey.

Sir John accuses the Committee of recommending the exportation of at least 20 millions of goods, and the importation in return of bullion, the absurdity of which, he observes, is self-evident. I have in vain looked over the Report for any foundation for this charge. Such a measure might be necessary in the contemplation of Sir John, if the Bank paid in specie, but on the principles of the Bullion Committee, that the circulation is in excess, and the excess could well be spared, there could be no necessity for any material importation of gold. Their recommendation is to lessen the amount of the circulating medium, and not to exchange one currency for another. Neither do the Committee express any expectation that the exchange will be brought to par, when the Bank is open, by the exportation of bullion, but by a reduction in the amount of the circulating medium, which will increase its value, not only at home but in its relation to the value of the currencies of other countries. The assertion, therefore, “that there is a great fallacy in the argument that opening the Bank would improve the exchange by the exportation of bullion,”1 will not apply to the Report.

One of the advantages attending the increase of paper circulation is, according to Sir John Sinclair, that the interest for the use of money is thereby reduced. “Let us suppose,” he says, “the total circulation of Great Britain to be 40 millions sterling in coin and in paper, bearing an interest of 5 per cent.; if it were reduced to 30 millions, bearing an interest of 6 per cent. how much would not the industry of the nation be cramped? whereas, were it raised to 50 millions, bearing an interest of 4 per cent. and the whole of it actively employed in various industrious pursuits, it cannot be doubted, that the prosperity of the country would increase with a celerity, and be carried to a height, which would not otherwise have been attainable.”2 If this reasoning be just, how incalculable would the prosperity of the country become, if the Bank would increase their notes to 100 millions and lend them at 3 per cent.

If Sir John will take the trouble to consult the 4th chap. 2d book, of Dr. A. Smith’s celebrated work, he will there see it undeniably demonstrated, that the rate of interest for money is totally independent of the nominal amount of the circulating medium. It is regulated solely by the competition of capital, not consisting of money. The real amount of the circulating medium, with the same amount of commerce and confidence, must always be the same; it may, indeed, be called 100 millions, or 20 millions, but the real value of the one or the other sum must be the same. He will also see in the same work, that the power of “effecting lasting improvements, such as roads, canals, bridges, harbours, mines, buildings, &c. &c.”1 depends upon the real wealth and capital of the country, and can neither be accelerated or retarded by the amount of the circulating medium.

“Let us suppose,” says Sir John, “that the goods annually produced in the united kingdom are worth 100 millions sterling, per annum; if the quantity were increased one-fifth, and if the price were lowered in proportion, we should not, in a pecuniary point of view, be one farthing richer; and in regard to finance, the people at large would, in fact, be less able than before to furnish supplies to the Exchequer. Those who purchased goods cheaper, and consumed them, might, to a certain extent, be benefitted, and be enabled of course to pay more to the public; but all the various classes of the community, by whose industry the goods were made and brought to market, would not be able to pay near so much as they did before, and would necessarily be impoverished.”2

2. “Let us next suppose,” says Sir John, “that the quantity of goods remains the same, but that the price increases onefifth. The amount of the annual income of the nation would then rise from 100 to 120 millions in value, and there would be a much larger fund for paying the demands of the public.”3

That is to say, that a country which by its industry adds one-fifth to the annual produce of her land and labour becomes less capable of contributing to the exigencies of the state.

It would, to me, appear that if the prices of commodities be increased a fifth, a greater nominal revenue might possibly be levied on the people, but as the money raised would be expended by Government in the purchase of commodities which had also increased a fifth in price, no considerable advantage would attend this ingenious experiment.

Nothing is wealth, according to these principles, but money, a doctrine which has been before maintained, but ably refuted by Dr. Adam Smith. It was reserved for this writer to contend not only that money is exclusively wealth, but paper money depreciated to any possible extent. How inexhaustible are our resources! Is it by such arguments that the reasoning of the Bullion Committee is to be overturned?

I am, Sir, &c.

R.

[ON MR RANDLE JACKSON’S SPEECH] BULLION REPORT1
To theEditor of the Morning Chronicle.

Permit me, Sir, through the medium of your Paper, to make a few remarks on the speech of Mr. Randle Jackson, delivered at the Bank Court on Thursday last, on the subject of the Report of the Bullion Committee.2

I cannot help lamenting, that those who differ from the Report, should endeavour, by every means in their power, to impress on the public mind, that the question in dispute is a party question, and that in this attempt they should have received the sanction of Mr. Jackson. If ever there was a question, which, from its importance, peculiarly required to be considered on its own merits only, it is the present state of our currency, connected as it necessarily is with the best interests of the community.

When the Hon. Proprietor commenced his speech, I hoped he would have discussed it as a subject of science, admitting of clear and obvious deductions from the known principles of political conomy. I anxiously waited for his proofs of the fallacious propositions with which he stated the Report abounded—I expected that he would have grappled with some of its leading principles—have traced them to their source—detected their errors and exposed their sophistry. I expected that he would have favoured us with his own theory on the subject of money, adorned by all the graces of his eloquence, and supported by such authorities as must have commanded respect and attention. I expected, in short, to have quitted the Court enlightened and informed on a subject which possesses peculiar interest to me; but, Sir, these expectations were not to be realized; I was doomed to listen to an unmeaning attack on what was called the party spirit which dictated the Report, and to a repetition of the worst of the erroneous opinions which were delivered in evidence to the Committee, and which the Report itself has so ably confuted.

One of the first observations made by Mr. Jackson was, that the Committee had reported contrary to the evidence. He of course did not mean to charge them with any misstatement of facts, but of drawing conclusions directly contrary to the opinion given by the gentlemen whom they examined. As the evidence were not unanimous in their opinion, as the respectable authority of the late Sir F. Baring was with the Committee, they would have been equally liable to this charge on whichever side they had reported. This censure the Committee had no means of avoiding. The charge in fact means, that they erred in not agreeing with the opinions of the Bank Directors. Now, Sir, this is the feature in the Report which, I think, is its peculiar recommendation; —it has demonstratively proved that those opinions were founded on false principles, and has, I hope, for ever, rescued us from their further and fatal influence. It is to be regretted, that truth is but slow in its progress; but it will not fail ultimately to triumph. We may be deprived for a time of the beneficial efforts of the labours of the Bullion Committee, but the true principles of currency, developed in their Report, can happily never be stifled. Did Mr. Jackson mean to contend, that the Committee were not to exercise their judgment on the facts laid before them, but that they were bound to report the opinions of others? To what consequences would not such an opinion lead? Merchants may understand the details of business—they may give much useful information; but it does not therefore follow that they are qualified to give sound opinions on points of theory and science. Glass-makers and dyers are not necessarily chemists, because the principles of chemistry are intimately connected with their trades.

If it be true “that it is impossible that any greater aspersion could be thrown on the Bank, than that it was they who had increased the price of the necessaries of life,”1 I fear they must continue to suffer under it, notwithstanding the defence made for them by Mr. Jackson. “But what is meant,” he asks, “by an excessive issue, to which these high prices are2 imputed?”1 —Though this question has been often answered, I will again endeavour to satisfy it, and for that purpose will avail myself of the assistance of Dr. Adam Smith.

“Let us suppose,” says that writer, “that the whole circulating money of some particular country, amounted, at a particular time, to one million sterling, that sum being then sufficient for circulating the whole annual produce of their land and labour. Let us suppose too that some time thereafter different banks and bankers issued promissory notes, payable to the bearer, to the extent of one million, reserving in their different coffers two hundred thousand pounds for answering occasional demands. There would remain, therefore, in circulation eight hundred thousand pounds in gold and silver, and a million of bank notes, or eighteen hundred thousand pounds of paper and money together. But the annual produce of the land and labour of the country had before required only one million to circulate and distribute it to its proper consumers, and that annual produce cannot be immediately augmented by those operations of banking. One million will therefore be sufficient to circulate it after them. The goods to be bought and sold being precisely the same as before, the same quantity of money will be sufficient for buying and selling them. The channel of circulation, if I may be allowed such an expression, will remain precisely the same as before. One million we have supposed sufficient to fill that channel. Whatever, therefore, is poured into it beyond this sum cannot run into it, but must overflow. One million eight hundred thousand pounds are poured into it, 800,000l. therefore, must overflow that sum, being over and above what can be employed in the circulation of the country.2 It will, therefore, be sent abroad, in order to seek that profitable employment which it cannot find at home. But the paper cannot go abroad, because at a distance from the Banks which issue it, and from the country in which payment of it can be exacted by law, it will not be received in common payments. Gold and silver, therefore to the amount of eight hundred thousand pounds, will be sent abroad, and the channel of home circulation will remain filled with a million of paper, instead of a million of those metals which filled it before.”1

So far there is no excess, but if, as is the case in this country, the Bank should be protected from paying its notes in specie, and should increase their issues to 1,200,000l, I should call the 200,000l. excessive. It could not, as formerly, over- flow and be exported, because every part of the currency consisted of paper, it must therefore either enlarge the channel of circulation, raising in the same proportion the prices of all commodities, not excepting gold and silver bullion, or it must, as is contended by the Bank Directors in their evidence before the Committee, return to them in the payment of bills discounted, as no one would consent, they say, to pay interest for 200,000l. which was superfluous and excessive. Here then the whole dispute rests, and Mr. Jackson should have exercised his talents in defence of this main prop of the Bank Directors.

If this falls, and it be proved that the 200,000l. will remain in circulation, and admits of being increased to two millions, or any other amount, all the ingenious reasoning of Mr. Jackson on the hardship to which the Bank will be subjected, by a repeal of the Restriction Bill, in being obliged to purchase gold bullion, not only at the present high price, but at any advance which the avarice of the dealers in bullion will add to it, must fall with it—as it will then appear evident that the Bank have the power of raising or falling, at their pleasure, not only the prices of bullion, but of every other commodity for which their notes are exchangeable.

In defence of my opinion, that the channel of circulation admits of indefinite enlargement, I have the authority of historical facts, the discovery of the mines of America must at least have trebled the amount of money. This increased amount of circulating medium, according to Dr. Smith, could have had no effect on the rate of interest for money. In the 4th chapter of the 2d book of the Wealth of Nations, to which I, in my last letter referred,1 it is demonstrated that the rate of interest depends on the rate of profits, which again is totally independent of the nominal amount of the circulating medium. Admitting this fact; if profits be high, and the Bank is willing to lend at a low interest, can there be any conceivable number of Bank Notes which may not be applied for? Let us suppose that the Bank had a mine of gold on its own premises and that England were insulated from all other countries—might they not have their gold coined into guineas and discount bills with them to an indefinite amount?2 Where is the difference in the present case? our currency is insulated from all others, and may, by the same rule, be indefinitely increased. But the Bank never discount bills, but such as are for bona fide transactions.—Suppose A. to sell a hogshead of sugar to B. and draw a bill for its value at two months;— suppose further, that B. sells the sugar to a grocer either in London or the country, and to draw another bill at two months, are not these both bona fide transactions? And will not the Bank discount both bills? Can it be seriously contended that these are checks which will keep the currency within proper limits.

It is observed by Dr. Adam Smith, “that the whole paper money of every kind which can easily circulate in any country, never can exceed the value of the gold and silver, of which it supplies the place, or which (the commerce being supposed the same) would circulate there if there were no paper money.”1

Let us try our circulation by this test. Let it be supposed possible that the Bank of England, and the Country Banks, could pay every note in circulation with specie, could the whole be kept in circulation? No; the excess would at the present exchange go abroad as bullion, and there seek a better market.

This is admitted by the Directors and their defenders. The circulation of England, therefore, according to Dr. Smith’s rule, is excessive, because it exceeds the quantity of gold and silver of which it supplies the place, and which would circulate there if there were no paper. “But the Bank has been surprisingly parsimonious in their issues,” says Mr. Jackson; “they have not, since 1797, exceeded their average issues more than 7 millions, whilst the Country Banks have increased theirs 20 millions.”2 So then it is allowed, that the town and country issues have been increased 27 millions; and yet we are gravely asked, what is meant by excessive issues? and it is deemed an aspersion of the character of the Bank, who have the power of regulating the amount of the country currency, because they are accused of being the cause of the high price of provisions, and of the other necessaries of life.

The Bank might make a simple experiment, by which the soundness of the principles on which the Bullion Report is founded might be fairly tried. Let them withdraw one million of notes from circulation, and if in three months no effect should thereby be produced on the price of bullion and the rates of exchange, they may then fairly exult in the justness of their views.

Mr. Jackson thinks the Directors blameless because they have to receive eighteen millions of the public, whilst the amount of their notes does not exceed twenty millions; he informs us that the Bank could raise the remaining two millions in half an hour, if it were wanted. This would be a good argument to prove the solvency of the Bank, of which no man doubts, but is of no avail against the accusation of an excessive currency. The same might be urged if 100 millions of Bank notes were in circulation and 98 had been issued in discounts. What again can the fact of the public participating in the profits of the Bank have to do with the question at issue?

Most willingly do I agree with Mr. Jackson in the just tribute which he paid to the disinterestedness and integrity of the Bank Directors; but I can go no further with him, and must deny them the character for ability and discretion, which he also bestows on them. But if men less scrupulous had been in the Direction, they might, with the power which they possessed, have alternately raised and depressed the price of Bullion, by the increase or diminution of their notes, and might either in their corporate or individual capacities have taken advantage of the successive variations.

I do not recollect that any of the Merchants in their evidence stated, as Mr. Jackson asserts, that the price of Bullion has no influence on foreign exchanges;1 neither was he correct in his statement, that in the year 1797, when the price of Bullion was very low, the exchange upon Hamburgh was, as now, 38 and a fraction.

This, which he considers as a strong instance against the opinion of the Committee, was unfortunately chosen, the fact being directly otherwise. The price of bullion is now high, and1 the exchange is proportionally low, being at31.6. and not at 38. I believe Mr. Jackson can bring no proof of a high price of bullion being unaccompanied by a low exchange—and a low price of bullion by a high exchange. But, Sir, the Report is the best antidote to these attacks—if that be but read I shall not fear the result, as it cannot fail to carry conviction to every unprejudiced mind.

I am, Sir, &c.

R.

lf00687-03_figure_004

Reply to Mr. Bosanquet 1811 edition.

[1]Morning Chronicle, 6 Sept. 1810.

[1 ]Bullion Report, ‘Minutes of Evidence’, 8vo edition, p. 198.

[2 ]Misprinted ‘convenience’ in the Morning Chronicle.

[1 ]Morning Chronicle, 18 Sept.1810.

[2 ]Observations on the Report of the Bullion Committee, by the Rt. Hon. Sir John Sinclair, Bart.,M.P., London, Cadell and Davies,1810.

[1 ]Observations, pp. 22–3.

[xlix] in the ‘Appendix of Accounts’ of the Bullion Report.

[2 ]According to Sinclair (Observations, p. 12) the interest on the loan of 1796 had been £4. 4s. 2¾d. per cent. and on the loan of 1809, £4. 13s. 3d.

[1 ]Bullion Report, 8vo ed., p. 42.

[1 ]Observations, p. 45.

[2 ]ib. pp. 56–7.

[1 ]Observations, p. 56.

[2 ]ib. pp. 58–9.

[3 ]ib. p. 59.

[1 ]Morning Chronicle, 24 Sept. 1810.

[2 ]Jackson’s speech was delivered at the General Court of the Bank of England held on 20 Sept. 1810, and was reported in the Morning Chronicle of the following day. An enlarged version was published as a pamphlet under the title The Speech of Randle Jackson, Esq. delivered at the General Court of the Bank of England, held on the 20th of September, 1810, respecting the Report of the Bullion Committee of the House of Commons; with Notes on the Subject of that Report, London, Butterworth,n.d. [1810]. Ricardo’s quotations are from the report in the Morning Chronicle; the page references here given in footnotes are to the pamphlet.

[1 ]Speech of Randle Jackson, p. 17.

[2 ]Misprinted ‘is’; corrected by Ricardo on the cutting from the Morning Chronicle which is in R.P.

[1 ]Speech of Randle Jackson, p. 18.

[2 ]Adam Smith says in addition: ‘But though this sum cannot be employed at home, it is too valuable to be allowed to lie idle.’

[i], pp. 276–7.

[1 ]Above, p. 143.

[2 ]Three minor corrections in this sentence, written by Ricardo on the cutting in R.P., have been adopted here: ‘premises and that’ for ‘premises.—’; ‘guineas and’ for ‘guineas—’; ‘with them’ for ‘with it’.

[i], p. 283.

[2 ]Speech of Randle Jackson, p. 20.

[1 ]Cp. below, pp. 358–9.

[1 ]‘and’ is inserted by Ricardo on the cutting in R.P.