MR. WESTERN’S MOTION RESPECTING THE RESUMPTION OF CASH PAYMENTS
11 June 1823
Mr. Western (the member for Essex) moved ‘That a committee be appointed to take into consideration the changes that have been made in the value of the currency between the year 1793 and the present time, and the consequences produced thereby upon the money-income of the country derived from its industry; the amount of the public debt and taxes considered relatively to the money-income of the country; and the effect of such changes of the currency upon the money-contracts between individuals.’
Mr. Ricardo observed, that the hon. member for Essex, and all those who took his view of the subject, laid down very sound principles, but drew from them conclusions which were altogether untenable. No one doubted, that, in proportion as the quantity of money in a country increased, commerce and transactions remaining the same, its value must fall. No one questioned, that the change from a depreciated to a metallic currency of increased value must have the effect of reducing its quantity, and of lowering the price of all commodities brought to market. These were principles which he had himself on various occasions asserted; but the difference between him and the hon. member for Essex, was, as to the degree in which the value of our currency had been increased, and the degree in which prices generally had been diminished by the bill (called Mr. Peel’s Bill) of 1819. It was from seeing the evils which resulted from a currency without any fixed standard, that he had given his best support to that bill. What he sought was, to guard against the many and the severe mischiefs of a fluctuating currency; fluctuating, not according to the variations in the value of the standard itself, from which no currency could be exempted, but fluctuating according to the caprice or interest of a company of merchants, who, before the passing of that bill, had the power to increase or diminish the amount of money, and consequently to alter the value, whenever they thought proper. It was from seeing the immense power which the Bank, prior to 1819, possessed—a power, which he believed that body had been inclined to exercise fairly, but which had not been always judiciously exercised, and which might have been so used as to have become formidable to the interests of the country—it was from the view which he took of the extent of that power of the Bank, that he had rejoiced, in 1819, in the prospect of a fixed currency. He had cared little, comparatively, what the standard established was—whether it continued at its then value, or went back to the old standard: his object had been, a fixed standard of some description or other. In the discussions of 1819, he certainly had said, that he measured the depreciation of the then currency, by the difference of value between paper and gold; and he held to that opinion still. He maintained now, that the depreciation of a currency could only be measured by a reference to the proper standard—that was, to gold; but he did not say, that the standard itself was not variable. The hon. gentleman, and those who supported his opinions, were always confounding the terms “depreciation,” and “value.” A currency might be depreciated, without falling in value; it might fall in value, without being depreciated, because depreciation is estimated only by reference to a standard. He had undoubtedly given an opinion in 1819, that, by the measure then proposed, the prices of commodities would not be altered more than 5 per cent; but, let it be explained under what circumstances that opinion had been given. The difference in 1819, between paper and gold, was 5 per cent, and the paper being brought, by the bill of 1819, up to the gold standard, he had considered that, as the value of the currency was only altered 5 per cent, there could be no greater variation than 5 per cent, in the result as to prices. But this calculation had always been subject to a supposition, that no change was to take place in the value of gold. Mr. Peel’s bill, as originally constituted, led the way to no such change. That bill did not require the Bank to provide itself with any additional stock of gold till 1823. It was not a bill demanding that coin should be thrown into circulation, till after the expiration of four years and a half; and before that period, if the system worked well, of which there could be no doubt, parliament could, and in all probability would, have deferred coin payments to a considerably later time. It was a bill by which, if they had followed it strictly, the Bank would have been enabled to carry on the currency of the country in paper, without using an ounce more of gold than was then in their possession.
Gentlemen forgot that, by that bill, the Bank was prohibited from paying their notes in specie, and were required only to pay them in ingots on demand; ingots which nobody wanted, for no one could use them beneficially. The charge against him was, that he had not foreseen the alteration in the value of the standard, to which, by the bill, the paper money was required to conform. No doubt, gold had altered in value; and why? Why, because the Bank, from the moment of the passing of the bill in 1819, set their faces against the due execution of it. Instead of doing nothing, they carried their ingots, which the public might have demanded of them, to the Mint, to be coined into specie, which the public could not demand of them, and which they could not pay if it did. Instead of maintaining an amount of paper money in circulation, which should keep the exchanges at par, they so limited the quantity as to cause an unprecedented influx of the precious metals, which they eagerly bought and coined into money. By their measures they occasioned a demand for gold, which was, in no way, necessarily consequent upon the bill of 1819; and so raising the value of gold in the general market of the world, they changed the value of the standard with reference to which our currency had been calculated, in a manner which had not been presumed upon.
This, then, was the error which he (Mr. Ricardo) had been guilty of: he had not foreseen these unnecessary, and, as he must add, mischievous operations of the Bank. Fully allowing, as he did, for the effect thus produced on the value of gold, it remained to consider what that effect really had been. The hon. member for Essex estimated it at 30 per cent; he (Mr. Ricardo) calculated it at 5 per cent; and he was therefore now ready to admit, that Mr. Peel’s bill had raised the value of the currency 10 per cent. By increasing the value of gold 5 per cent, it had become necessary to raise the value of paper 10 per cent, instead of 5 per cent, to make it conform to the enhanced value of gold. To estimate what the effect of this demand for gold had had upon its value in the general market of the world, he contended, that we should compare the quantity actually purchased, with the whole quantity used in the different currencies of the world; and he was satisfied that, on such a principle of calculation, 5 per cent would be found to be an ample allowance for the effect of such purchases. But the hon. member for Essex had said nothing of all this. He merely came down to the House and said, “My proof that there has been an alteration of 30 per cent in the value of money is, that there is a change to that amount in the price of wheat, and of various other commodities.” Every alteration, under every circumstance, in the price of commodities might so be solved, without the trouble of inquiry, by reference to the value of gold. If this argument were good for any thing now, it was good for all times; and we never had had any variations in the value of commodities: the variations in price, which had often occurred, were to be attributed to no other cause but to the alteration in the value of money.
But, suppose the calculation of the hon. member to be correct, and that all the alteration which had taken place in the price of corn had been owing to the alteration in the value of money, he (Mr. Ricardo) should ask him, whether, even in that case, the agricultural interest had suffered any injustice? It was not pretended, that money was now of a higher value than it was previous to the Bank Restriction bill, nor corn at a lower price. The favourite argument was, that they, the landed interest, had to pay the interest of the debt in a medium of a different value from that in which it had been contracted, and therefore, that they actually pay 30 per cent more than they would have paid, if money had never altered in value. He (Mr. Ricardo) had once before endeavoured to show the fallacy of this argument, and had attempted to prove, that the payers of taxes actually paid no more now, than they would have paid, if we had had the wisdom never to depart from the sound principles of currency; and that the stock-holders, taking them as a class, receive no more than what is justly due to them. The hon. member would lead the House to believe, that the whole of our immense debt was contracted in a depreciated currency; but the fact was, that nearly five hundred millions of that debt was contracted before the currency had suffered any depreciation; and the rest of the debt had been contracted in currency depreciated in various degrees. Mr. Mushett had been at the trouble of making very minute calculations on this subject, and had proved, that the loss to the stock-holders, from receiving their dividends in a depreciated currency for twenty years, on the stock contracted for in a sound currency, would amount to a sum sufficiently large to buy a perpetual annuity, equal to the additional value of the dividends paid on the three hundred millions of debt contracted for in the depreciated currency. He should be glad to hear an answer given to this statement. For his own part, it did appear to him, that the success of the present motion would not benefit the landed interest a jot: because the motion asked for an examination as to the changes from the year 1793 to the present moment; and, as it must be admitted, that the landed interest had derived vast advantages from the depreciation between the years 1800 and 1819, the present motion compelling them to make due allowance for the benefits they had acquired during those years, would take from them an amount equal to that which they had lost by the subsequent change.
The hon. member for Essex said, that the currency had altered 30 per cent in value; but his chief proof rested on the altered price of corn. The true cause of the greater part of this alteration was, not the change in the currency, but the abundance of the supply. The stimulus to agriculture had been great during the war, and we were now suffering from a re-action, operating at the same time with the effect of two or three abundant crops. Could the agricultural interest be ruined by an alteration in the value of money, without its affecting, in the same manner, the manufacturing and commercial interests of the country? If corn fell 30 per cent from an alteration in the value of money, must not all other commodities fall in something like the same proportion? But, had they so fallen? Was the manufacturing interest so distressed? Quite the contrary. Every thing was flourishing, but agriculture. The legacy duty, the probate duty, the advalorem duty on stamps, were all on the increase; and certainly, if a raised value of money had lessened the value of property, less might be expected to be paid generally upon transfers of property. The state of the revenue was to him (Mr. Ricardo) a satisfactory proof, if every other were wanting, of the erroneous conclusions of the hon. gentleman.
The hon. member for Essex had asked, if any man would say, that under the present system of currency the country could bear the expenses of a war? would any man say now, that the country could pay, as it did in the former war, eighty-four millions per annum? Now, this question was not put quite fairly; because, as the hon. member contended, that our currency was increased in value 30 per cent, he ought to ask, whether we could now afford to pay sixty millions per annum for a war, as we paid eighty-four millions formerly? He (Mr. Ricardo) would answer, that the country would be able to pay just as much real value under the existing system, as under any system of the hon. member for Essex’s recommendation; for he thought, that a change in the value of her currency could have no effect at all upon the powers of a country. An unrestricted paper currency created a new distribution of property. It transferred wealth from the pockets of one man to whom it really belonged, to the pockets of another who was in no way entitled to it; but it imparted no strength to a country.
Agreeing as he did most sincerely, with almost all the opinions of his right hon. friend, the president of the Board of Trade (Mr. Huskisson) on this subject, he still considered, that his right hon. friend had given too much currency to the opinion, that an unrestricted paper issue enabled us to meet with increased strength the public enemy. It was not useful to war—it was most injurious in peace—and could not again be put under control, without the grossest injustice to a great portion of the community. We had happily recovered from those effects; and he sincerely trusted, that the country would never again be subjected to a similar calamity.
It was singular, that the objection against the restoration of our currency from a depreciation of 5 per cent in a period of four years, should have come from the hon. member for Essex, who, in 1811, saw no danger in restoring it from its depreciated state of 15 per cent in a single day. The House might recollect that, in 1811, a bill had been brought in, to make paper money equivalent to a legal tender, in consequence of lord King having, most justly, demanded the payment of his rents in the coin of the realm, according to the value of the currency at the time the leases were granted. Suppose that bill had been thrown out, agreeably to the views of the hon. gentleman, who in a speech strenuously opposed the bill, and that the law had taken its course, and that creditors had been defended, in demanding their payments in coin—what would have been the result in that case? Would not the ounce of gold have fallen the very next day from 4l. 10s. to 3l. 17s. 10½d.? Would there have been no inconvenience in an enhancement in the value of the currency to that amount? or was the hon. gentleman prepared to say, that a rise in the value of paper of 15 per cent in one day, in 1811, would have been harmless, but that it would be ruinous to raise it to the amount of 5 per cent only, in a period of four years from 1819?
The hon. member for Essex had not dealt quite fairly by him (Mr. Ricardo) in a pamphlet which he had recently published. In speaking of Mr. Peel’s bill, he acquitted his majesty’s ministers of any intention of plunging the country into the difficulties which he thought that bill had caused: he paid a compliment to their integrity, by supposing them ignorant: but not so to him (Mr. Ricardo). Without naming him, the hon. gentleman alluded to him and his opinion, in a way that no one could mistake the person meant, and said, that it required the utmost extent of charity to believe, that in the advice he had given he was not influenced by interested motives. The hon. gentleman would have acted a more manly part, if he had explicitly and boldly made his charge, and openly mentioned his name. He (Mr. Ricardo) did not pretend to be more exempted from the weaknesses and errors of human nature than other men, but he could assure the House and the hon. member for Essex, that it would puzzle a good accountant to make out on which side his interest predominated. He (Mr. R.) would find it difficult himself, from the different kinds of property which he possessed (no part funded property), to determine the question. But, by whom was this effort of charity found so difficult? By the hon. gentleman, whose interest in this question could not, for one moment be doubted—whose whole property consisted of land—and who would greatly benefit by any measure which should lessen the value of money. He imputed no bad motive to the hon. gentleman. He believed he would perform his duty as well as most men, even when it was opposed to his interest; but he asked the hon. gentleman to state, on what grounds he inferred, that he (Mr. Ricardo) should, under similar circumstances, be wanting in his.
I beg particularly (continued Mr. Ricardo) to call the attention of the House, to the opinions which I have given on the cause of our recent difficulties, and which the hon. member for Essex now reprobates; as I think that, for every one of those opinions, I can appeal to an authority which the hon. gentleman will be the last to question—for it is to his own. I contend, that the present low price of corn is mainly owing to an excess of supply, and not to an alteration in the value of the currency. What said the hon. gentleman in this House, in the year 1816, when corn had fallen considerably, and when the causes of that fall was the subject of discussion? “The first and obvious cause, I say, has been a redundant supply beyond the demand, and that created chiefly by the produce of our own agriculture. Permit me, Sir, here to call to the recollection of the House the effect of a small surplus or deficit of supply above or below the demand of the market. It is perfectly well known, that if there is a small deficiency of supply, the price will rise in a ratio far beyond any proportion of such deficiency: the effect, indeed, is almost incalculable. So likewise on a surplus of supply beyond demand, the price will fall in a ratio exceeding almost tenfold the amount of such surplus. Corn being an article of prime necessity, is peculiarly liable to such variations: upon a deficit of supply the price is further advanced by alarm; and upon a surplus, it is further diminished by the difficulty the growers have in contracting the amount of their growth, compared to the means which other manufacturers have of limiting the amount of their manufacture.”
Now, I would ask the House in what these sentiments differ from those which I have had the honour of supporting in this House, and which the hon. gentleman now thinks so reprehensible? But further, the hon. gentleman contended, in the speech alluded to, that the diminution which at that time had taken place in the amount of the circulating medium was not in any way the cause of the fall in the price of corn, but on the contrary it was the fall in the price of corn which was the cause of the diminution of the quantity of the circulating medium—“I say” (continued he) “there is nothing which will prevent it” (corn) “so falling, nor are there any means to force a re-issue of this paper currency which has thus vanished in a moment: nothing but a revival of the value on which it was founded can accomplish the object.”
On this point, I rather agree with the hon. gentleman’s present opinions, than with his former ones, that there are means of forcing a re-issue of paper, and of raising the price of corn; but I trust that we shall not have recourse to them. The hon. gentleman proceeds to say—“Now, Sir, let us turn from the contemplation of this gloomy picture, and consider what prospect there is of remedy, or what means we have of affording relief. If I am right in attributing the primary cause of all these calamities to the effects of a surplus in the market beyond the demand, the remedy must be found in taking off that surplus; or it will remedy itself in a short time by a reduction of supply. The danger is, that the 11 June 1823 present abundant supply should be converted into an alarming deficiency.” The hon. gentleman goes on to say, that it is impossible, for any length of time, for the price of corn to be below a remunerating price, and that it is possible for the harvest to be so abundant as to produce loss instead of advantage to the grower. These were the opinions which he (Mr. Ricardo) held on this subject, and which he had at various times, though with much less ability, attempted to support in that House. If he had learned them from the hon. member, it was very extraordinary that at the moment he adopted them the hon. member should turn round and reproach him for conforming to his sentiments.
The hon. gentleman proceeded to animadvert on the arguments and statements set forth by the hon. mover in a pamphlet recently published, and particularly on one, in which the hon. member, in making up the balance of advantage which the stock-holder had derived from the several measures affecting the currency, entirely omitted to set on one side of the account, the various sums which had been paid to him in discharge of his debt by the sinking fund in the depreciated currency, and which, amounted to upwards of one hundred millions. If the money advanced by the stockholder to the public had been in a depreciated currency, so had been the payments made to the stock-holder; and it was not fair for the hon. gentleman to calculate on the sum of such advances, but on the difference between the advances and payments. As the hon. gentleman stated the question, it would appear as if all the advances to government had been in depreciated money, and all the payments from government to the stock-holder had been in currency of the Mint value. Nothing could be so little conformable to the fact; as the advances and payments were made in the same medium, and, as far as the amounts were equal, they were equally injurious to both parties.
After going through various other objections which he took to the contents of the same pamphlet, Mr. Ricardo went on to justify the opinions which he had given before the Bank committee from an attack which had been made upon them, in another pamphlet, by the hon. member for Callington (Mr. Attwood). He concluded by objecting to the motion. It was too late to make any alteration in the currency. The difficulties of the measure of 1819 were now got over. The people were reconciled to it. Agriculture, he believed, would soon be in the same flourishing condition as the other interests of the country. If it were not, it would only be on account of the mischievous corn law, which would always be a bar to its prosperity. As a punishment to the hon. gentleman, he could almost wish that a committee should be granted. He would, of course, be chairman of it; and tired enough he would be of his office, by the time he had “adjusted” all the interests relative to his new modus! He could not tell how the hon. gentleman would go about the performance of such a labour; but this he would say, that the immediate result of granting such a committee would be, to produce the most mischievous effects, and to renew all the inconveniences which had been previously occasioned by the uncertainty and fluctuations of the currency.
The debate extended to the following day, when Mr. Peel and Mr. Huskisson opposed the motion. Most of the speakers for the motion attacked Ricardo; one of them, Mr. Wodehouse, said that Ministers ‘were too ready to listen to the suggestions of the hon. member for Portarlington (Mr. Ricardo), whose conclusions on this head appeared to him to be utterly incomprehensible. Never could he introduce that hon. member’s name without feeling what was due to his talents, and also to his character; and, as this observation from himself must carry with it an air of presumption, perhaps he might be allowed to state in explanation, that he had sat with the hon. member for weeks on the same Committee [the Agricultural Committee], had differed with him on almost every point that had been started, but was so struck with the entire absence of all illiberal imputation, and such a manifest desire on his part of establishing only that which was fair, that somehow it was impossible not to have acquired a facility of communication, even with one so infinitely his superior. But, to believe that he had a clear perception on the subject of money, was utterly impossible.’
Mr. Western’s motion, with the addition of a clause for ‘establishing an equitable adjustment of contracts’, proposed by Lord Folkestone, being put, the House divided: Ayes, 27; Noes, 96.