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• Prefatory Note to Volumes Iii and Iv
• Pamphlets and Papers Written For Publication 1809–1811
• Note On the Bullion Essays
• The Price of Gold Three Contributions to the Morning Chronicle1809
• The Price of Gold 1
• [first Reply to ‘a Friend to Bank-notes’] to the Editor of the Morning Chronicle.1
• [second Reply to ‘a Friend to Bank-notes’] to the Editor of the Morning Chronicle.1
• [appendix to ‘the Price of Gold’
• [a Reply By Trower]
• [a Further Reply By Ricardo]1
• The High Price of Bullion 1810– 11
• Three Letters to the Morning Chronicle On the Bullion Report 1810
• [three Letters On the Bullion Report] Report of the Bullion Committee1to Theeditor of the Morning Chronicle.
• [on Sir John Sinclair’s ‘observations’] Bullion Report1to Theeditor of the Morning Chronicle.
• [on Mr Randle Jackson’s Speech] Bullion Report1to Theeditor of the Morning Chronicle.
• Reply to Mr. Bosanquet’s ‘practical Observations On the Report of the Bullion Committee’, 1811
• Chapter I: Preliminary Observations.—mr. Bosanquet’s Objections to the Conclusions of the Bullion Committee Briefly Stated.
• Chapter II: Mr. Bosanquet’s Alleged Facts, Drawn From the History of the State of Exchange, Considered.
• Chapter III: Mr. Bosanquet’s Alleged Facts, In Supposed Refutation of the Conclusion That a Rise In the Market Price of Bullion Above the Mint Price Proves a Depreciation of the Currency, Considered.
• Chapter IV: Mr. Bosanquet’s Objections to the Statement, That the Balance of Payments Has Been In Favour of Great Britain, Examined.
• Chapter V: Mr. Bosanquet’s Argument to Prove That the Bank of England Hasnotthe Power of Forcing the Circulation of Bank Notes—considered.
• Chapter VI: Observations On the Principles of Seignorage.
• Chapter VII: Mr. Bosanquet’s Objections to the Proposition, That the Circulation of the Bank of England Regulates That of the Country Banks, Considered.
• Chapter VIII: Mr. Bosanquet’s Opinion—that Years of Scarcity and Taxes Have Been the Sole Cause of the Rise of Prices, Excessive Circulation No Cause—considered.
• Chapter IX: Mr. Bosanquet’s Opinion, That Evil Would Result From the Resumption of Cash Payments—considered.
• Appendix
• Notes On Bentham’s ‘sur Les Prix’ 1810– 1811
• Notes On the Bullion Report and Evidence 1810
• (a): [notes On the Report of the Bullion Committee]
• (b): [rough Notes On the First Part of the Minutes of Evidence]
• (c): [notes On the Minutes of Evidence] Minutes of Evidence
• Notes On Trotter’s ‘principles of Currency and Exchanges’ 1810
• Observations On Trower’s Notes On Trotter 1811
• Observations On Vansittart’s Propositions Respecting Money, Bullion and Exchanges 1811
• Appendix

chapter viii

Mr. Bosanquet’s Opinion—that Years of Scarcity and Taxes have been the sole Cause of the Rise of Prices, excessive Circulation no Cause—considered.

Mr. Bosanquet, after having shewn, as he imagines, the insufficiency of the arguments of the Committee, to prove that the Bank circulation is excessive, brings forward positive arguments to prove that it is not. The ground of these arguments is, the cause of an advance of prices which arises from years of scarcity, and increased taxation. He has quoted1 a passage from Dr. Smith in support of this opinion, which I regard as in favour of the opinion which I hold on that subject.

“A prince,” says Dr. Smith,2 “who should enact that a certain proportion of his taxes should be paid in a paper money of any kind, might thereby give a certain value to this paper money, even though the time of its final discharge and redemption should depend altogether on the will of the prince. If the bank which issued this paper were careful to keep the quantity of it always somewhat below what could easily be employed in this manner, the demand for it might be such as even to make it bear a premium, or sell for somewhat more in the market than the quantity of gold and silver for which it was issued.”

Now, asks Mr. Bosanquet, as the annual amount of taxes far exceeds the amount of bank-notes, how can paper according to this principle be depreciated? But where does Dr. Smith talk of the annual amount of taxes? It might as fairly be contended, that the comparison of the amount of paper should be made with the amount of two or three years taxes. I under- stand Dr. Smith to mean, that if the quantity of paper does not exceed that amount, which can be wholly and solely employed in the payment of taxes, it will not be depreciated; he never could have maintained so extravagant a proposition as that which Mr. Bosanquet ascribes to him. To try our paper circulation by this rule of Dr. Smith, it should be proved that the daily payment of taxes is equal in amount to the whole of the bank-notes in circulation. According to Mr. Bosanquet’s interpretation of this passage, as the amount of the total payments into the exchequer is 76,805,440l., bank-notes cannot become excessive or depreciated till they exceed that amount. Who, on reading the passage, can believe that such was the fair meaning of Dr. Smith’s words?

When Mr. Bosanquet talked1 of a premium having been given for bank-notes, I conceived he meant a premium in gold or in silver; I can have no other idea of a premium: but it seems Mr. Bosanquet meant that a premium was given for them in paper more depreciated than themselves; in exchequer bills or banker’s checks. Now both of these securities being payable in bank-notes at some future period, may, on some occasions, be less valuable than the notes which are wanted for immediate use, and which will sufficiently account for the preference. An assignat at a discount of 50 per cent might have borne such a premium as Mr. B. supposes.

One of the proofs with which Mr. Bosanquet has favoured his readers2 of the very small increase that has taken place in the actual amount of bank-notes, compared with the business which it has to perform, is, that the increase in the amount of currency since the year 1793 is three millions, and the increased amount of payments to Government alone above sixty millions.

In this calculation the addition to the country currency is wholly omitted. I shall endeavour presently to shew, that it does not by any means necessarily follow that this enormous increase in the amount of taxes should have made any increase of circulation necessary, unless during the same time there had been an increase of commerce and trade.

At present it will be sufficient for me to remark, that had Mr. Bosanquet made a comparative statement from the year 1793 to 1797, he would have possibly seen reason to doubt the accuracy of his theory on this subject. During those four years there must have been a considerable addition to the taxes; and, therefore, on Mr. Bosanquet’s principles, there should also have been an addition to the circulating medium, which does not appear to be the fact. It is not probable that any very great addition was made to the amount of the coin in circulation; on the contrary, from the very great coinage in 1797 and 1798, the metallic currency must, in 1797, have been at an unusually low level. And it appears from the account delivered in to the Lords’ Committee,1 that the amount of Bank notes in circulation

and in 1797 the general average, even after the restriction, did not exceed the amount of 1793.

The amount of Bank notes in circulation in 1803 was nearly 18 millions. In 1808 it was not more; and yet no one will deny that in those five years our taxes and expences must have been greatly augmented.—Thus, then, it appears, that considerable additions may be made to the taxes of a country without a corresponding increase in its circulating medium.

The Committee is charged by Mr. Bosanquet with not having sufficiently considered the effect of taxation on the prices of commodities; and it is implied in that accusation, that they have exclusively attributed the rise in the prices of commodities to the depreciation of the currency. The Committee would indeed have been highly deserving of censure, if they had held out hopes to the people of this country, that the reformation of the currency could possibly reduce the prices of commodities to that level at which they were previously to the restriction bill. The effect produced on prices by the depreciation has been most accurately defined, and amounts to the difference between the market and the mint price of gold. An ounce of gold coin cannot be of less value, the Committee say,1 than an ounce of gold bullion of the same standard; a purchaser of corn therefore is entitled to as much of that commodity for an ounce of gold coin, or 3l. 17s. 10½d., as can be obtained for an ounce of gold bullion. Now, as 4l. 12s. of paper currency is of no more value than an ounce of gold bullion, prices are actually raised to the purchaser 18 per cent., in consequence of his purchase being made with paper instead of coin of its bullion value. Eighteen per cent. is, therefore, equal to the rise in the price of commodities, occasioned by the depreciation of paper. All above such rise may be either traced to the effects of taxation, to the increased scarcity of the commodity, or to any other cause which may appear satisfactory to those who take pleasure in such enquiries.

The theory which Mr. Bosanquet has advanced with respect to taxation, and the effects which it produces on the amount of circulating medium, is exceedingly curious, and is a proof that even practical men are sometimes tempted to wander from the sober paths of practice and experience, to indulge in speculations the most wild, and dreams the most chimerical.

Mr. Bosanquet observes,1 there are two causes of the augmentation of prices in Great Britain since the date of the restriction bill. 1st, “The altered state of the corn trade, and the scarcity arising out of it, in 1800 and 1801.” 2dly, “The increase of taxes since the commencement of the war in 1793.”

That the scarcity of corn, and the expences which have attended its importation, must have produced some rise in the prices of commodities I do most readily admit. But is it a self- evident proposition—is it, as Mr. Bosanquet lays it down,2 an axiom in political economy, that the effect of taxation is to raise the prices of commodities in the full amount of the taxes levied? Does it by any means follow, because taxes since the year 1793 have increased to the enormous amount of forty- eight millions, that all that sum must have gone to the increase of the prices of commodities, and that, therefore, this fact alone will account for a rise of 50 per cent. on the prices of 1793? Does it follow that every person, excepting the stockholder, has the power of indemnifying himself for the taxes which he pays?

Does it make no difference, for example, whether the tax be laid on consumable commodities, or whether it be such a tax as an income tax, assessed taxes, and twenty others that may be named? Do they all tend to raise the prices of commodities? And is every contributor but the stockholder enabled to rid himself of the burthen? If this argument were correct, it would appear that the whole weight of taxation falls exclusively on the stockholders; that the whole annual augmentation since 1793, amounting now to fifty-three millions, must have come from their pockets. Their taxes must at this rate have exceeded their income, because they exceeded the interest of the national debt. This I do not consider very correct doctrine; and, if true, it would not make stockholders very much enamoured with that species of property. Wars would, on such a principle, never impoverish, and the sources of taxation could never be exhausted.

To me, however, it appears convincingly certain, that neither the income tax, the assessed taxes, nor many others, do in the least affect the prices of commodities.

Unfortunate indeed would be the situation of the consumer, if he had to pay additional prices for those commodities which were necessary to his comfort, after his means of purchasing them had been by the tax considerably abridged.

The income tax, were it fairly imposed, would leave every member of the community in the same relative situation in which it found him. Each man’s expences must be diminished to the amount of his tax; and if the seller would wish to relieve himself from the burthen of the tax by raising the price of his commodity, the buyer for the same reason would wish to buy cheaper. These contending interests would so exactly counteract each other, that prices would undergo no alteration. The same observations are applicable to the assessed taxes, and to all other taxes which are not levied on commodities. But if the tax should in its operation be unequal, if it should fall particularly heavy on one class of trade, the profits of that trade would be diminished below the general level of mercantile profits, and those engaged in it would either desert it for one more profitable, or they would raise the price of the commodities in which they dealt, so as to bring it to produce the same rate of profits as other trades.

Taxes on commodities would certainly raise the price of the commodity taxed to the full amount of the tax. The price for such commodities may be considered as divided into two portions; one portion, its original and natural price, and the other a tax for the liberty of consuming it. If this tax again were laid on a commodity, the consumption of which, by each individual, was in exact proportion to his income, no other commodity would rise but the one taxed; but if it were not in such proportion, those who paid more than their just portion would demand an increased price for the commodity in which they dealt, and, by obtaining it, the society would be put in the same relative situation in which they were before placed.

If, instead of the tax being laid on the commodity, each individual were to pay no more for the commodity than the original price, and were to pay the amount of the tax at once to government for a licence to consume it, it would act precisely as the assessed taxes do, there would be only a partial rise in the prices of some commodities to compensate the inequality which, in spite of the best wishes of the legislature, must accompany every tax.

If this view of the effect of taxation be correct, it will follow that Mr. Bosanquet’s estimate, that 48 millions has been actually added to the prices of commodities in consequence of taxation since the year 1793, and that such addition will sufficiently account for the rise in the prices of commodities, without having recourse to the depreciation of the circulating medium as the cause, is a false theory, neither supported by reason nor probability.

From these statements Mr. Bosanquet has deduced another consequence, viz. that

As the value of commodities has been raised 48 millions since 1793, and the circulation only increased 3 millions, such increase cannot be called excessive* .

Although in the preceding statement I have conceded to Mr. Bosanquet, that in consequence of some of our taxes the prices of commodities will be increased, it does not appear necessarily to follow that more money will be requisite to circulate them.

That amount of money which is received by government in the shape of taxes, is taken from a fund which would otherwise have been expended on consumable commodities.

In proportion as the taxes are great, must the expences of the people diminish. If my income amounts to 1000l., and government requires 100l. in taxes from me, I shall have but 900l. to expend on such necessaries and comforts as are requisite for the use of my family. If government take 200 I shall have but 800 for such purposes. Now, as the amount of money actually expended by government and by me cannot exceed 1000l., no additional circulating medium would, I think, be required, although the taxes were 50 per cent. of each man’s income. If the tax were laid upon bread, and, in consequence, the wages of labour were raised, the tax would eventually fall on all those who consumed the produce of the labour of man. It would make no real difference to these consumers if they had at once paid the amount of such tax into the exchequer, or if it had gone through the circuitous channel which it would then take.

Nor would any additional sum be required. Government would be in the daily receipt of a portion of the taxes, whether it was paid to the exciseman or to the tax-gatherer, and their expences in the one case would be precisely the same as in the other. Whatever the government expended would cause a diminished expenditure in the people to the same amount: the same amount of commodities would be circulated, and the same money would be adequate to their circulation.

This is on the supposition that the people were sufficiently prudent or sufficiently rich to pay all the taxes from their annual income, and were not tempted or compelled to diminish their capital to satisfy the calls of government. If capital were however diminished, the aggregate amount of productions would also diminish; and if the money which was before necessary for their circulation were to continue of the same amount, it would bear a larger proportion to the goods, and it might therefore be expected that commodities would rise; but we must not forget that the amount of money in a country is regulated by its value, and as its value would in this case be diminished, it would become relatively excessive to the money of other countries, and the excess would therefore be exported.

When we talk of a scarcity of corn, and a consequent increase of price, it is naturally concluded, because its value is doubled, that double the value of money will be necessary to circulate it, but this is by no means obvious or necessary. If double the money be necessary, there should be an equal quantity of corn at double the usual price,—but it is because there is a diminished quantity of corn that its price is doubled.

If the commerce of a country increases, that is to say, if by its savings it is enabled to add to its capital, such country will require an additional amount of circulating medium; but, under all circumstances, the currency ought to retain its bullion value; that is the only sure test by which we may know that it is not excessive.

[1 ]pp. 86–7.

[i], p. 311. The slight inaccuracies in quotation are Bosanquet’s, whom Ricardo follows.

[1 ]p. 87.

[2 ]p. 90.

[1 ]‘Report of the Lords’ Committee’, 1797 (reprint 1810), p. 96.

[1 ]Bullion Report, pp. 4–5.

[1 ]p. 92.

[2 ]pp. 94–5.

[* ]If we add to these 3 millions the increase in the country circulation, and bear in mind the economy in the use of circulating medium, so ably and so clearly explained by Mr. Bosanquet, it would appear to me that, granting all the facts for which Mr. Bosanquet contends, the circulating medium has increased in an undue proportion.