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section v: On the effect produced on the Price of Corn by Mr. Peel’s Bill for restoring the ancient standard - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 4 Pamphlets and Papers 1815-1823 [1815]

Edition used:

The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 4 Pamphlets and Papers 1815-1823.

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

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Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


section v

On the effect produced on the Price of Corn by Mr. Peel’s Bill for restoring the ancient standard

Much difference of opinion prevails on the effect produced on the price of corn by Mr. Peel’s bill for restoring the ancient standard. On this subject there is a great want of candour in one of the disputing parties; and I believe it will be found, that many of those who contended during the war, that our money was not depreciated at all, now endeavour to shew that the depreciation was then enormous, and that all the distresses which we are now suffering, have arisen from restoring our currency from a depreciated state to par.

It is also forgotten, that from 1797 to 1819 we had no standard whatever, by which to regulate the quantity or value of our money. Its quantity and its value depended entirely on the Bank of England, the directors of which establishment, however desirous they might have been to act with fairness and justice to the public, avowed that they were guided in their issues by principles which, it is no longer disputed, exposed the country to the greatest embarrassment. Accordingly we find that the currency varied in value considerably during the period of 22 years, when there was no other rule for regulating its quantity and value but the will of the Bank.

In 1813 and 1814, the depreciation of our currency was probably at its highest point, gold being then 5l. 10s. and 5l. 8s. per ounce; but in 1819, the value of paper was only 5 per cent. below its ancient standard, gold being then 4l. 2s. or 4l. 3s. per ounce. It was in 1819 that Mr. Peel’s bill passed into a law. At the time of passing that bill, Parliament had to deal with the question as it then presented itself. It was thought expedient that an end should be put to a state of things which allowed a company of merchants to regulate the value of money as they might think proper; and the only point which could then come under consideration was, whether the standard should be fixed at 4l. 2s., which was the price of gold not only at the time when Parliament was legislating, but its price for nearly the whole of the four preceding years; or the ancient standard of 3l. 17s. 10½d. should be restored. Between these two prices Parliament was constrained to determine, and I think, in choosing to go back to the ancient standard, it pursued a wise course. But when it is now said that money has been forcibly raised in value—25 per cent., according to some; 50, and even 60 per cent., according to others, they do not refer to 1819, the period at which that bill passed, but to the period of the greatest depression; and they charge the whole increase in the value of the currency to Mr. Peel’s bill. Now, it is to the system which allowed of such variations in the value of money that Mr. Peel’s bill put an end. If, indeed, in 1819, or immediately preceding 1819, gold had been at 5l. 10s. an ounce, no measure could have been more inexpedient than to make so violent a change in all subsisting engagements, as would have been made by restoring the ancient standard; but the price of gold, as I have already said, was then, and had been for four years, about 4l. 2s., never above, and frequently rather under, that price; and no measure could have been so monstrous as that which some reproach the House of Commons for not having adopted, namely, of fixing the standard at 5l. 10s.; that is, in other words, after the currency had regained its value within 5 per cent. of gold, under the operation of the bad system, again to have degraded it to 30 per cent. below the value of gold.

It will be remembered, that a plan was by me submitted to the country, for the restoration of a fixed standard, which would have rendered the employment of any greater quantity of gold than the Bank then possessed wholly unnecessary.

That plan was to make the Bank liable to the payment of a certain large and fixed amount of their notes in gold bullion, at the Mint price of 3l. 17s. 10½d. an ounce, instead of payment in gold coin. If that plan had been adopted, not a particle of gold would have been used in the circulation,—all our money must have consisted of paper, excepting the silver coin necessary for payments under the value of a pound. In that case it is demonstrable, that the value of money could only have been raised 5 per cent, by reverting to the fixed ancient standard, for that was the whole difference between the value of gold and paper. There was nothing in the plan which could cause a rise in the value of gold, for no additional quantity of gold would have been required, and therefore 5 per cent. would have been the full extent of the rise in the value of money* . Mr. Peel’s bill adopted this plan for four years, after which payments in coin were to be established. If for the time specified by the bill, the Bank Directors had managed their affairs with the skill which the public interest required, they would have been satisfied with so regulating their issues, after Mr. Peel’s bill passed, that the exchange should continue at par, and consequently no importation of gold could have taken place; but the Bank, who always expressed a decided aversion to1 the plan of bullion payments, immediately commenced preparations for specie payments. Their issues were so regulated, that the exchange became extremely favourable to this country, gold flowed into it in a continued stream, and all that came the Bank eagerly purchased at 3l. 17s. 10½d. per ounce. Such a demand for gold could not fail to elevate its value, compared with the value of all commodities. Not only, then, had we to elevate the value of our currency 5 per cent., the amount of the difference between the value of paper and of gold before these operations commenced, but we had still further to elevate it to the new value to which gold itself was raised, by the injudicious purchases which the Bank made of that metal. It cannot, I think, be doubted, that if bullion payments had been fairly tried for three out of the four years, between 1819 and 1823, and had been found fully to answer all the objects of a currency regulated by gold at a fixed value; the same system would have been continued, and we should have escaped the further pressure which the country has undoubtedly undergone, from the effects of the great demand for gold which specie payments have2 entailed upon us.

The Bank Directors urge in defence of the measures which they have pursued, the complaints which were made against them, on account of the frequent executions for forgery, which rendered it indispensable that they should withdraw the one-pound notes from circulation, for the purpose of replacing them with coin. If they could not substitute a note better calculated to prevent forgery, than the one which they have hitherto used, this plea is a valid one; for the sacrifice of a small pecuniary interest could not be thought too great, if it took away the temptation to the crime of forgery, for which so many unfortunate persons were annually executed; but this excuse comes with a bad grace from the Bank of England, who did not discover the importance of preventing forgery by the issue of coin till 1821, after they had made such large purchases of gold, that they were under the necessity of applying to Parliament for a bill, to enable them to issue coin in payment of their notes, which, by Mr. Peel’s bill, they were prevented from doing till 1823. How comes it that they did not make this discovery in 1819, when the Committees of the Lords and Commons were sitting on Bank payments? Instead of being eager at that period to commence specie payments, they remonstrated, in a manner which many thought unbecoming, against any plan of metallic payments, which did not leave the uncontrolled power of increasing or diminishing the amount of the currency in their hands. It surely is not forgotten, that on an application by the Lords’ Committee to the Bank, dated the 24th March, 1819, asking if “the Bank had any, and what objections to urge against the passing a law to require it should pay its notes in bullion on demand, but in sums not less in amount than 100l., 200l., or 300l., at 3l. 17s. 10½d., and to buy gold bullion at 3l. 17s. 6d. by an issue of its notes; the said plan to commence after a period to be fixed for that purpose;” the Directors answered, “The Bank has taken into consideration the question sent by the Committee of the House of Lords, under date of the 24th March, and is not aware of any difficulty in exchanging, for a fixed amount of bank notes, gold bullion of a certain weight, provided it be melted, assayed, and stamped by his Majesty’s mint.

“The attainment of bullion by the Bank at 3l. 17s. 6d. is in the estimation of the Court so uncertain, that the Directors, in duty to their proprietors, do not feel themselves competent to engage to issue bullion at the price of 3l. 17s. 10½d.; but the Court beg leave to suggest, as an alternative, the expediency of its furnishing bullion of a fixed weight to the extent stated at the market price as taken on the preceding foreign post day, in exchange for its notes; provided a reasonable time be allowed for the Bank to prepare itself to try the effect of such a measure.”1

If this proposal had been acceded to, the Bank would itself have determined the price at which it should have sold gold from time to time to the public, because by extending or curtailing their issues, they had the power to make the price of gold just what they pleased, 4l. or 10l. an ounce, and at that price to which they might choose to elevate it, they graciously proposed to sell it, “provided a reasonable time be allowed to prepare itself to try the effect of such a measure.”

After this proposal, after the representation made to the Chancellor of the Exchequer by the Directors of the Bank of England on the 20th May, 1819* , it will not be said that the question of forgery appeared so urgent to the Directors that they were eager to substitute coin for their small notes in 1819, however important the question became in their view in 1820.

It is a question exceedingly difficult to determine what the effect has been on the value of gold, and consequently on the value of money produced by the purchases of bullion made by the Bank. When two commodities vary, it is impossible to be certain whether one has risen, or the other fallen. There are no means of even approximating to the knowledge of this fact, but by a careful comparison of the value of the two commodities, during the period of their variation, with the value of many other commodities.

Even this comparison does not afford a certain test, because one half of the commodities to which they are compared, may have varied in one direction, while the other half may have varied in another: by which half shall the variation of gold be tried? If by one it appears to have risen, if by the other to have fallen. From observations, however, on the price of silver, and of various other commodities, making due allowance for the particular causes which may have specially operated on the value of each, Mr. Tooke, one of the most intelligent witnesses examined by the Agricultural Committee, came to the conclusion that the eager demand for gold made by the Bank in order to substitute coin for their small notes, had raised the value of currency about five per cent.1 In this conclusion, I quite concur with Mr. Tooke. If it be well founded, the whole increased value of our currency since the passing of Mr. Peel’s bill in 1819, may be estimated at about ten per cent. To that amount, taxation has been increased by the measure for restoring specie payment; to that amount the fall of grain, and with it of all other commodities has taken place as far as this cause alone has operated on them; but all above that amount, all the further depression which the price of corn has sustained, must be accounted for by the supply having exceeded the demand; a depression, which would have equally occurred, if no alteration whatever had been made in the value of the currency.

It is, indeed, alleged by many of the landed interest, that to one cause alone, all the distress in agriculture is to be ascribed. They go so far as to say, that there is now no surplus produce on the land, but what is paid to the Government for taxes; that there is nothing whatever left for rent or profit; that whatever rent is paid, is derived from the capital of the farmer, and all these effects they charge on the alteration in the value of the currency.

It is evident that those who advance this most extravagant proposition, do not know how the alteration in the value of the currency affects the different interests of a country. If it injures the debtor, it in the same degree benefits the creditor; if its pressure is felt by the tenant, it must be advantageous to the landlord, and to the receivers of taxes. They, then, who maintain this doctrine, must be prepared to contend that all that fund, which formerly constituted the rent of the landlord, and the profits of the farmer, are, by the alteration in the value of money, transferred to the State, and are now paid to the receivers of taxes, and, among them, the stock-holders. That the situation of the stock-holder is improved, by his dividends being paid in a currency increased in value, there can be no doubt; but what evidence is there to shew that his situation is so much improved, that he has now at his disposal, in addition to his former means of enjoyment, all those which were before at the disposal of the whole of the tenantry, and of the landlords of the country? So wild an assertion cannot be for a moment entertained; we have not heard of splendid equipages and superb mansions having been built by the stock-holders since, and in consequence of, the Bill of 1819. Besides, if this were true, how comes it that the profits of the merchant and manufacturer have escaped the fund-holder, this devouring monster, as he has been called?1 Are not their profits governed by the same principle, and by the same law, as the profits of the farmer? How have they contrived to exempt themselves from this desolating storm? The answer is plain, there is no truth in the allegation. Agriculture has been depressed by causes of which the currency forms only a little part. The peculiar hardships which the landed interest are suffering, are of a temporary character, and will continue only while the supply of produce exceeds the demand. A remunerative price is impossible while this cause of low value continues; but the situation of things which we now witness cannot have any permanence.

Is it not quite certain, that if the pressure on the farmers, from the alteration in the value of currency, and the increased taxation consequent upon it, has been so great as to take from them all the profits of their capital, it must also have taken away the profits of all other persons employing capital? for it is quite impossible that one set of capitalists should be permanently without any profit at all, whilst others are making reasonable profits.

On the part of the landlords it may be said, that they are encumbered with fixed charges on their estates, such as dowers, provision for daughters, and younger children, mortgages, &c. It cannot be denied that an alteration in the value of currency must greatly affect such engagements, and must be very burdensome to landlords; but they should remember that they or their fathers benefited by the depreciation of the value of the currency. All their fixed engagements, their taxes included, were for many years paid in the depreciated medium. If they suffer injustice now, they profited by injustice at a former period; and if the account were fairly made up, it would, I believe, be found that, as far as alteration in the value of currency is concerned, they have little just cause for complaint.

But, on the score of money engagements, which are now affected by the increased value of currency, have the commercial interest no cause for complaint? Are they not debtors in as large an amount as the landed interest? How many persons have retired from business, whose capitals are, directly or indirectly, still employed by their successors? What vast sums are employed by bankers and others in discounting bills? For the whole of this value there must be debtors, and the increased value of money could not have failed very much to aggravate the pressure of their debts.

I mention these circumstances to shew that if the real efficient cause of the distress of the landed gentlemen was the increased value of money, it ought to have produced similar distress in other quarters;—it has not done so, and therefore I have a right to infer, that the cause of the distress has been mistaken.

The profits of the farmer must bear some uniform proportion to the profits of the other classes of capitalists; they are subject to temporary fluctuations, perhaps, in a greater degree than the profits of others; but the circumstances of which they complain, though severe and aggravated at the present time by other causes, yet are by no means new or uncommon.

Mr. Tooke, in his evidence before the Agricultural Committee, in pages 230 and 231, has furnished us with extracts from publications in the last century, in which the ruin of the landed interest was foretold in terms not very unlike those used in the present day. Those difficulties have passed, and the present ones will, with a little good legislation, soon only be matter of history.

At a late Court of Proprietors of Bank Stock, the Directors said that, so far from having reduced the amount of the circulation since 1819, they had considerably increased it, and that it was this year actually more by 3,000,000l. than the amount of the circulation at the same period last year, or the year preceding.1 If the Directors were quite correct in this statement, it is no answer to the charge of their having kept the circulation too low, and thereby caused the great influx of gold. My question to them is, “Was your circulation so high as to keep the exchange at par?” To this they must answer in the negative; and therefore I say, that if in consequence of the importation of gold, that metal is enhanced in value, and the pressure on the country is thereby increased, it is because the Bank did not issue a sufficient quantity of notes to keep the exchange at par. This charge is of the same force whether the amount of bank-notes has, in point of fact, been stationary, increasing, or diminishing.

But I dispute the fact of the circulation having been even half a million higher in amount in 1822, than in 1821 and 1820. The mode of proving the proposition, adopted by the Bank, is not satisfactory; they say, in 1821 we had 23,800,000l. in circulation, and now the notes in circulation, with the sovereigns we have since issued, amount to 3,000,000l. more. But as sovereigns are circulated in Ireland, and in other districts of the United Kingdom, how can they affirm, that in the same channel in which 23,800,000l. bank-notes circulated in 1821, 26,800,000 bank-notes and sovereigns together, are now in circulation? I believe the contrary to be the fact, for I find that the amount of notes of five pounds and above, which have been in circulation for several years past, in the month of February is as follows:—

Years    £.
1815—16,394,359
1816—15,307,228
1817—17,538,656
1818—19,077,951
1819—16,148,098
1820—15,393,770
1821—15,766,270
1822—15,784,770

And as the notes of five pounds and upwards have not increased 400,000l. since 1820, I find it impossible to believe that the circulation of a smaller denomination can have increased in any much larger proportion.

Before I conclude this section I must observe that the complaints made against the Bank for refusing to lend money on discount at four per cent. are without any good foundation. The reason for such complaints is, that by lending at four per cent. they would lower the rate of interest generally, and the landed interest would be benefited by being able to raise money on mortgage on cheaper terms than they now pay for it. I believe, however, that no amount of loans which the Bank might make, and no degree of lowness of interest at which they might choose to lend, would alter the permanent rate of interest in the market. Interest is regulated chiefly by the profits that may be made by the use of capital, it cannot be controlled by any bank, nor by any assemblage of banks. During the last war the market rate of interest for money was, for years together, fluctuating between seven and ten per cent.; yet the Bank never lent at a rate above five per cent. In Ireland the Bank by its charter is obliged to lend, at a rate of interest not exceeding five per cent., yet all other persons lend at six per cent.

A Bank has fulfilled all its useful functions when it has substituted paper in the circulation for gold; when it has enabled us to carry on our commerce with a cheap currency, and to employ the valuable one which it supplants productively: provided it fulfils this object it is of little importance at what rate of interest it lends its money.

One argument used by a very enlightened member of Parliament, during a late discussion on the rate of interest charged by the Bank, was rather a singular one; he said that the Bank of France, and other Banks on the Continent, lent at a low rate, and therefore, the Bank of England should do so.1 I can see no connexion between his premises and conclusion. The Bank of France ought to be2 governed by the market rate of interest and the rate of profits in France; the Bank of England by the market rate of interest and the rate of profit in England. One may be very different from the other. From the whole of his argument, I should infer that he considered a low rate of interest, in itself, beneficial to a country. The very contrary, I imagine, is the truth. A low rate of interest is a symptom of a great accumulation of capital; but it is also a symptom of a low rate of profits, and of an advancement to a stationary state; at which the wealth and resources of a country will not admit of increase. As3 all savings are made from profits, as a country is most happy when it is in a rapidly progressive state, profits and interest cannot be too high. It would be a poor consolation indeed to a country for low profits and low interest, that landlords were enabled to raise money on mortgage with diminished sacrifices. Nothing contributes so much to the prosperity and happiness of a country as high profits.

This complaint against the Bank, which comes, I think, with an ill grace from a Member of Parliament, as representing the public interest, might be consistently urged by a Bank proprietor at a general meeting of their body, for it is difficult to account on what principle of advantage to the concern which they manage, the Directors can think it right to lend their proprietors[’] money at three per cent. to Government* when they could obtain four per cent. from other borrowers; but with this the public have no concern, and they and their proprietors should be left to settle this matter as they please.

[* ]With 4l. 2s. in bank notes any one could purchase precisely the same quantity of commodities as with the gold in 3l. 17s. 10½d.; the object of the plan was to make 3l. 17s. 10½d. in bank notes, as valuable as 3l. 17s. 10½d. in gold. To effect this object, could it have been necessary, could it indeed have been possible, to lower the value of goods more than 5 per cent., if the value of gold had not been raised?

[1 ]Eds. 1–2 ‘against’ in place of ‘to’.

[2 ]Eds. 1–2 ‘has’.

[1 ]‘Second Report’ from the Lords’ Committee on the Resumption of Cash Payments, 12 May 1819, Appendix A. 8, p. 314; in Parliamentary Papers, 1819, vol. iii.

[* ]See Appendix, A.

[1 ]Tooke actually said ‘About six per cent.’, according to the ‘Minutes of Evidence’ before the Agricultural Committee of 1821, p. 296.

[1 ]The ‘all-devouring monster’ is Cobbett’s description of the fund-holder. (Cobbett’s Weekly Political Register, 2 March 1822, p. 517.)

[1 ]At the Bank Court of Proprietors held on 21 March 1822, in reply to criticisms of the Bank by Alderman Heygate, ‘The Governor remarked, that he happened accidentally to have a paper in his hand, which would, he trusted, convince the hon. alderman, that if the Bank had erred, it was not on the side of a reduction of the circulating medium; for upon looking at the amount of their issues, he found, that on the 9th of March, 1822, their issues exceeded, by the sum of 3,859,000 l., those of the same date in the preceding year (March 9, 1821), and that the latter exceeded the issues of the 9th of March, 1820, by the sum of 3,444,000 l. (Hear.) It was therefore quite clear, that the repayment of the Government debt called for in July, 1819, did not induce the Bank to diminish their issues, for they had been increasing them in the years which had since followed.’ (The Times, 22 March 1822.)

[1 ]This argument was used by J. A. Stuart Wortley, M.P. for Yorkshire, in presenting a petition for the relief of agricultural distress on 1 April 1822 (Hansard, N.S., VI, 1402). Huskisson supported him with a similar argument (ib. 1405).

[2 ]Ed. 1 ‘is’ in place of ‘ought to be’.

[3 ]In place of the last four lines ed. 1 reads ‘A low rate of interest is a symptom of a low rate of profits. But, as’ etc. Eds. 2–3 are uniform with ed. 4, except that they open the second sentence with ‘But, as’ in place of ‘As’.

[* ]The Bank are now in advance1 many millions to the Government on Exchequer Bills at three per cent., besides the fixed advance of their capital, also at three per cent.; which latter they are, by their charter, obliged to lend at that rate of interest.

[* ]The Bank are now in advance1 many millions to the Government on Exchequer Bills at three per cent., besides the fixed advance of their capital, also at three per cent.; which latter they are, by their charter, obliged to lend at that rate of interest.

[1]Should be ‘to advance’; see, for the proposed advance, below, V, 129, 133.