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EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS 1819 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 5 Speeches and Evidence 1815-1823.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS 1819
NOTES ON THE EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS
The Commons’ Committee took evidence from twenty-four witnesses between 11 February and 1 May; the Lords’ from twenty-five witnesses between 8 February and 30 April. Sixteen of them, including Ricardo, were heard by both Committees.
The Proceedings of the Committees
‘The Secret Committees of both Houses respecting the Restriction Act, also became a subject of interesting conversation. Mr Ricardo is more at home here than in the maze of political reform. He had been closeted in the morning with Lord Grenville and Mr Grenfell; discussing various parts of that important subject. Abercrombie, who is a Member of the Committee of the Lower House, also entered with some interesting particulars of the state of opinions in the Committees; for altho’ they are committees of secrecy, every thing that passes there in the morning, is known at night in the great political circles.
‘Lord King sent him a scheme this morning thro’ Mr Thorpe, by means of which the resumption of cash payments would be facilitated. Supposing the period fixed for paying in cash to be 18 months; a scale would be formed of the price at which the Bank would be obliged to purchase Bullion during every week of the intervening space of time. For instance the price of Gold is £4. 4. –: during the first week they would be obliged to purchase Bullion (upon Ricardo’s plan) at £4. 4. The next at £4. 3. 11¾, and so on, till by the reduction of the issues, they had brought the price down to the Mint price of £3. 18. 6. William Haldimand thinks well of King’s scheme, which might in his opinion be adopted with some modifications: but he apprehends that no scheme can prevent the extreme distress which will be felt from the narrowing the discounts of the Bank. The depreciation is reckoned at about 7 per cent...Ricardo does not think that the distress will be so great but in this he differs from all other commercial men.
‘Mr Dorrien, Mr Pole and Mr Harman, the two first of whom are the Governor and Deputy Governor of the Bank, and the latter one of the oldest and ablest of the Directors, have been examined before both Committees, and have made a wretched figure. Mr Pole shewed himself so totally ignorant of first principles, that Huskisson who took the lead in the examination of the House of Commons Committee, looked around him, and observing the impression, stopt short and sat down, not wishing to expose Mr Pole unnecessarily—. And yet these are the men to whom the power is delegated of regulating the currency of the kingdom, and of lowering or raising at their pleasure the market value of every species of property—.
‘Lord Liverpool and Lord Grenville take the lead in the examinations of the House of Lords. Canning, Huskisson, and Frankland Lewis in the Commons. Lord Castlereagh asks questions which shew that he does not know the a.b.c. of the subject. Poor Vansittart sits silent and dejected at seeing all his opinions overturned. The Duke of Wellington is very attentive, and writes down all that passes: he made some very pertinent observations to William Haldimand, in a very unassuming and modest manner. Lord Harrowby and Lord Bathurst are also very attentive. Lord Lansdowne, Lord King and Lord Lauderdale understand the subject thoroughly, and afford great assistance. There cannot be a better Committee than in the Lords. The Committee of the Commons is not so good. Huskisson is the only man who undertands the subject thoroughly. Mr Peel who is Chairman is very impartial and intelligent; but he knows little about it. Tierney altho’ a good financier, is not up to the intricacies of the question. It is always a toss up whether good Sir John Newport is right or wrong. Abercrombie can seldom attend. Mr Grenfell is able and well acquainted with the subject; but not of the calibre of Lord Grenville.’
It was in the evidence of Swinton Holland, ‘a partner with Baring, Brothers, & Co.’, before the Commons’ Committee on 2 March that the plan was proposed as a permanent measure, and Ricardo named as its author: ‘It having been intimated to me, some days ago, that I was likely to be called before this Committee, I turned my attention to the subject. My opinions are chiefly founded upon Mr. Ricardo’s theory, reduced, as I conceive, to a practical form.’ He then read a paper, which began: ‘In submitting this plan to the consideration of the Committee, I must beg to premise, that the ground work of it is entirely taken from Mr. Ricardo’s admirable pamphlet, “Proposals for an economical and secure Currency;” that if there is any merit in the plan, that merit appertains to Mr. Ricardo. With this gentleman I have not had any communication on the subject, nor have I the honour of being known to him; that I have merely reduced his system into detail and form for practice; and I can venture to assert, as a practical man of business, that there will be little, if any difficulty, in carrying it into effect’.
He proposed that the Bank should be required, within a period to be fixed (and which in a subsequent answer he suggested might be six months from the Report of the Committee), ‘to pay (if demanded) all their notes large and small, if the amount presented, added together, forms a sum total of one hundred pounds; and that the same shall be paid by the ounce of gold, at the option of the bank, either in gold, in specie of the current coin of the realm, gold in ingots, bars, or gold in foreign coin...’
‘Let the period at which the bank is to commence this system be made public, and declared to the world as fixed, absolute, and unchangeable.
‘Instead of 3l. 17s. 10½d. per ounce, let the standard value be declared to be 80s. per ounce; which would require the bank to deliver or pay against £.100 of its notes, exactly 25 ounces of gold of standard fineness, (or in proportion to standard fineness, if delivered in foreign coin)...
‘In order to preserve the equilibrium between paper and gold, and prevent bank notes rising to a premium, the bank must be obliged to deliver its paper to the public, or to the bearer of one ounce or more of gold in bullion, (or coin in its relative proportion per ounce to standard) thereby creating a fixed and invariable market for gold, at 80s. per ounce...
‘This system will require the trade in bullion to be free, unrestricted, and the import and export allowed, without any impediment being thrown in the way thereof.
Two questions put to Lewis Lloyd, a banker, on 9 March, stress the distinction drawn by the Committee between the plan of bullion payments and the ‘graduated scale’.
‘A plan has been suggested to this Committee for the resumption of cash payments, which is known by the name of Mr. Ricardo’s plan; have the goodness to state to the Committee whether you have formed any opinion upon that plan?—It certainly has appeared to me as unexceptionable a plan as any I have heard suggested; it seems to remove some of the difficulties which would attend a resumption of cash payments.
‘Supposing such a plan once adopted, and the price of gold and the exchanges to have continued steady for some time, under the operation of this plan; would not such a state of things afford a great facility for the return to the ancient system of this country, if such return should still be thought more desirable?—The plan would certainly bring with it no expense, and could at any period be got rid of without difficulty; at the same time, as one of its merits is to carry on the circulation with the least possible amount of bullion, of course, the supply for returning to the system of coin, would not be very great; at the same time it is my opinion that such a system would make London the great mart for gold and silver bullion in the same manner as the bank of Hamburgh has given that advantage to the city of Hamburgh for silver.
Ricardo was again examined, apparently at his own request, on 19 March, when he delivered a paper in which he suggested that, if it was decided that a currency partly made up of gold coin was desirable, a ‘moderate seignorage’ should be charged on gold coin.
The Lords’ Committee recalled Baring on 10 March and asked him: ‘Supposing it were now the Determination of Parliament to restore to the Country, as quickly as may be safe and practicable, the Advantages of a Circulating Medium, regulated by a Metallic Standard of Value; would it in your Opinion be advisable to adopt for the Purpose the following Proposal, either wholly, or with any and what Variations, viz.
1st, That the Bank should be subjected to the Delivery of uncoined Gold or Silver, at the Mint Standard and Price, in Exchange for their Notes, instead of the Delivery of Coin:
2dly, That the Bank should also be obliged to give their Paper in Exchange for Standard Gold or Silver, at fixed Prices, taken somewhat below the Mint Price:
3dly, That the Quantity of Gold or Silver to be so demanded in Exchange for Paper at the Bank, and the Quantity to be so sold to the Bank, should be limited, not to go below a fixed Amount:
4thly, That the most perfect Liberty should be given at the same Time to export and import every Description of Bullion:
5thly, That the Mint should continue open to the Public for the Coinage of Gold Money:
6thly, That the same Privilege of paying Notes in Bullion should either be extended to the Country Banks, or that the Bank of England Notes (their Value being thus secured) should be made a legal Tender?’
On 24 March Ricardo appeared before the Committee, and his examination was resumed when they next met on 26 March.
The First (or Interim) Reports of both Committees, issued on 5 April, merely stated that they would shortly present a plan for the Resumption of Cash payments; but in the meantime they recommended, as a matter of urgency, the adoption of a measure to suspend the engagements entered into by the Bank, in 1817, to pay in gold coin its notes of an earlier date than 1 January 1817.
The Second (and Final) Report of the Commons’ Committee was presented and ordered to be printed on 6 May, and that of the Lords’ Committee on 7 May.
Mallet in his Diary indicates how the Committees reached their decision:
‘In forming their Committees, Ministers had no plan in view: but the inclinations of the majority by the Cabinet being adverse to Cash payments, they took care (as they thought) to secure a majority in their favour: But so difficult is it to guard all avenues, when they need not be guarded, that two of the Members of the Commons Committee, who were appointed to form an antibullion majority, Sir John Nicholls and Mr Ashurst, were both friends to a general resumption of Cash payments. The one is a decided Ministerial Member; a sort of devoted adherent: the other a Tory Country Gentleman: they were not people likely to have either read or thought much upon the subject; and all that was expected of them was to be upon the Government side if it came to a counting of noses: but it so happened that they had read and had opinions of their own, and that those opinions were sound, so that they immediately sided in the Committee with those Members of administration who were favourable to a better system of currency.’
The recommendations contained in the Second Report of the Commons’ Committee were as follows:
‘That, after the 1st May 1821, the Bank shall be liable to deliver a quantity of Gold, not less than 60 ounces, of standard fineness, to be first assayed and stamped at His Majesty’s mint, at the established mint price of £3. 17s. 10½d. per oz. in exchange for such an amount of Notes presented to them as shall represent, at that rate, the value of the Gold demanded:
‘That this liability of the Bank to deliver Gold in exchange for their Notes, shall continue for not less than two nor more than three years, from the 1st May 1821; and that at the end of that period, Cash Payments shall be resumed:
‘That on a day, to be fixed by Parliament, not later than the 1st February 1820, the Bank shall be required to deliver Gold, of standard fineness, assayed and stamped as before mentioned, in exchange for their notes (an amount of not less than 60 ounces of Gold being demanded) at £.4. 1s. per ounce, that being nearly the market price of standard Gold in bars on an average of the last three months.
Those of the Lords’ Committee were:
‘1. That provision should be made by Parliament for a repayment of the debt of Government to the Bank to a considerable amount, and that a part of that repayment should take place some time antecedent to the first period which may be fixed for the commencement of bullion payments by the Bank:
‘2. That from and after the 1st of December 1819, or at latest the 1st of February 1820, the Bank of England shall be required to pay its notes in gold bullion duly assayed and stamped in His Majesty’s Mint, if demanded, in sums of not less than the value of 60 ounces, at the price of £4 1s. per ounce of standard bullion; that on the 1st of November 1820, or at such other period as may be fixed, the price shall be reduced to £3 19s. 6d., unless the Bank shall have previously reduced it to that rate, it being always understood that the price, when once lowered, shall not again be raised by the Bank; and that on the 1st of May 1821, the Bank shall pay its notes, if demanded, in gold bullion, in sums of not less than the value of 30 ounces, at the price of £3 17s. 10½d. per ounce of standard bullion:
‘3. That a weekly account of the average amount of notes in circulation during the preceding week, shall be transmitted to the Privy Council; and a quarterly account of the average amount of notes in circulation during the preceding quarter, shall be published in the London Gazette:
The plan came into effect on 1 February 1820 when the Bank resumed gold payments at 81s. per ounce in ingots of 60 ounces of gold of standard fineness, stamped and assayed at the Mint.
Some more details came to light as a result of an article on ‘Ricardo’s Ingot Plan’ by Dr. Bonar in the Economic Journal for September 1923. The following number of the Journal (December1923) announced the discovery in the Coins and Medals Department of the British Museum ‘not indeed of the ingot itself but of an impression in bronze from the die which was used to stamp it. An undated ticket lay under it, on which were written in a contemporary hand the words:
‘It would have been more correct to say impression of a stamp.
‘The diameter of the object is 34 mm.; that of the actual die as shown by the edge of the circular impression is 32 mm. The impression is of a G.R. crowned, as in the engraving above ... The above engraving is of the actual size.
‘In the same way it has been discovered by the Bank of England, that in the early months of 1820 the Mint delivered to the Bank 2028 gold bars of 60 ounces each. Of these 13 were sold, to 12 different purchasers, viz.:
The remaining 2015 were returned to the Mint.’
The plan of bullion payments virtually came to an end in April 1821, when an Act was passed (1 and 2 Geo. IV, c. 26) to anticipate by one year the operation of the clause which allowed the Bank to pay their notes either in coin or in bullion. In May 1823, under the terms of the Act of 1819, payment in coin became obligatory.
Ricardo’s evidence is reprinted below from the official edition of 1819. The original arrangement and spelling have been retained; except that in the Commons’ evidence (by analogy with the more convenient arrangement of the Lords’ evidence) numbers have been prefixed in square brackets to the questions, and each question and answer, which in the original are printed as a single paragraph, have been separated.
MINUTES OF EVIDENCE TAKEN BEFORE THE SECRET COMMITTEE ON THE EXPEDIENCY OF THE BANK RESUMING CASH PAYMENTS
Jovis, 4° die Martii, 1819.
The Right Honourable Robert Peel, in the Chair.
David Ricardo, Esquire;
A Member of the House; was Examined.
 Do you conceive that the paper currency of this country is now excessive, and depreciated in comparison with gold, and that the high price of bullion and low rate of exchange, are the consequences, as well as the sign, of that depreciation?
Yes, I do.
 The following is an extract from a publication of your’s: “Why will not the bank try the experiment, by a reduction in the amount of their notes of two or three millions for the short period of three months? if no effects were produced on the price of bullion and the foreign exchanges, then might their friends boast, that the principles of the bullion committee were the wild dreams of speculative theorists;”1 do you still adhere to the opinion expressed in that extract?
Yes, I do.
 From July to December 1817, the average amount of bank of England notes in circulation, appears to have been £. 29,210,000; from July to December 1818, the amount appears to have been £. 26,487,000; in the latter period, the price of gold was higher than in the former, and the exchanges were more unfavourable to this country, so that the reduction in the issues, though carried to the extent of £. 3,000,000, produced no effect upon the exchange and on the price of gold; how do you reconcile these facts with the theory?
When I gave the opinion that has been stated, it was on the supposition, that no commercial causes were at that time to operate on the price of bullion or on the exchange, being firmly convinced, that a reduction in the amount of notes, under those circumstances, would raise their value to any point which might be desired; I am fully aware that there are other causes, besides the quantity of bank notes, which operate upon the exchanges; but I am quite sure, that from whatever cause a bad exchange arises, it may be corrected by a reduction in the amount of the currency.
 Then ought there not to have been an addition to the statement above referred to of words to the following effect; provided other causes do not counteract the effect of the reduction?
Clearly; I was speaking with respect to a given time; I did not mean to assert, that at all times and under all circumstances a reduction of bank notes would improve the exchange.
 What are the causes to which you refer? Those causes, I conceive, are various; there may be a great increase in the capital of a country, which may so increase the quantity of commodities to be circulated, that there may be required more circulating medium at one time than at another; there may be a great diminution in the value of gold and silver, generally, in Europe, which may make it possible, with the same commerce, to maintain an increased amount of circulation; I consider, in all cases, that the quantity of circulation must depend upon its value, and the quantity of business which it has to perform.
 Then do you consider the high price of gold to be a certain sign of the depreciation of bank notes?
I consider it to be a certain sign of the depreciation of bank notes, because I consider the standard of the currency to be bullion, and whether that bullion be more or less valuable, the paper ought to conform to that value, and would, under the system that we pursued previously to 1797: there is an instance of the truth, I think, of the opinion which I am maintaining, in the year 1782, when, by a return made by the bank, it appears that there was a reduction of, I believe, three millions of bank notes in the space of a few months; that reduction was probably also accompanied by a reduction in the metallic part of our currency, there being then no notes under ten pounds in circulation, but of that we can have no knowledge; this proves to me, that in order to make the value of the paper conform to the value of bullion, the bank were under the necessity of reducing the amount of their currency.
 The price of gold being lower when the amount of bank of England notes in circulation was twenty-nine millions than when it was twenty-six millions, and you considering the price of gold to be the criterion of the depreciation of bank notes, to what other causes do you attribute the rise in the price of gold when there had been a diminution to the extent of three millions in the amount of bank notes?
It seems to me, that when we compare two commodities together, gold and paper for example, it is impossible to say, when they are varying, whether the one is falling or the other is rising. If gold was rising in the general market of the world at the time stated, it is evident that it might exceed more than before the value of paper currency, although the latter was reduced in quantity and increased in value; they would both rise, but gold would rise most. By the operation of country banks, the whole currency might have been increased, although that part of it issued by the bank of England was diminished. Confidence and credit may have prevailed to a high degree, which are substitutes for currency. I am of opinion, that we have never sufficiently attended to the variations that may take place in the value of the metal itself, by which we estimate the value of our currency; there are a number of commercial causes, as I have already said, which I think affect the value of gold, and when I say the value, I do not mean the value as compared with paper, but the value as compared with commodities generally. I think every tax has some influence upon the value of the precious metals, and either occasions their exportation or importation. I think that every improvement in machinery has a tendency to produce similar effects; but as I have before observed, from whatever cause it may arise that paper exceeds the value of bullion, whether from the increase of paper, from the rise in the value of gold, or from any other cause whatever, it can always be corrected by a reduction in the amount of the paper circulation, and such was the uniform practice before the year 1797.
 Do you think that a reduction of bank of England paper will certainly produce a fall in the price of gold?
I do; I should rather say, a reduction in the amount of the whole circulation of the country; but here again it is possible that there might be a reduction of the bank circulation without a corresponding reduction in the country circulation, and it might even be possible that there might be an increase of such country circulation, not that I expect that any such result would follow, for I consider that the reduction of the bank of England circulation would be immediately followed by a reduction of country circulation; but it is not physically impossible.
 Do you think that the amount of country bank circulation will vary with the amount of bank of England circulation?
In all common cases I think it will; but I believe that there are exceptions to that general rule, arising from the more or less credit of the country banks; there is of course always a contention between the country banks and the bank of England, to fill as many districts as they can with their respective notes. The bank of England or the country banks may be more successful at one period than at another, but provided every thing were to remain the same in that respect, I have no doubt that a reduction of the London circulation would occasion a reduction of the country circulation. I should observe also, that with respect to the public, it is a matter of very little importance whether the whole reduction should be in the bank of England issues, or should be partly of the bank of England issues and partly of the country bank issues: it is a question of importance, as it refers to the interest of the country banks and the bank of England, but the public have no interest in it whatever: the inconvenience which they would suffer, if any, would arise from the reduction of the whole amount of the circulating medium, it being of little importance from which fund that reduction was made.
 The bank of England circulation has fallen, from the last half year of 1817, as compared with the present time, from £. 29,210,000 to about £. 25,000,000; that is, there has been a reduction between that half year and the present time, to the amount of £. 4,000,000; as the diminution has been gradual, and has operated for 15 months, ought it not to have produced its effect on country bank circulation?
I think it ought in common cases, and must have done so in the present case, if no counteracting causes have particularly operated; of which I know nothing, nor can know nothing.
 As then there has been an actual diminution of bank of England paper, to the amount of four millions within that period, and there ought to have been a corresponding reduction in the amount of country bank paper, does it not strike you as somewhat inconsistent with the theory, that the price of gold is at present higher than it was at the period when the circulation of the bank of England was four millions greater than it is now?
It does not in the least shake my confidence in the theory, being fully persuaded that such an effect must have followed, if it had not been counteracted by some of those causes to which I have already adverted.
 What are the causes which have, in your opinion, practically operated to countervail the effect of this reduction of the circulating medium?
The facts are not sufficiently within my knowledge, to give any plausible explanation of them; but I am persuaded that there are other causes, besides the mere amount of paper, which will so operate, and I therefore infer, that some of them have now been acting.
 Then supposing the bank to make a further reduction, beyond the present amount of their issues, might not the operation of the same causes prevent the good effects to be expected from that reduction?
It is quite possible, but I do not think it probable.
 Have the goodness to state why you think it probable, that the same causes that must have operated to produce that effect in the former case, should not continue to produce it in the case assumed?
Because, in commerce, it appears to me that a cause may operate for a certain time without our being warranted to expect that it should continue to operate for a much greater length of time; and being fully persuaded that a reduction in the quantity of such a commodity as money must either raise its value, or prevent its falling in value, I am sure that a reduction of the quantity of currency, provided it be sufficient in degree, will operate in raising its value, whatever countervailing causes may contribute to oppose it.
 Do you think there is any perfect assurance that if the bank of England were to reduce its issues to the extent of two or three millions below their present amount, the consequence would be a fall in the price of gold, and the restoration of the exchange, or might not the other causes which affect the price of gold and the rate of exchange possibly countervail the effect of the reduction of the issues?
Certainly, they might countervail the effect of the reduction of the issues, but provided they were sufficient in degree the reduction would be sure to bring the two together; there are two commodities which we are comparing with each other, namely, bank notes, and gold; the variation in the relative value of these two commodities may be caused by an increase in the quantity of paper, or by a fall in the value of gold; in the former state of our circulation, whenever it proceeded from either of those causes, a reduction in the amount of paper was the remedy, and must at all times I think be the remedy.
 Take then a considerable period, when the amount of bank notes in circulation was very nearly the same; it was so for three half years, from July 1815 to December 1816 namely, about twenty-six millions and a half; at the beginning of that period the price of gold was 4l. 16s. an ounce, it fell to 4l. 11s. 4l. 9s. 4l. 7s. 4l. 3s. 4l. 2s. 4l. 1s. 4l. 0s. 3l. 19s. and 3l. 18s. 6d.; there was no interruption in the regular gradation of the fall of gold, and there was no variation in the average amount of bank notes in circulation, do you attribute the fall in the price of gold to an alteration that took place in the value of gold?
Most undoubtedly; and by returns that have been made at different times to Parliament, we observe the relative value of gold and silver to differ very materially at different times; now to what cause can this possibly be attributed, but to an alteration in the real value of one of them? in which ever metal that alteration of value takes place, provided it be the standard, it will either warrant an increase or a diminution of paper.
 Do you know what have been the greatest limits of the variation in the relative value of gold and silver; within a given period, supposing three years, have they ever varied one per cent within that period?
I should say six or seven, speaking from the slight recollection I have at this moment on the subject; I only mention these circumstances to show the Committee that it is quite possible that there may be variations in the value of the precious metals, which would produce such effects, as it appears the object of the present examination to explain.
 But supposing there has been, during the same period, a corresponding fall in the price of silver, then, evidently, that cause which you assign as possible to account for a fall in the price of gold has not operated?
I should then say, that whatever cause had operated, had equally operated on the two metals, instead of operating on one exclusively.
 Do you not conceive, that the most perfect state to which a currency can be brought is, that by which the public are secured against any variations in the value of the currency other than those to which the standard is subject, and in which the circulation is carried on by the least expensive means?
 Have you turned your attention to any plan by which these desirable objects may be best attained?
Yes, I have.
 Have the goodness to favour the Committee with your opinions upon that subject?
My opinion is, that the bank of England should have the liberty of either paying their notes in specie or in bullion at the mint price of 3l. 17s. 10½d.; by which means the paper currency could never fall below the value at which the coin stood previously to 1797.
 What quantity of gold ought a person to be at liberty to demand, in exchange for paper?
That appears to be a regulation which should be left to the bank to decide on; it is, comparatively, of very little importance.
 Would it not be necessary to have a regulation of law?
Undoubtedly there should be a regulation of law; but whether the quantity should be 20 ounces, or 50 or 100, I have scarcely any motive for making a choice; the object would be equally effected by taking either quantity.
 Do you think it would be politic to impose, at the same time, upon the bank, the necessity of issuing paper in exchange for gold tendered to them?
That is a measure not absolutely necessary; but I think it would be a great improvement to the system, if that regulation were adopted.
 The object of it would be, to prevent a rise in the value of the bank note above the price of gold?
Exactly so; which the bank can now effect.
 Might not the object be answered by giving every person an option to go to the mint, and receive coin in exchange for the bullion?
Which would do just as well, if you could readily turn bullion into coin or into paper, the object would be equally effected.1
 Would you advise, that notes below 5l. should be continued in circulation?
Under those circumstances there necessarily must be notes of 1l. and 2l.
 Would you advise bank notes to be made a legal tender?
I would certainly.
 Would you leave to the country bankers the power of issuing notes payable on demand, in bank of England notes?
 And not subject them to the necessity of paying in coin?
 Would you repeal the laws respecting the exportation of coin?
 And leave the trade in bullion and coin perfectly free? Perfectly free; and also a perfect liberty to any man to melt the coin if he thought proper.
 What regulation would you advise to be adopted with respect to foreign coins?
When I say that the public should have the privilege of buying and selling bullion to the bank, I have in my mind bullion of the standard of England; but if allowance be made for the alloy in the foreign coins, according as they may be more or less fine than the standard of England, it appears to me of small importance whether these dealings be in those coins or in bullion.
 Would not that be an additional convenience? I think it would.
 Could you assign any period of time, at the expiration of which this plan, in your opinion, could be safely resorted to?
I think it ought to be immediately resorted to, either at the price of 3l. 17s. 10½d. or at some other price; because I consider that our currency is in a very unsatisfactory state, while the bank have the power of increasing or diminishing the circulation, and altering its value at their pleasure; and therefore, whatever regulation might be resolved on, with respect to the time of paying in the standard of the country, I should certainly recommend the adoption of this plan at some other price in the interval.
 That is, that the bank should be under an obligation of paying their notes on demand in gold, at the present market price of gold for instance, and of making a gradual reduction in the price of gold which they should issue, until the market price of gold corresponded with the mint price?
Precisely so; but under those circumstances the price at which the bank should be obliged to buy gold I think should not be fixed above that price, at which it should be a permanent regulation.
 Would you propose that price to be something below the mint price?
Exactly so; in what degree below I have scarcely the means of judging; the bank would be better able to fix that price than I should; it should be very little below.
 Would you propose, that the price at which the bank should be compelled to purchase gold, should be the same or something lower than that at which in succession they issue it, according to the operations that would take place in a graduated scale?
I have already mentioned, that I should rather recommend that the price at which they should buy gold, should be under the present mint price, which is 3l. 17s. 10½d. and fixed now once for all.
 Would not the bank in that case have it in their power to make a sudden change in the value of the circulation, by a more sudden reduction in the amount of their notes than might be desirable?
Within those limits they might; but after intrusting the bank with the great powers which they have had for twoand-twenty years, I should not be very fastidious in intrusting them with this small power at the present moment.
 But if that was objectionable, might it not be counteracted by providing that they shall purchase at, or nearly at, the same price at which they issued gold?
Certainly not at the same price, but at a price under that.
 If the bank, after the resumption of cash payments, continued to issue one and two pound notes, would not their issue tend greatly to diminish the quantity of gold which would be necessary for the purposes of circulation, when compared with that quantity which was necessary previous to the restriction?
Certainly; if the public liked a paper currency, consisting of one and two pound notes, better than one consisting of the gold coins, then this regulation would be nugatory; but if they did not, it would secure a power to the bank of filling that part of our circulation with one and two pound notes, and thereby preventing the public from demanding coin as substitutes for those notes.
 Do you think there would be any difficulty whatever in procuring such a supply of gold as, under the circumstances you have supposed, would be adequate for the supply of this country?
According to the view which I take of this question, I think there would be no provision of gold necessary beyond that which the bank must now have, however small it may be.
 That is, supposing they immediately commence the payment in gold, at about the present market price?
Or at any price; having a firm opinion that the bank, by the reduction in the amount of their notes, can raise their value to any assignable limit, it does appear to me that they can always keep the value of their paper on a par with the value of bullion, at whatever price the Committee might choose to fix it.
 Would it not be necessary, nevertheless, that they should have at all times a considerable supply of gold to meet the demands upon them, although the market and mint price of gold should correspond?
That would certainly be desirable, but the bank would be regulated by the same rules by which they were guided at the time they were paying in a metallic currency. I do not think it would be prudent on the part of the bank not to have a provision of bullion, because there are intervals during which the paper may not immediately attain that value which it finally will attain in consequence of its reduction, and during that interval they would be subject to demands for bullion.
 Does not that assume that the reduction of the issues of the bank of England, would necessarily and immediately lead to a reduction of country bank paper?
Undoubtedly; I have already explained to the Committee that it appears to me that there might be a greater reduction of the bank of England paper in some cases, and a less reduction of country bank paper; but it is a mere question of degree; the bank might, under some circumstances, be obliged to make a greater reduction of their paper, in order to keep the value of paper currency generally on a par with the value of bullion.
 Might not the circumstances of the country be such as to make a reduction of issues at some particular period, in order to have the effect of reducing the price of gold exceedingly embarrassing to trade?
It undoubtedly might be; that is an evil to which all currencies are subject; every country that carries on its circulation by means of the metals is liable to that inconvenience, and it would be no other to which the public would be exposed if the plan suggested were adopted.
 Are you aware that there is at present a considerable stagnation in trade, and that there has been a great reduction of prices in consequence?
I have heard so; but I am not engaged in trade, and it does not come much within my own knowledge.
 Would not the effect of a reduction of the issues of the bank be a further reduction in the prices of commodities?
I should certainly expect so, because I consider a reduction in the amount of bank paper to be raising the value of the medium in which the prices of those commodities are estimated.
 Explain in what degree you think it would take place?
I should think, to the amount of about five or six per cent; I measure it by the extent of the excess of the market above the mint price of gold.
 Do you think a diminution of the circulation produces a diminution of prices in exact arithmetical proportion?
I think it has a tendency so to do, but it does not act exactly so nicely as that.
 Does it reduce the prices of all commodities equally? I think not, in consequence of the inequality of taxation, otherwise I think it would.
 Might not the reduction of prices to the amount of five per cent, consequent on a reduction of the issues of the bank, be particularly embarrassing, if it took place at a period when there appears to have been so great a reduction of prices in consequence of other causes; namely, the excess of speculation, and the stagnation resulting from that?
An alteration in value of five per cent does not appear to me very formidable; but of this matter I do not profess to know much; I have had very little practical knowledge upon these subjects.
 When merchants have a want of confidence in each other, which disinclines them to deal on credit, is there not a greater demand for money?
 Then if this is a period when there is a greater demand for money on account of a want of confidence, does it not follow that it would be an inconvenient period for reducing the means of accommodation?
It appears to me that that very circumstance would make a smaller reduction efficacious for the purpose; a demand for currency in consequence of want of confidence, I should think a legitimate demand; it would enable the bank to keep their circulation at a higher level than they would be able to do, if there had not been a demand from such a cause.
 Supposing such a reduction of the issues of the bank to take place as would restore the market price of gold to the mint price, there would be, in your opinion, an improvement in the value of the currency of about five per cent?
 Would it not be necessary to raise the same nominal amount of taxes to defray all that portion of the public expenditure which is applied to the payment of the public creditor?
 Would not the increased burthen of such taxes upon the people be in proportion to the increase in the nominal value of the money?
 You are aware that by the act, providing for a new silver coinage, the act of 56 George 3, cap. 68, there has been an alteration in the relative value of gold to silver, from 15,059. 2. 1. to 14,121. making a difference of nearly six per cent in the relative intrinsic value of our gold and silver coin; do you think this difference so made, will have the effect of banishing gold coin from this country, provided silver coin be a legal tender to the amount only of 40s. and provided the mint retains the power in their hands of regulating the amount of silver coin?
It appears to me quite impossible, at whatever relative value these two metals might be, while guarded by the regulations which have been mentioned.
 Are you of opinion that it would be desirable to keep the intrinsic value of our gold coin as near the intrinsic value of bullion as possible?
My first preference is to have nothing but a paper circulation, and the expedient I have proposed had that for its object; but provided we have a metallic circulation, then I conceive nothing can be more desirable than to keep the value of the coin at as near as possible to the value of bullion.
 The price of gold in April 1815 was 5l. 7s. an ounce, and in April in the following year it was 4l. 1s. an ounce, making a difference of 1l. 6s.; supposing the average price of other commodities in the country, as measured in bank notes, to have been the same at those two periods, would you then infer, from that state of things, that bank notes were depreciated in April 1816, as compared with April 1815, in the proportion of the difference between the prices of gold, namely, 1l. 6s.?
Yes, I should.
 Though the price of all other articles remained the same as measured by bank notes?
Though the price of all other articles remained the same.
 You have stated, that a currency, of which gold is the standard, is subject to considerable variations, which arise in the variable value of gold in exchange as compared with other commodities; can a standard of currency, more invariable in its value than the value of a certain quantity of gold, be established by any system yet discovered?
By none that I have ever even imagined.
 Would it be possible, by fixing from time to time the amount of bank notes which should circulate, to obtain a circulation any thing approaching in steadiness of value, to one which was attached to the value of a metallic standard?
I do not know any means whatever by which we can certainly ascertain the value of any one commodity; but in practice bullion appears to approach the nearest to an invariable standard.
 Are not the Committee then to conclude it to be your opinion, that the standard value of the currency, since it has ceased to be exchangeable for specie on demand, has been infinitely more variable than it would have been if it had remained on the same footing on which it stood previously to the year 1797?
Yes; my opinion is, that it has undergone more variations than it would have done if it had been regulated by a metallic standard.
 As compared with gold?
As compared with either gold or silver; I have no preference for either.
 You have stated it to be your opinion, that the reason why a reduction in the amount of bank notes to the amount of three millions had not been accompanied by a corresponding fall in the price of gold and a rise in the exchange, must have proceeded from other natural counteracting causes; you also stated that you believe, for the most part, a reduction in bank of England paper would produce a corresponding reduction in country bank paper; if country bank paper had been withdrawn, in consequence of such a panic as you describe, in the years 1816 and 1817, and if some of those districts in which country bank paper had before circulated in consequence of that operation, had been filled in a greater or a less degree by bank of England paper, is it not probable that a re-issue of country bank paper might, in consequence of restored confidence in the country, have driven that bank of England paper back into London circulation, and by that means materially counteracted the effect of the decrease in the bank of England issues, both in reducing the prices of gold and raising the exchanges, and also in limiting the amount of country bank paper circulation?
I think, undoubtedly, it would; the more contracted the circle is in which the bank of England notes circulate, the more effect must an increase or reduction of their quantity occasion. I wish also to remark, that in some of the accounts of the amount of bank notes in circulation at certain periods which I have seen, the one and two pound notes vary, very remarkably, relatively to the notes of a higher value, which may be occasioned (not that I know that it is) by the increased or diminished credit of the country banks. It appears, in 1815, that the amount of notes above five pounds was about thirteen millions, while those under five pounds were above nine millions; in January 1818, the amount of notes above five pounds is above sixteen millions, and those under five pounds about seven millions and a half, and from some of the accounts which have been laid before the House of Commons, the same sort of inequality appears to affect the notes of the amount of ten and twenty pounds, which may be supposed to be that description of notes which, as well as those of five pounds and under, are used chiefly in the country circulation, upon occasions of the discredit of the country banks. I have not examined these relative proportions, with a view to explain the difficulty that the question has now started, but I remark it as a circumstance which I do not know well how to explain; but it may be connected with the situation of the country banks.
 Do you believe that the issue of bank notes from the bank, upon the purchase of bullion, may be carried on to a greater extent with more security, and without producing the same effect upon the circulation, as to excess or diminution, than when issued by any other of their ordinary modes?
It appears to me to make no sort of difference, whether the issues be made in the way of discounts, by advances to government, or in the purchase of bullion; it is the numerical amount which will produce the effect.
 Do you conceive that a standard of value would be more variable if measured by a reference to two metals, namely gold and silver, as was formerly the case in this country, and is now the case in some other countries, than if confined to one metal only?
Yes, I think it would be more variable if measured by two metals.
 If then one metal is preferable as affording a less variable measure, which metal would you recommend?
I find some difficulty in answering that question; there were reasons which at one time induced me to think that silver would have been the better metal for a standard measure of value, principally on account of its being chiefly used in the currencies of other countries;1 but as I have understood that machinery is particularly applicable to the silver mines,1 and may therefore very much conduce to an increased quantity of that metal and an alteration of its value, whilst the same cause is not likely to operate upon the value of gold, I have come to the conclusion, that gold is the better metal by which to regulate the value of our currency.
 Although the currency of other countries may be usually measured in silver?
I think that fact is of no importance whatever in practice; it is of no inconvenience to trade, I imagine.
 Does not the circumstance of the measure of value in one country being in gold, and in another with which it trades being in silver, occasion a frequent fluctuation of the real par of exchange?
Not only in the real par, but in the market rate of exchange also.
 It appears, by the accounts already referred to, that the price of gold in this country in April 1815 was £. 5. 7s. and in April 1816 £. 4. 1s. being a difference of from 25 to 30 per cent, such price being always measured in our paper currency, do you know whether, during the same period, any such variation, or any variation in the price of gold took place in France, or in any other continental country?
It appears to me that in France there can be no variation in the price of the metal which is the standard of the currency; and with respect to the variations in the other metal which is not the standard of the currency, it must at all times be confined to the variations which take place in the relative value of the two metals generally in Europe.
 If then it should appear that, during the period referred to, no variation whatever has taken place in the price of gold in Paris, would you infer from that circumstance that the variation in the price of gold between April 1815 and April 1816 arose from the variation in the value of paper, and not of gold?
Every fall in the price of the standard metal is immediately corrected in France by a reduction in the amount of the circulation; if no similar reduction takes place under the same circumstances in our circulation, there must necessarily be a redundancy and an excess of the market above the mint price of gold; in a sound state of the currency the value of gold may vary, but its price cannot.
 The variation you alluded to in your answer to a former question, is what you meant by the depreciation of the paper in your answer to a question before put to you?
From whatever cause may arise the difference in the value between paper and gold (and I have enumerated several,) I always call the paper depreciated when the market price exceeds the mint price of gold, because I conceive that there is then a greater quantity of circulating medium than what there would have been if we were obliged to make our paper currency conform to the value of coin, and which we are obliged to do, whenever the bank pay in specie.
 Do you consider the difference between the market and mint price of gold to be the criterion of the depreciation of bank notes?
 Then taking the three months of the last year, January, February and March, the average amount of banknotes in circulation was thirty millions, twenty-nine millions, and twenty-eight millions; in the three last months of the year, October, November and December, the amount was twenty-six millions, twenty-six millions, and twenty-five millions; so that the average amount in December was less than the average amount of January by five millions; in the last three months the price of gold was higher than in the first three months; do you consider that bank notes were more depreciated at the latter period than the former?
I consider they were more depreciated in the latter period than in the former, provided at that time the price of gold was higher.
 Do you not consider that coin or bullion are distinguishable from bank notes in this important respect, that the coin or bullion, being the medium of universal value, operates in the nature of a bill of exchange, whereas the bank note does not possess this quality; must not, therefore, the value of the coin and bullion follow the rate of the exchange, whilst the bank note cannot be influenced by such operation?
Certainly; a bank note not payable in specie is confined to our circulation, and cannot make a foreign payment; a bank note payable in specie is the same thing as coin or bullion.
 May not this distinguishing quality between the bank note and the bullion, explain the difference of value, without its following, that the bank note is depreciated for any purposes of measuring the value of commodities within the country?
No, I think it cannot; the term “depreciation,” I conceive, does not mean a mere diminution in value, but it means a diminished relative value, on a comparison with something which is a standard; and therefore I think it quite possible that a bank note may be depreciated, although it should rise in value, if it did not rise in value in a degree equal to the standard, by which only its depreciation is measured.
 Are you of opinion, that the bank could have permanently continued their payments in specie, from the year 1797, when they discontinued so to do?
It appears to me, that all banks are subject to be affected by panics, against which no prudence can guard, and that in 1797 such a panic had taken place; but I have some doubts whether, if the bank had resolved to pay to their last guinea, that panic would not have subsided, and the bank have been able to carry on its transactions in the way that it had done up to that period.
 Would you not have thought it a very dangerous experiment to try, as the failure of the attempt would have led to an absolute stoppage of payment?
It would have led only to the crisis which has actually taken place.
 You have stated an opinion, that the contraction of issues of paper would at all times restore the price of gold to the mint price, and render the exchange favourable to the country, supposing the balance of payments of the country to be against us, in what manner would you have them paid?
It appears to me, that a reduction in the amount of currency may always restore the price of bullion to the mint price, but I have not said, that that will always restore the exchange to par; although, if that reduction were carried still further, I believe it would restore the exchange to par; but under some circumstances, the price of bullion would be in such cases, for a short time, under the mint price.
 You have stated, that you consider a very small quantity of gold in circulation, or bullion, necessary for the bank to resume its operations?
That is on the supposition of an arrangement taking place, by which the bank shall not be compelled to pay in specie, but to pay its notes on demand in bullion; I think, that in that case, a very small quantity of bullion would be necessary to enable the bank to carry on its operations.
 Assuming that the balance of payments should be against this country, must the payment not necessarily be made, either in specie or in bullion?
It appears to me, that the balance of payments is frequently the effect of the situation of our currency, and not the cause.
 You must be convinced, that between two trading countries, there must be a balance one way or the other?
Those purchases and sales appear to me to be guided a great deal by the relative value of the currencies of the two countries; that any cause which shall operate to encrease the value of one, would have an effect upon its commercial transactions with the other, and consequently the exchange would be affected by an increase or diminution in the value of the currency of either.
 Would you infer then, that because at the present time cotton, coffee, and various other articles, are in this country particularly low, it would be either advantageous or desirable to send them to France or to the continent?
That must depend, I conceive, upon the fact, whether those articles are higher in France and other countries than they are here.
 The fact being decidedly that they are lower in France?
Then of course it could not be advantageous to send them from this country to France.
 Then is there any other way of paying, but by bullion or by specie?
By limiting the amount of paper, we should alter the value of cottons, and those other goods which are referred to, and we might in that case make our payment by the exportation of those goods, which at their present price it appears we cannot pay in.
 Then do you think that it can be a prudent measure, that as circumstances may fluctuate, the trade of the country is to be so starved as to produce an operation upon the price of gold?
It appears to me, that a reduction in the price of gold can never be brought about but by a reduction in the quantity of currency, by an increased use and demand for it, or by a fall in the general exchangeable value of gold; and if it be brought about by a reduction of paper, it must always be attended by what is called starving the circulation.
 Do not you think that the remedy might be often worse than the disease?
Undoubtedly there are cases in which I think the remedy would be worse than the disease; but this does not appear to me to be one of that sort.
 Can you state any particular time at which you think it would be preferable that the bank should undertake to pay in coin or bullion at the mint price?
It is difficult for me to define strictly at what time, but I have not much apprehension of any ill consequences from their doing it in a few months; at the same time I acknowledge there will be some little difficulty in it, but a difficulty which does not appear to me very formidable, and one for which we would be more than compensated by the possession of a currency regulated by a known and fixed standard.
 Do you think there is any inconvenience to the mercantile world and the public interest generally, resulting from the state of uncertainty and fluctuation in which things are now placed, and must probably remain, until the bank has resumed cash payments?
I think a very serious inconvenience results from the state of uncertainty: one of the evils attending a paper currency not convertible, is, that it encourages over-trading, and leads us into some of those difficulties into which we should not be plunged, if our paper were corrected by the issues of metals.
 Do you think there is any thing in the present state of the commercial world, which makes it so little desirable that it should be operated upon by a fall in prices, to the amount of five per cent, which you think must accompany the measures to be taken for the resumption of cash payments, as to make it desirable that the inconveniences which you describe to accompany a continuance of that system, should be endured for a longer period than to the first of March 1820?
I am of opinion that it should not continue longer than that period.
 Did not over-trading take place very frequently before the restriction on cash payments at the bank?
I believe there is always a disposition to over-trading; that it was very much encouraged by the peculiar circumstances in which we were placed during the last war, from the modes in which we were obliged to carry on trade, and that those habits have in some degree continued with us, but that they are rather encouraged by a paper system than otherwise.
 Do not you believe that over-trading was very much encouraged by the system of country banking, although their notes were convertible into cash on demand?
It appears to me, that the country banks can never add to the amount of circulation permanently, and therefore I think they can hold out no encouragement to over-trading.
 Do you mean, in case their notes are convertible into coin?
Yes; when they are not convertible, of course their level is higher, as well as the London circulation.
 Was there not occasionally a temporary excess of country bank notes at the time they were payable in cash, which gave occasion to speculations and over-trading?
I conceive there are never any proofs of excess, but a high market above a mint price of bullion, and I never saw such an excess previously to 1797, nor never heard of such a thing; it is not imaginable by me.
 Would you consider a great number of bankruptcies as any indication of over-trading?
A number of bankruptcies may be a proof of over-trading, but not a proof of a redundant circulation.
 Even if those bankruptcies could be clearly traced to a connection with country banks?
Even if those bankruptcies could be clearly traced to a connection with country banks, I should only say, that the issuers of country paper were not the right sort of issuers.
 Do you believe that the restriction on cash payments holds out a greater temptation and affords greater facilities for over-trading, than would exist, were the bank to pay in cash?
It appears so to me, because men rely more confidently on renewing the discounting of their bills.
 You have stated, that the stagnation of trade, and a general decline of prices, would produce a similar effect, with a positive reduction in the amount of our circulation, would that effect be with reference to the foreign exchanges to bring them nearer to a par?
 May not the result of that effect now operating, be to bring the market to the mint price of gold, without any interference of the legislature with respect to the amount of issues of the bank of England?
It is a circumstance that may very probably occur, but whether it will or not, I have no sufficient facts to judge by, although it is quite consistent with the view I take of the general question of currency.
 Under a given continuance of that stagnation of trade, and of that depression of price, do you think it more probable that it will occur, than that it will not?
I find some difficulty in answering that question, I have no decided opinion upon that point; the effect may already have been produced, and therefore it may cease to operate any further; all those causes seem to me of a very uncertain nature, and they cannot be very easily traced or followed.
 When there is a tendency to a general fall of prices, is not money locked up just as commodities are accumulated in the opposite state of things, and for the same reason, the expectation of profit by holding the article for a better market?
It appears to me, that no man would willingly lock up his money, he would endeavour to make it as productive as he could; he would not purchase commodities if he expected a fall of those commodities, but he would be glad to lend his money at interest during the interval that it was necessary for him to keep it.
 The exchange having been favourable to this country, when the bank suspended its payments in 1797, is it not possible that by a more liberal and extensive accommodation to trade and country bankers, by discount, the bank might at that period have afforded such aid to the country circulation, as would have checked the alarm and relieved the distress?
I have great doubts on that question; it appears to me that it was an alarm from foreign causes, and a desire to hoard, and I have some doubts whether an extension of circulation would have quieted those fears.
 Does not it often happen that a variety of opinions may be entertained as to the period when commodities have come to their lowest state of depression, and of course one person may be a seller and another a buyer, both on different views of the same object, namely, profit?
Certainly; but it is the balance of those opinions which either raises the commodity or lowers it.
Veneris, 19° die Martii, 1819.
The Right Honourable Robert Peel, in the Chair.
David Ricardo, Esquire, A Member of the House, again Examined. There are some points on which the Committee understand you have further information to give to them.
[The witness delivered in the following paper.]
“I request to be allowed to amend a part of the evidence which I had lately the honour of giving before this Committee.
“When I was last examined, I was asked,1 whether it would not be an improvement of the present mint regulations, if the mint were to keep a supply of coined gold, which they should exchange without the least delay, and without any deduction, for equal weights of uncoined gold; to which I answered, that it would be an improvement, that every thing which tended to equalize the value of gold coin and gold bullion, made the currency approach more near to perfection, and that such a regulation could not fail of producing a beneficial result.
“I adhere to that answer as far as regards our circulation; but I ought to add, that by making gold bullion exchangeable without delay, and without loss, for gold coin, there would be a great inducement offered to all exporters of gold, to exchange their bullion for coin previously to its exportation. Gold coin carries on its face a certificate of its fineness; it is divisible into small sums, and it would, for these reasons, possess advantages as an article of merchandize over gold bullion. Our mint would not only be called upon to coin gold without charge, for the internal circulation of England, but also the additional quantity which might be required for exportation, and which would, in the case supposed, be acquired without any additional expense. This is the inconvenience which would attend a money absolutely free from seignorage, free even from the loss of interest, which on the present system arises from the delay of the mint in returning coin for bullion, and which may strictly be called a small seignorage. But a coin with a seignorage has also its inconveniences, for the mint is not the only place from which money is issued. The bank have the undisputed power of increasing the quantity of currency, and thereby of diminishing its value to its intrinsic worth. If silver, for example, were now the standard of our currency, and therefore a legal tender to any amount, the bank might issue their paper till they raised the price of silver bullion to 5s. 6d. per ounce, (the current value of the silver coin) without inconvenience to themselves; they might then reduce their issues, till silver fell to 5s. 2d.; and thus they might alternately raise and lower the price of silver, between the limits of 5s. 6d. and 5s. 2d. as often as to them it might appear expedient. If there were no seignorage on the silver coin, and it were immediately exchangeable for silver bullion on the demand of the holder of bullion, it is evident that the price of silver would not rise above, nor fall below 5s. 2d. the mint price; but then the mint might, as I have before stated, be called upon to coin all the silver that might be exported. If it be decided, that under all circumstances, a currency, partly made up of gold coin, is desirable, the most perfect footing on which it could be put, would be to charge a moderate seignorage on the gold coin, giving at the same time the privilege to the holder of bank notes, to demand of the bank, either gold coin or gold bullion at the mint price, as he should think best, in exchange for his notes; if he preferred gold bullion for the purpose of exportation, as he probably would on account of its greater intrinsic value, it would be exported without any disadvantage to the country; if he preferred the coin on account of its more convenient form, and its certified fineness, which is barely possible, he could not obtain it without paying all the charges of its fabrication. If this plan were adopted, the seignorage should be at least sufficient to cover all the expenses of manufacture, and might with perfect safety be extended to that point at which it would just be insufficient to make the imitating of the coins a profitable employment.1 This appears to me to be the best plan for a currency, consisting partly of the precious metals; but I am still of opinion, that we should have all its advantages, with the additional one of economy, by adopting the plan, which I had the honour of laying before the Committee when I was last before them.”
 What seignorage do you think would be sufficient to protect the coin of the country, according to the suggestions which have been made in the paper which has just now been read?
That is a practical question, to which I am not qualified to give an answer.
 Do you know what seignorage is taken upon the French gold coin?
No, I am not acquainted with the regulations of the French mint.1
 Do you think that, under a currency partly consisting of paper convertible into coin at the option of the holder, and partly of gold coin, such occasional fluctuations in the market price of gold would frequently occur, as to make it an advantageous speculation to export the gold coin?
If there were no seignorage, there could be no variation in the price of gold; but it might nevertheless be exported, on account of the exchange being unfavourable; if there were a seignorage, then the price of gold might vary to the amount of that seignorage.
 Must not fluctuations, from the rate of exchange or other causes, frequently happen?
The value of gold coin and of gold bullion can only differ on account of the greater intrinsic value of the one or the other; if an ounce of gold is coined into 3l. 17s. 10½d. and is delivered at the mint in exchange for bullion, without any delay, I think the one must be precisely of the same value as the other, there could be no preference, and therefore no rise in the price of gold; but if a seignorage be taken from the gold coin, so as to make 3l. 17s. 10½d. in gold coin of less weight than an ounce of bullion, then the price of bullion might rise above the mint price to the amount of that difference.
 May not such demands for gold occur in foreign countries, as we have heard there was lately in Russia, so as to give a higher value to gold exported to that country, than it would obtain in France or in this country?
Undoubtedly; because more goods would in such case be given for gold by Russia than by France, but its price would continue unaltered in this country.
 If you measure gold or coin which is here taken as equivalent to gold, and the gold bears a higher value in Russia than the goods, will it not cause a draw for gold upon this country in such a state of things?
If it bears a higher value in goods, it will make the exchange unfavourable to this country, and will cause an exportation of coin or bullion.
 They will be sent out, if it is more advantageous to send them than woollen or cotton goods; if there is a seignorage, you keep the gold coin at home until there is a great fluctuation in the exchanges?
If there is a seignorage, it will depend upon this circumstance; namely, whether the coin be passing at its nominal or at its intrinsic value; by proper regulations the coin may be sustained at its nominal value, but by bad management, by putting too great a quantity of currency into circulation, you may sink its value to the value of the metal which is in it, and then it will be immediately exported on the turn of the exchange.
 Supposing the plan which you have suggested, of the bank paying in gold bullion at the present standard of 3l. 17s. 10½d. an ounce, all sums demanded in their notes above a limited amount, say £. 100, and supposing sovereigns to be coined at such a brassage as would raise the standard of gold coin to 4l. an ounce, and that such coin were made a legal tender to the amount of £. 100 only, or whatever might be the lowest amount in notes for which bullion could be demanded at the bank, would not this modification of your plan of payment in bullion, afford the double advantage of an invariable standard in bullion, and of a gold coin for the purposes of currency, without exposing the country to the risk of such coin being melted down or exported?
Entirely; I think it would quite exempt us from any such risk, and the price of gold under such circumstances, could, in my opinion, never be above 3l. 17s. 10½d.; but the question supposes an advantage by possessing a gold currency, which I do not consider as such.
 Assuming that it should be thought expedient to combine your plan of the bank paying its notes above a certain amount in gold bullion, with the maintenance of a certain proportion of gold coin in currency, would not such a modification as the former question suggests, be the most advisable mode of affecting such object?
The very best, and the one which I have, under such circumstances, recommended in the paper I have delivered in this morning. I have there said, that under such a system, I should be favourable to any amount of seignorage which did not expose the coin to the risk of being imitated in this or any other country.
 Do you think that the difference between 3l. 17s. 10½d. the standard price in bullion, and 4l. the proposed standard for the coin, would expose the coin to such a risk?
I think it would not.
 Should you be disposed to push the seignorage further than the 4l.?
It is difficult for me to estimate what proportion of encouragement would be sufficient to set people to work upon the imitating coin; it is a thing in which I have no experience, and I cannot give a more correct opinion than any other individual.
 Do you see a strong objection to a seignorage approaching very nearly the present market price of gold?
I feel some difficulty in mentioning any seignorage, as being within the proper limits; many persons can give better information than I can upon that subject.
 Do you believe that, under such a system as you have just described, any considerable quantity of gold coin would be likely to be required for the use of this country?
That is a difficult question to answer; I should apprehend that the taste of the public for paper is now so confirmed, that they would have little inducement to demand gold coin, and in that case a very small quantity would be sufficient for all the purposes of circulation.
 With a gold currency upon our present mint regulations, namely 3l. 17s. 10½d. per ounce, and if the export of coin and bullion were free, would it not be likely that exporters would prefer coin of that description to bullion for their exportation?
They would prefer gold coin.
 Under the system of a seignorage upon the gold coin, would not coin be the last article of gold to be exported; and would not the exporters in every instance prefer bullion to coin for their exportations?
That must depend upon the current value of the money. Unless some such restriction, as has been mentioned, should be adopted, I think it is as probable that coin might be exported as bullion, because the bank might increase the amount of their issues, till they lowered the value of their paper to the intrinsic value of the gold coin.
 Referring to a former question respecting the demand of gold for Russia; and supposing, after that demand shall have been satisfied, that there should be a demand in this country for gold, should we not possess the same power of bringing that gold from Russia to England in exchange for our commodities, which you have stated might have taken place by an exchange of Russian goods against gold from this country?
I think that all countries have the means of purchasing the commodities which they want, gold among the number, and therefore there is no demand for gold [that] could exist in this country, which we should not have the means of supplying.
 Do not you think, that a rich country possesses greater means of acquiring and retaining gold within itself, than a poor country?
I think it will require more, and it will have greater means of obtaining that increased quantity.
 Do you not believe, referring to the trade manufactures and products, domestic and colonial, of this country, that it possesses the means of acquiring gold to an extent greatly beyond what is possessed by Russia, Austria, or any other continental power?
I believe it has; but I consider that in some measure a disadvantage, inasmuch as we have a greater quantity of currency forced upon us than I should desire to see employed; I always consider the currency as the dead part of our stock.
 Supposing the system of this country be to possess a great quantity of gold, does not this country possess superior means for that purpose to the continental countries just referred to?
A manufacturing country, I conceive, has always advantages over an agricultural country, in the means of supplying itself with bullion; and as no country is so highly manufacturing as this, I of course think it has the most ample means of supplying itself with any quantity of bullion that it may desire to have.
 Do not our colonial possessions add to those means? Undoubtedly, as far as colonial productions are exportable commodities generally in demand in other countries.
 As it will require a hundred pounds to be enabled to draw any quantity of gold bullion from the bank, will not the possessor of a less sum in bank notes than £100 be placed in a worse situation, with respect to the value of the sum which he possesses, than the possessor either of £. 100 or a larger sum; assuming in the question the sum of £. 100 arbitrarily, as the lowest for which bullion may be demanded?
The object which I had in view, was to regulate the value of the whole currency, by securing a control over its quantity; and it appears to me that by giving the power to persons possessing large notes only to demand gold in exchange for them, the quantity would be always effectually reduced to the wants of circulation, and therefore it never can happen, except on occasion of a panic, when every man is striving to turn his bank notes into bullion, that the person possessed of a less sum than £. 100 can be relatively in a worse situation than the man possessed of £. 100 and more, and even in the case of a panic, I think there would be dealers ready to purchase the one and two pound notes with bullion, at a price, very little below the mint price, knowing, as they would know, that as soon as they had accumulated a hundred pounds of those notes, they could go to the bank and demand bullion for them at the mint price. As there would be competition in this trade as well as there is in all others, the difference between the value of a £. 1 note, as compared with notes of a larger amount, would be so trifling as not to be worth considering.
 Would not the plan exclude the possessors of notes under £. 100 from converting them into bullion?
Certainly, in any other mode than by sale or bargain.
 You have stated that in case of a panic, dealers would purchase the small notes till they amounted to the £. 100, for which bullion could be demanded; in what commodity would the dealers purchase those £. 100 notes?
In bullion; the supposition is, that the man possessing a large note would have the privilege of getting bullion for his note, which the man with the smaller note would not have.
 How is he to pay in bullion; by that being divided into parts, and given to the holders of the notes?
 In what shape is a note to the amount of £. 5 to be paid in bullion?
I conceive £. 5 worth of bullion can be sold as well as £. 500 worth.
 Is not a state of panic precisely that state of things which baffles ordinary speculations, with respect to the circulating medium; is it not very difficult to take precautions which can guard against all the possible consequences of alarm in the public mind?
I think it utterly impossible to provide against the effect of panic, on any system of banking whatever.
 What would be the effect produced, if the bank, instead of paying the supposed sum of £. 100 intirely in gold bullion, were entitled, or were liable to pay a small part of it, say in the proportion of five per cent, in the silver coin with its present seignorage?
That would have partially the effect of making either of the two metals the standard, instead of one exclusively, and which, in my opinion, would be attended with very great inconvenience.
 Would not such partial payment in silver coin in the case of panic afford relief to the holders of small notes, and afford time to the bank to protect itself against, and to counteract such panic?
The question supposes that silver is a legal tender as well as gold, which alters the state of things, and would be a worse system than that which is at present established.
 Either there will be an attempt to accumulate the small notes into sums of £. 100, or there will not; if there is not, will it not be a proof that bank notes are considered equally valuable with gold; if there is, will not the competition equalize the value of the small note and the great one?
If there is not an attempt to accumulate the small notes into sums of £. 100, it will be a proof that the small notes are equally valuable with the large; and if there is, there could be only that small difference in their value to which I have before alluded, the profit of the dealer.
 Do you think there would be as much difference between the premium that would be required to convert the small notes into large ones, as the difference between £. 3. 17s. 10½d. the mint price for bullion, and £. 4. for specie?
Perhaps nearly the same.
 You have said, that in case there should be any strong desire, from any cause, in the holders of small notes, to turn them into bullion, they would be enabled to do so through dealers, who would collect those small notes in order to carry them into the bank, when they amounted to £. 100; is not the reason for using gold coin, that by the stamp the person to whom it is presented is immediately aware of its quality?
That is the advantage of using coin, but an advantage superseded in modern times by the more economical use of paper.
 In case I were the holder of a one pound note, and wished to change it into bullion from one of those dealers, how could I ascertain that what he gave me in bullion was of the value that it purported to be; could I do it without an assay, or without the same modes which are taken to demonstrate the value of coin?
Not unless you had full confidence in the dealer; but this is a state of things which I apprehend could never happen and which it is not necessary at all to guard against.
 It was understood that your answer, in which you state, that the holders of small notes would get them exchanged into bullion by applying to dealers, was given with a view to show that the holders of those notes would have a remedy which would place them upon the same footing as those persons presenting a certain sum of £. 100?
Yes, in the extreme case of a panic; but I consider that a very extreme case.
 Is it not essential to the execution of your plan, that bank notes should be made a legal tender?
Yes, undoubtedly. I wish to make one observation here; that in the evidence I gave the last time I was examined, I think the price of £. 3. 17s. was mentioned1 as the price at which the bank should be compelled to buy bullion; but I wish the Committee to understand, that that was an arbitrary price, not one that I fixed on, or think the very best that could be settled; my opinion rather inclines to its being considerably more than £. 3. 17s. somewhere about £. 3. 17s. 6d.
 In case your plan was adopted, and no legal coinage of gold was to take place, would it not be probable, that there would be a circulation, to a certain extent, of foreign gold coin in the country?
I think not; for I can see no advantage that would attend the introduction of foreign coin.
 It is understood to be a part of your plan, that the bank should be at liberty to pay the notes of a certain value, presented to them, either in bars of gold, or foreign gold at its intrinsic value?
 In that case would not a considerable quantity of foreign coin be probably issued by the bank?
 Do you think that would be required only for the purpose of exportation, or that some of it would remain in the country?
I think it would be required only for the purpose of exportation, or the manufacture of gold articles.
 Supposing the bank to be obliged to pay their small notes, when tendered to an amount less than £. 100, in sovereigns, at the value of £. 4 per ounce, would such a regulation tend to facilitate the plan which has been in contemplation?
It would, in my opinion, be no hindrance whatever to it, though not so economical always supposing that the large notes are to be exchangeable for bullion.
How do you suppose the value of the bars of gold should be ascertained, to the satisfaction of the person receiving them at the bank, and the person to whom he may afterwards dispose of them?
There are many transactions of that sort now taking place between the public and the bank, and I do not expect there will be any more in consequence of adopting my system: the mode which the bank now follow is, to advance a certain sum immediately on the sale of the gold; a portion of the bar of gold is then sent to the mint to be assayed, and, as soon as the quality of it is ascertained, the bank pay the remainder of the money, and the seller is quite satisfied, I believe, with that process.
 That answer is quite satisfactory, as to the purchase of gold by the bank; but put the case of a person going to receive a bar of gold at the bank, how is the receiver to be assured that that bar of gold is of the proper assay; and still more, how is the person to whom he may dispose of it the next day to receive a similar assurance?
Every bar of gold that the bank have purchased will have been assayed, and I think that the purchaser would always take it upon that report, without any further assay.
 Without any stamp?
I think so; but if it were advisable to put a stamp upon it, that might be done in the roughest possible way. Dealings in bullion are not similar to a man’s taking a piece of money from another, whom he cannot afterwards trace, but the transaction is with a person he knows, and if he has any suspicions that the bar is not so valuable as is represented, even when he has it in his possession he may have it assayed, and if it is found deficient in the fineness for which he agreed, he can make his remonstrance, show the stamp, and satisfy the seller that it is the very identical bar which had been delivered to him; I think there would be no more difficulty in those transactions than in those that are now daily taking place in the purchase and sale of bullion between private individuals, and I have never heard of any difficulty arising from that source.
 It would then have become the standard of value? Although a standard of value, I think it would never be used as money; all our transactions in bullion would be confined to our foreign trade, and to the uses for our own manufactures, that is exactly the amount of our trade in bullion at this moment.
 You have admitted that a rich country has greater facility to procure a large supply of gold; will not a poor country, exporting largely, and importing few goods, necessarily produce an exchange favourable to such poor country, and naturally bring gold into the country, without reference to the country being rich or poor?
It seems to me, that exportation of goods on balance is the effect of the value of gold, and not the cause of it.
MINUTES OF EVIDENCE TAKEN BEFORE THE LORDS COMMITTEES APPOINTED A SECRET COMMITTEE TO ENQUIRE INTO THE STATE OF THE BANK OF ENGLAND, WITH REFERENCE TO THE EXPEDIENCY OF THE RESUMPTION OF CASH PAYMENTS AT THE PERIOD NOW FIXED BY LAW
Die Mercurii, 24° Martii 1819.
The Lord President in the Chair.
Mr. David Ricardo is called in, and examined as follows:
1. What is your Line of Business?
I am in no Business now; but I have been all my Life in the Money Market on the Stock Exchange.
2. Would it, in your Judgment, be safe and practicable for the Bank of England to resume Payments in Cash on the 5th of July next?
I think it perfectly safe and practicable; but not without some little Inconvenience, which must attend the Resumption of Cash Payments whenever it shall take place.
3. State your Grounds for that Opinion? An alteration of the Price of Commodities, to the Amount of even Four per Cent., must be attended with some little Inconvenience.
4. On what Grounds do you form the Opinion, that the only Inconvenience attendant on the Measure, would be a Reduction of the Price of Commodities of no more than Four per Cent?
I consider the Price of Commodities to depend on the Quantity and Value of the Medium by which they are estimated; and as I consider that Medium to be now depreciated Four per Cent. on Comparison with the Mint Price of Bullion, I consider that a Reduction in the Amount of the Currency to the Amount of Four per Cent., would lower the Price of Commodities to that Amount. I mean a Reduction of Four per Cent. in the Amount of all the Paper Currency now in Circulation.
5. Supposing the Amount of Bank of England Notes to be now 25 Millions, and that they were reduced One Million; and that a proportionate Reduction took place in the rest of the Circulating Medium of the Country; would that have the Effect of raising the Value of the whole Currency Four per Cent., and thereby lowering Prices to the same Amount?
I should expect such a Consequence to follow, if no Commercial Causes were operating on the Value of the Currency; if such Causes were operating, the Reduction required might be either more or less. I wish also to observe, that a Reduction in the Amount of Notes of Four per Cent. will not produce a Rise in the Value of the Currency of exactly Four per Cent., but something very near to that Amount.
6. What do you mean by any Commercial Causes operating on the Value of the Currency?
The Quantity of Currency required to circulate Commodities must depend on the Value of that Currency; if, therefore, any Causes should operate to raise the Value of Gold generally in the World, a less Quantity of Gold would be necessary for the Circulation of the same Quantity of Commodities in England; and under such Circumstances a greater Reduction than Four per Cent. in the Quantity of Paper would be necessary; an Extension of Trade also, or an Increase of Capital, may make a greater Quantity of Currency necessary at one Period than at another, and might therefore diminish the Proportion necessary to be reduced.
7. Are you aware that there was a Reduction of Bank Notes in Circulation during the Course of 1818, to the Amount of Three Millions, without any apparent proportionate Increase in the Course of that Year of the Country Paper; how do you account, under these Circumstances, for the Exchanges being more unfavourable, and the Price of Gold higher, at the End of 1818, than at the Beginning of that Year?
Facts of this Kind I find it very difficult to account for; but I should think it might have been owing to the diminished Trade, and to a Rise in the general Value of Bullion in the World.
8. Might it not, in a considerable Degree, be accounted for by the Operations going on in the Money Markets on the Continent, and more particularly those at Paris and Petersburgh, towards the Close of last Year?
Not unless those Operations had a Tendency to increase the general Value of Bullion, which might be affected by a Reduction of the Paper Circulation of the Continent, and by the Substitution of Gold and Silver Coin.
9. Might not the Effect of these Operations at Paris and Petersburgh, and other Places on the Continent, be to induce Individuals to make large Remittances from this Country for the Purpose of assisting the Operations which were going on in those Places?
Certainly; but whether those Remittances should be made in Bullion or Goods, would depend on their relative Value; and if Gold was preferred, it proves to me, that the Value of Bullion was affected by those Transactions on the Continent.
10. Do you recollect the Fall which took place in all Prices in the Year 1816? Was not that Decline in the Prices much more considerable than any Decline you anticipate now, from an Endeavour to raise the Value of the Currency to a Par with Gold?
Much more considerable; one of the Causes which operate on the Value and the Quantity of Currency, I have omitted to mention, namely, the varying State of Credit, which considerably affects the Quantity necessary to perform the same Business, and which I think operated in the Year mentioned.
11. Paper having been, in the Middle of 1815, at upwards of 20 per Cent. Discount, and we having it in Evidence, that Gold at the latter End of 1816 would have been at the Mint Price, had it not been sustained by the Bank at the Price of £3 18s. 6d.; do you not think that the Pressure which the Country sustained at that Period must be much greater than what it will now sustain from Paper resuming its Value upon a Par with Gold, it being now at a Discount of only 4 per Cent; and can you state any Proportion which the Difficulties of one Period are likely to bear in relation to the Difficulties of the other?
I think the Pressure sustained at that Period was much greater than would be experienced now by a Reduction of 4 per Cent. in the Amount of the Currency. At the same Time, I do not think that the whole Difference in the comparative Value of Paper and Gold in 1815 and 1816, is to be ascribed to the Rise in the Value of Paper only, but also to a Fall in the Value of Gold, arising from some of those Causes I have mentioned. I find it quite impossible to assign a Proportion between the Difficulties of the Two Periods.
12. Do you suppose, that from the Middle of 1815 to the Commencement of 1817, a Fall took place in the Price of Gold through the World?
I am wholly unacquainted with the Fact, such is the Opinion I should form; and my Reason is, that there did not appear any proportionate Fall in the Prices of Commodities and the Price of Gold in this Country. The Value of Gold and Paper was equalized, probably by a Rise in the Value of Paper, and a Fall in the Value of Gold.
13. Can you infer a general Fall in the Price of Gold through the World, from the State of the Prices of Commodities in this Country solely?
14. The Question and Answer No. 4. are repeated; would the Fall of Four per Cent. be the only Inconvenience resulting from the Reduction of the Circulating Medium necessary to precede or accompany the Resumption of metallic Payments by the Bank?
I think it would not be the only Inconvenience; whatever affects the Value of the Currency, must affect the relative Interest of Debtor and Creditor; but I know of no other Inconvenience.
15. Do you conceive that the Amount of Trade, Capital, and Revenue, and the Amount of Currency required, must necessarily bear any fixed Ratio or Proportion to each other?
Certainly not; I think the Proportion must depend on the Economy in the Use of Money, which again must depend on the State of Credit at the Time.
16. Must not these Proportions also be affected by the general State of Wealth and Population, at any Two Periods in which the Comparison is to be made?
I think it must. The more dense the Population, the less, all other Circumstances being the same, will be the Amount of Circulating Medium required.
17. Must it not also be in some Degree affected by the Nature of the Transactions?
I do not see that that would affect it.
18. Do not different Branches of Commerce require different Proportions of Circulating Medium, in proportion to the different Quantity of Capital invested, and Profits made?
They probably may.
19. Are you of Opinion that the Circumstances to which you have alluded in your former Answer, (No. 15.) have so far operated in the Course of the last 20 Years, as to make it practicable to carry on the Business of the Country with an Amount of Currency not numerically greater than that which existed previous to the Bank Restriction, notwithstanding the apparent Increase of Trade, Capital, and Revenue?
I think the numerical Amount of Currency required at this Time is greater than what was required previous to 1797; but the Proportion of that Currency to the Transactions to which it is applied is less now than at the former Period.
20. Do you know any Practice, tending materially to economise the Use of the Circulating Medium in the Conduct of our Transactions, introduced since the Beginning of 1815?
No, not since that Period.
21. What Means would you recommend to be adopted to enable the Bank, at the earliest practicable Period, to pay their Notes in Cash or Bullion?
The Measure which I should recommend would be, to give the Bank the Option of paying its Notes on Demand in Gold Bullion, or in Coin, at the Mint Price of £3 17s. 10½d.; at the same Time requiring of them to purchase Standard Gold at the Price of £3 17s. 6d. to any Extent.
22. What are the peculiar Advantages which you think would attend this Plan, in preference to a simple Resumption of Cash Payments?
First, it would exempt the Bank from providing a Quantity of Gold necessary to replace all the smaller Notes which are now circulated in London and the Country. Secondly, it would obtain for the Bank, and therefore for the Nation, all the Advantages which a Capital equal to the Amount of all the small Notes would produce.
23. Referring then to Question and Answer No. 21, do you mean that the Bank should be obliged to pay each Note on Demand in Coin or Bullion, at its Option; or would you limit the Obligation to Notes of a certain Amount, and to what Amount?
I would limit the Obligation on the Part of the Bank to Notes of £50, £60, or £100 Value, or to a Number of smaller Notes amounting in the Whole to such a Sum. The Object which I have in view, is to regulate the Value of Currency, by having an effectual Controul over its Quantity. I have no Preference for any Sums I have stated, provided they may not be too small.
24. Is that Part of your Plan, which requires the Bank to purchase Gold at £3 17s. 6d., in your Judgment necessary to it; or would not the same Object be obtained by the Mint being opened to the Public for the Purpose of coining Gold, or by Government reserving to themselves the Power of coining and issuing Gold Coin?
That Part of my Plan is not necessary. My Object would be equally effected by either of the other Modes. I prefer my own only because it is more economical, and because it would be of more speedy Operation.
25. Have you formed any Estimate of the Saving by the Plan you propose, when compared with the Resumption of Payments in Cash as before the Restriction?
The Saving must depend entirely on the Preference of the Public for metallic Circulation: if they continued to use Paper in smaller Payments, on the Supposition of the Bank paying in Coin, as it did before 1797, there would be no Saving at all by my Plan.
26. What Amount of Bullion would it be necessary for the Bank to be possessed of on your Plan, for the Purpose of regulating the Amount of their Notes; and what would be the Amount of the Coin that the Bank should be possessed of under the old System, for the Purpose of enabling them to pay their Notes in Coin?
On both Plans I think the Quantity would be the same, but what the Quantity should be, must depend on the Knowledge of the Bank of the true Principles of Currency; because they have always the Power to regulate the Price of Bullion, by limiting or increasing the Quantity of their Notes. My Answer applies to the habitual Reserve the Bank would be obliged to keep up, according as the Currency was settled upon one or the other Plan.
27. What would be the Amount of the Difference of the Bullion and Coin which the Bank would have to provide, for enabling them to open, under the one Plan or the other?
If the Bank were to limit their Circulation till they had raised the Value of their Notes to an Equality with the Value of Bullion, it would perhaps be necessary, or they might think it prudent, to provide a sufficient Quantity of Coin against the extreme Case of their being called upon to replace all the small Circulation of the Town and Country with Coin, if Cash Payments be resumed on the old Plan. On my Plan no such Provision of either Coin or Bullion to replace small Notes would be necessary. In the First Case, an Amount of 15 Millions might probably be required, merely for the Purpose of answering the smaller Notes, and a further Reserve of Coin for larger Notes.
28. What in your Judgment would be the necessary Reserve of Coin for the larger Notes according to the old Plan, and what would be the Amount of Bullion to answer the Demand according to your Plan?
I have already observed, they would in my Opinion be equal, and must depend on the Knowledge of the Bank of the Principles of Money. I should think that a Reserve of Three Millions would under good Management be amply sufficient upon a Supposition of 24 Millions of Bank of England Notes in Circulation.
29. Would not the Object of your Plan be most completely effected by there being no Gold Coin in Circulation, unless it should be necessary for the Government to issue a Proportion of such Coin, in consequence of the Bank having reduced their Issues of Paper too low?
The Object of my Plan would be most completely effected by there being no Gold Coin in Circulation; and the latter Measure would be unnecessary if the Bank were obliged to purchase Gold.
30. Would not such an Obligation be a much better Security for the Public against too reduced an Issue, than any Discretion, wherever vested and however guarded?
Much better; it can be done so rapidly, and so certainly in proportion to the Demand for Money.
31. Is not, in one Case, the Operation performed by the necessary Effect of such a Provision, constantly operating on the Interests of the Bank itself, set in Motion by the Interests of Individuals; while, on the other, it must depend on the Judgment to be formed on the particular Circumstances of the Case?
It is certainly so.
32. What Security is there that the Bank would always be able to purchase Bullion at that Rate, and therefore would always be able, by the Notes issued for such Purchases, to keep up a Sufficiency of Circulating Medium?
I am of opinion, that the Bank, by regulating the Quantity of their Paper, would either lower the Price of Bullion to £3 17s. 6d.; that is, to one of the Limits mentioned; or raise it to the other Limit of £3 17s. 10½d.
33. If such Circumstances, as you have alluded to in your former Answer, as raising the general Value of Gold Bullion in the World, should again occur, and if other Circumstances, to which you have also alluded, in the State of Commerce between this and other Countries, should also again occur, and produce, as far as any of these Causes can effect it, a considerable Increase of the Price of Gold Bullion, and a very unfavourable State of Exchange, would it not require a Reduction of the Issue of Bank Notes proportionably great, to keep down Gold Bullion to this Price in spite of the Tendency of all these Circumstances to raise it?
Certainly, in every such Case it would be incumbent on the Bank to raise in an equal Degree the Value of their Paper, which could only be done by a Reduction in Quantity. In 1783, there was in a few Months, on a very small Circulation of Paper, a Reduction in the Amount of Bank Notes of about Three Millions, the Bank being then compelled to make the Value of their Paper conform to the Value of Gold Bullion.
34. Can you conceive the Existence of any other real Standard of Value, besides Bullion, out of which that Inconvenience would not arise in the same or a greater Degree?
35. What, in your Opinion, would be the Convenience or Inconvenience of allowing the Bank the Option of paying either in Gold or Silver Bullion, according to some fixed Proportion of Value established between them; establishing at the same Time only one of the Metals as the fixed Standard or Measure of Value, to which the other Metal should be made to conform by a Review of the Proportion at regular fixed Periods, according to the relative Prices of the precious Metals, as then ascertained in the Markets of the World?
The greatest Inconvenience would result from such a Provision. I consider it a great Improvement having established one of the Metals as the Standard for Money. The Bank and all other Debtors would naturally pay their Debts in the Metal which could at the Time be most cheaply purchased, and at certain fixed Periods the Currency might be suddenly increased or lowered in Value, in proportion to the Variation in the relative Value of the Two Metals from one of these Periods to the other. I find, from a Paper I have in my Hand, extracted from Mushet’s Tables, which, I believe, will be found correct on a Comparison with Official Documents, that frequently in the Space of Two or Three Years the relative Value of Gold and Silver has varied as much as from 9 to 15 per Cent. From 1777 to 1779, the relative Proportion varied from 13.191 to 15.01, a Difference of 9 per Cent. From 1782 to 1785, it varied from 13.04 to 15.07, a Difference of 15 per Cent. From 1782 to 1809, it varied from 13.04 to 16.49, a Difference of 25 per Cent. The greatest Inconvenience would result in raising or lowering suddenly the Value of the Currency to so great an Extent.
36. Considering the great Variation in the relative Value of Gold and Silver, and considering that Silver is the Standard Measure in most other Countries, what will be the Advantage in our having Gold as the Standard Measure in Value in this Country, on the Supposition of your Plan being adopted, which supersedes the Necessity of a Gold Circulation?
My only Reason for preferring one Metal to the other is its being less variable in Value. I had at one Time thought Silver would be less variable; but having heard that Machinery is particularly applicable to the working of Silver Mines, and cannot be applied to increase the Quantity of Gold, I now think that Gold is the more invariable Metal.2
37. Supposing this Country has a Gold Standard, and other Countries a Silver Standard, shall we not experience from the Variations of Gold and Silver, in our Intercourse with other Nations, the same Difficulty in the Exchanges, which our internal Circulation would sustain if the Bank had the Option, as is supposed, of paying in either of the Two Metals?
I think we should; the Inconveniences would be of the same Nature, but the Exchanges would be regulated accordingly.
38. If we had a Gold Standard, and other Countries continued to have a Silver Standard, would it be possible to state the Par of Exchange for any Length of Time together?
It would be quite impossible. But that I do not think a Matter of the least Importance; and with respect to the Inconvenience before mentioned, it would not exist if all the Debts to this Country and from this Country were contracted in our Currency: they would exist only on the Supposition that they would be contracted partly in British Currency and partly in Foreign Currency.
39. If all Debts were contracted in our Currency, would it not be an Extension to Foreign Countries of our Standard?
As far as we were concerned in Trade with them.
40. Is that the Practice in contracting Debts in Foreign Countries?
I should think not; they are as often contracted in the Currency of the one Country as in that of the other; the Advantage in the Payment may be in our Favour or against us, that is Matter of Chance.
41. Would not the Inconvenience of leaving the Advantage or Disadvantage in Payments to be a Matter of Chance, be corrected by our adopting a Silver Standard?
42. Would not our adopting Silver as the Standard of Value, and as the general Medium of Circulation, have in some Degree an Effect, which you have stated as a Benefit attending your Plan, viz. the keeping in Circulation more Bank Notes, than our adopting a Gold Standard, and paying in Gold Coin, as before the Restriction?
43. Is it intended to form an essential Part of your Plan, that the Bank of England Note, and the Country Bank Note, should circulate after the Bank has begun to pay in Bullion, upon the same Footing as at present?
It is an essential Part of my Plan.
44. Would the Plan, of requiring from the Bank the Delivery of Gold Bullion in Exchange only for large Sums in their Notes, be compatible with the Circulation of a certain Quantity of Gold Coin, if that were judged desirable?
Quite compatible; the Gold Coin should, in that Case, be subject to a Charge equal to the Expence of Coinage, but not sufficiently high to afford Temptation to false Coining. The Advantage of making the Coin very perfect, and immediately procurable in Exchange at the Mint, without any Delay or any Deduction, for an equal Weight of Gold Bullion, would be considerable, as far as regards our internal Circulation; but it would expose us to an additional Charge, as all Exporters of Bullion would be desirous of exchanging their Bullion for Coin, previous to its Exportation; the coined Metal being of course more valuable than an equal Weight of Gold Bullion. All the Advantages of a metallic Circulation would be obtained by allowing such a Charge on the Coin, and giving the Option to the Holder of Bank Notes, of demanding at the Bank either Gold Bullion or Gold Coin subject to such a Charge, in Exchange for his Note. If no such Privilege be allowed, of demanding Bullion from the Bank in Exchange for Notes, the Bank, by augmenting their Issues, might sink the Value of the whole Currency, and therefore of the coined Part of it, to the intrinsic Value of the Metal of which it is composed.
45. Would it not be more convenient that the Demand for Money coined, on the Principle stated in your last Answer, should be made at the Mint only, and not at the Bank in Exchange for their Notes; and that the Mint should keep in Readiness for that Purpose a certain Quantity of Gold already coined?
The Effect would be the same; but I think the Plan suggested by the Question would be an Improvement.
46. In that Case, would it be expedient to subject the Bank to the Obligation of paying small Sums in Coin, or would it be more advisable to make its small Notes completely a legal Tender?
Under those Circumstances, I think small Notes should be exchanged for Coin at the Bank, if required.
47. Might it not be sufficient if the Bank were discharged from the Obligation of paying Coin in any Cases for their small Notes, except when presented in large Sums; and would not the Facility which Individuals would thus have of procuring Coin for their small Notes from Bankers and others who could present them in large Sums for Payment in Bullion, and obtain Coin for that Bullion from the Mint, be sufficient to keep in Circulation a certain Quantity of Gold Coin, and to prevent any Discredit of small Notes?
Bankers would be under no Obligation to give Coin for small Notes; and I do not see any other Advantage in making large Notes exchangeable for Coin, but to give the Public the Option of using Coin instead of small Notes. I think the small Notes could never fall into Discredit, while you have the Power of regulating the Quantity of large Notes, by the Obligation imposed on the Bank to pay their Notes to a large Amount in Bullion.
48. Is it a necessary Part of the proposed Plan that the Trade in Bullion and Coin should be wholly free, and the melting of Coin, as well as its Exportation, be permitted by Law?
It is; and on any Plan of Currency I think such a Regulation would be desirable.
49. Would it not also be necessary, that the internal Traffic as well as the Foreign Trade in all Bullion should be completely free?
50. If the Mint were obliged to keep in reserve a certain Quantity of Gold ready coined, would it not be necessary, in order to secure the Public against great Expence, to make a Charge upon the Coin equal, not only to the Expence of Coinage, but to the Loss of Interest upon the probable Quantity of Coin there to be kept in reserve?
I think the Charge should be as high as it could be, consistently with the Object of not encouraging false coining.
51. Supposing then that Gold Coin should be issued at 80s. per oz., that is 2s. 1½d. above the Mint Price, of which Advance one Part should be considered as Seignorage, and the other Part as the strict Cost of Manufacture; supposing in this Proportion, 1s. 6d. per oz., viz. 4½d. each Sovereign, be considered as Seignorage, and 7½d. per oz. as the Brassage; will you state, in case such Coin by Wear should lose Part of its legal Weight, whether it will not be just to allow the Whole of what may be called Seignorage, subjecting the Holder only to the Loss of Weight and Cost of Manufacture?
I think it would be unjust to deduct from the Holder of light Money any thing but the mere Loss of Weight.
52. Suppose, in any Country, Gold were declared by Law the Standard of Value, and that Gold de facto engrossed the Circulation in Exclusion of all Silver Money, would not the Course of Exchange with that Country regulate itself with Reference to its Gold Money?
Certainly, the Course of Exchange would be regulated with Reference to the relative Value of Gold and Silver.
53. Supposing, in any Country, Silver were declared the Standard of Value, and Silver were de facto in Circulation to the Exclusion of all Gold Money, would not, in such a Country, the Exchange regulate itself with Reference to its Silver Money?
54. With the Exception of War and Conquest, can Foreign Commodities ever be acquired, but in Exchange for something which has been manufactured or produced at Home, either immediately or after Two or more different Exchanges?
They can be procured in no other Manner.
55. Is it not sound Policy to encourage the Importation of Manufactures, or Raw Materials which a Country does not itself produce, with a View to encourage the Increase of its own Produce and Manufactures, which must go Abroad in Quantities similar in Value to the Value of what it acquires?
It is the soundest Policy to make the Trade both of Import and Export as free as possible, as that will be the Means of giving us the greatest Abundance of Articles for our own Consumption.
56. Have you not stated, that if the Bank was to resume Payments in Bullion upon your Plan, it would be exempted from providing Gold necessary for circulating its small Notes to a given Sum, say 15 Millions; and that the general Wealth of the Country would be increased by enriching the Bank in consequence of this Saving?
I have said so, and I think so.
57. Do you believe the following Account to be an accurate Account of the Profits of the Bank since the Restriction, viz.
I have no Reason to doubt it; I believe it is accurate as far as I recollect. Part of that increased Value is derived from the increased Value of all funded Property.
58. Suppose we were to resume Cash Payments under a Plan which required that the Bank should provide themselves with only Three Millions of Treasure, would not there be a Demand for 15 Millions less of the Produce and Manufactures of this Country, than would be created by imposing on the Bank the Necessity of providing 18 Millions?
Yes, there would; but as we should export these Commodities without procuring a Return of any other which would contribute to our Advantage, the Gold would not be a very desirable Importation.
59. Would not the additional Demand for 15 Millions enrich our Manufacturers, who are the greatest Sufferers by the present State of the Circulation?
In the same Way as if we were to throw those 15 Millions of Manufactures into the Sea, which would also create a Demand for them.
60. Does it signify to our Manufacturers, after they have found a Sale for their Manufactures in France, whether the Purchaser uses them, or throws them into the Sea?
It is of no Importance to them, but of the greatest Importance to the Country, inasmuch as in that Case we should have 15 Millions less of productive Capital.
61. Do you mean to say, that if we sold those 15 Millions for Gold, we should not acquire a Value equal to them in Exchange?
We should acquire a Value equal to them in Exchange; but as such Gold would be a dead Stock, it would be no Advantage or Profit.
62. Do you think it would be advisable to adopt a Plan, under the present Circumstances of the Country, the Consequence of which would be to enrich the Bank, who has been such an inordinate Gainer by the Restriction, at the Expence of abstracting a Demand for 15 Millions worth of their Commodities from our Manufacturers, at a Time, when they have been the greatest Sufferers by the Restriction, and are likely to be great Sufferers by the Resumption of Cash Payments?
In whatever way Compensation was made to the Manufacturers, I should regret that we should think it necessary to make so great a Sacrifice of national Profit and Income, which I think we should be doing if we consented to make 15 Millions of our Capital totally unproductive.
63. Supposing we were to adopt a Plan which should annihilate that Demand for 15 Millions of our Manufactures, do you suppose that that Portion of Wealth would at all exist, in so far as it is composed of Manufacturing Labour?
I think it would; because the Quantity of Labour employed and Commodities produced must be in proportion to the Capital we have; and there can be no Production without occasioning an equal Consumption. In this Case, I think we should consume the Commodities ourselves; in the other Case, they would be consumed by others.
64. Do you mean to say, that an extra Demand for the Commodities of the Country would not produce any Increase of its Manufactures?
I should very much doubt whether it would; the sole Difference would be, with respect to what Commodities would be produced, and to the more advantageous Exchange we should make, by having a more extended Market.
65. Do you mean, that you doubt whether an Increase of Foreign Demand has not always a Tendency to increase the Production and Wealth of a Nation?
In no other Way than by procuring for us a greater Quantity of the Commodities we desire in Exchange for a given Quantity of our own Commodities, or rather for a given Quantity of the Produce of our Land and Labour.
66. Do you then think that it is true, as a general Principle, that the Demand does not regulate the Production of a Country, and that the Increase of the Demand does not add to its Wealth?
An Increase of Demand is serviceable to a Country, inasmuch as it procures for it a more extensive Market, and enables it to get a greater Quantity of Foreign Goods in Exchange for its own; but the Amount and Value of the Commodities produced, whether the Country possess Foreign Trade or not, is always limited by the Amount of Capital employed; and therefore Foreign Trade may alter the Description of Commodities produced, but cannot increase their aggregate Value.
67. Is it possible, then, there should exist an increased Foreign Demand to the Extent of Five Millions, for Cotton Goods for Example, without an Increase of their Price in the Home Market immediately taking place?
Certainly not; but those Cotton Goods cannot be produced unless Capital be withdrawn from other Employments.
68. Do you not know, that when the Demand for our Manufactures is great in this Country, the very Credit which that Circumstance creates enables the Manufacturer to make more extended Use of his Capital in the Production of Manufactures?
I have no Notion of Credit being at all effectual in the Production of Commodities; Commodities can only be produced by Labour, Machinery, and raw Materials; and if these are employed in one Place they must necessarily be withdrawn from another. I am not denying the Advantages of Foreign Trade; but I wish to reduce those Advantages to what I consider their just Value.
69. Have you never known Machinery, raw Materials, and Labour, paid for by any Individual who used them to a greater Extent than the Capital he actually possessed, by Means of the Credit he commanded?
Yes; but if he had not had that Credit, it would have been in the Power of somebody else to have employed them.
70. Whence would that other Person have obtained that Capital, if you suppose that the Capital of the Country is always employed, and that Foreign Demand cannot therefore produce a greater Quantity of Manufacture or rude Produce, which is limited by the Quantity of our Capital?
Credit, I think, is the Means, which is alternately transferred from one to another, to make use of Capital actually existing; it does not create Capital; it determines only by whom that Capital should be employed: the removing Capital from one Employment to another may often be very advantageous, and it may also be very injurious.
71. If Credit always represents an existing Capital, what Advantage does this Country derive from the Institution of Banks of Credit, which is not enjoyed by Countries who have only Banks of Deposit?
The Disadvantage to which those Countries are exposed which have Banks of Deposit only, is, that they are obliged to use a Part of their Capital unproductively; whereas those which have Banks of Credit use their whole Capital productively, except such Part as is kept in Reserve to answer Demands.
72. Am I then to understand, that in Countries which have Banks of Credit, there is never any Capital employed productively, of which there does not exist a similar Quantity of either productive or unproductive Capital, that might be applied to the same Object?
I do not understand the Question: for my Supposition is, that there is no Capital used unproductively, where Banks of Credit exist in a great Degree of Perfection: I think the whole Capital is used productively.
73. Are not the Capitals invested in Land, for Example, capable of Two Uses. 1. Is it not productively used, as vested in Land. 2. May not Money be raised by Credit on that Land, which may be applied to the Purposes of Manufactures?
The Question supposes Two Capitals, the Land, and the Instruments employed in Manufactures; the Money which circulates them forms no Part of the productive Capital, it determines only by whom it shall be employed.
74. May not a Man get Credit from a Bank of Credit on the Security of his Capital, which is profitably employed, whether vested in Stock or in Land, and may he not by means of that Credit purchase or create an additional Quantity of Machinery and raw Materials, and pay an additional Number of Labourers, without dislodging Capital from any existing Employment in the Country?
Impossible; he can purchase Machinery, &c. with Credit, he can never create them. If he purchases, it is always at the Expence of some other Person; and he displaces some other from the Employment of Capital.
75. Are you then of Opinion that there never can be made in any Country Two Uses of the same Capital; one to acquire an annual Revenue, which it produces by the Modes in which it is invested, and the other to acquire a Capital on Credit, which may also be profitably employed by the Person who acquires it, and which will be so whenever there is an increased Demand for Commodities?
Capital can only be acquired by saving. It is impossible that one Capital can be employed by Two Persons at the same Time, or for Two Objects: the greatest Advantage will be sought and obtained at all Times by the Employer of Capital.
76. Will not a great Diminution of the Demand for Commodities prevent his obtaining those Advantages from his Capital, which a great Increase of the Demand for them would secure?
It may, as far as regards the particular Commodity; but if there be a less Production of one Commodity, the Production of another would in a Degree be encouraged.
The Witness is directed to withdraw.
Die Veneris, 26° Martii 1819.
The Lord President in the Chair.
Mr. David Ricardo is called in again, and further examined as follows:
77. Supposing the Plan of the Bank paying its Notes in Bullion, at the Mint Price, as explained in your preceding Examination, to be adopted by the Legislature, will you state your Opinion as to what Period it would be most advantageous to fix for the Commencement of such a System?
It would be difficult to fix on any one Period as most advantageous; but as I think the Effects of a Return to Cash Payments have been already in a great Degree borne, I should not think that there would be any great Difficulty attending the commencing the Bullion Payments even as early as July next.
78. Are you of Opinion that it would be more advantageous to require the Bank to commence this System by Payment of its Notes in Bullion at the Mint Price, or that any Facility would be given to the Plan, by the Adoption of a graduated Scale, by which they should pay at first at the present Market Price, and at Prices successively reduced at stated Periods, until they came down to the Mint Price?
Facility would be afforded by a graduated Scale, commencing at the present Market Price. By far the most important Consideration with me is, preventing the Currency being depreciated, as compared with Bullion, below the present Rate of Depreciation, and by adopting the graduated Scale you would have complete Security upon that Point. At the same Time, I think we should attain the ultimate Result of reducing the Price of Bullion to the Mint Price of £3 17s. 10½d., before the Time to which the Regulation might apply.
79. Would it not therefore be necessary, in the Adoption of such a graduated Scale, to allow the Bank a Discretion to accelerate, but not to retard, the successive Reduction of Prices at which they would give Bullion in Exchange for their Notes?
I think such would be a very good Regulation.
80. Supposing the Bank had Power to accelerate the Rate of Reduction, might not those who were in the Knowledge of the Intention so to accelerate it, take Advantage of that Knowledge, which they would be precluded from doing, if it was to take place at fixed Days?
Such an Effect might possibly take place in a slight Degree. But I have already said, that I think the ultimate Effect would be anticipated, and as every Person would be certain that in a short Space of Time Gold would fall to the Mint Price, they would not be induced to make Purchases above that Price, notwithstanding a premature Reduction in the Price of Gold by the Bank, below that fixed by the Scale.
81. State your Opinion, supposing the System of successive Reduction were adopted, at what Time that Operation might be safely commenced, and how long the Interval ought to be from thence to the Period of Payment at the Mint Price?
I think it could not commence too soon; and with respect to the Interval, it appears to me a Matter of slight Importance; probably Twelve Months would be a good Period. I cannot conceive that the Fall in the Value of Commodities to the Amount of Four per Cent. would be a very formidable Operation, or one likely to be attended with serious Consequences.
82. Do you, having stated that you think that they might begin to pay at the Mint Price on the 5th of July next, suppose that there would be any Advantage derived from postponing that Obligation, by adopting a graduated Scale, other than to save the Funds of the Bank?
I think there would be other Advantages, besides saving the Funds of the Bank; for when I said that on the 5th of July next the Bank might without Difficulty commence paying in Bullion at the Mint Price, I supposed the Bank was to retain the same unlimited Power of increasing their Issues, between this Time and the 5th of July, that they now have. On the Principle of a graduated Scale, commencing at the present Market Price, I concluded that the Regulation of making them pay at the Market Price would be adopted immediately; with that Security, I think there are Advantages in deferring the ultimate Reduction to the Mint Price.
83. If the graduated Scale was to be adopted, so as to afford that Security at the earliest possible Period in which an Act of Parliament could be passed, do you think there would be any Danger to the Public from accelerating the Gradations of that Scale, so as to come to the Payment in Bullion at the Mint Price by the 5th of January 1820?
I think that no Danger would attend the coming to the Mint Price by the Beginning of next Year; in every Change of this Sort, there is some Advantage in making it as gradual as possible.
84. Do you recollect whether within these last Eight Years we have not frequently seen the Circulating Medium of the Country undergo much more formidable Changes with respect to Value than 4 per cent., within a shorter Period than Six Months, judging of the Value of the Circulating Medium by the Price of Gold?
In my Opinion it has undergone much greater Variations than 4 per Cent.; and in the soundest State of our Currency, it would be liable to such Variations.
85. From what Causes could it undergo Variations, exceeding that Amount, if the Currency were restored to its soundest possible State?
It would not undergo any Variation, as compared with the Standard; but I mean, that the Standard itself might undergo Variations exceeding that Amount; the whole Currency is of course subject to all the Variations of the Standard.
86. In that Case, would not the Currency of other Countries, in an equally sound State, undergo similar Variations?
Certainly; the Inconvenience, as far as regarded England, would not be less on that Account; I consider any Variation in the Value of the Currency as an Evil, from producing a Variation in the Prices of all Articles.
87. Is there not this Difference between the Case of a Variation occasioned by Causes peculiarly affecting England, and that of a Variation occasioned by Causes affecting equally all Countries enjoying a sound State of Currency; that in the First Case, the Exchange between this Country and those Countries would be affected; in the Second, the Exchanges between England and those Countries would not be affected?
In the First Case, the Exchanges would be affected; in the Second, they would not, if the Causes operated on all Countries at once; but Scarcity and increased Value of the precious Metals might take place in one particular Country, which would ultimately affect their Value in all; but in the Interval, the Exchange would be affected. The Circumstance of the Exchange being unfavourable, does not seem to me to be any Disadvantage to us.
88. Do you believe, that if this Plan were adopted of Payments in Bullion, according to a graduated Scale of Reduction, there are any Circumstances arising, either from the general State of the Bullion Market, or from any other Causes whatever, which are likely to create Dangers and Difficulty to the Bank in their procuring such Quantities of Gold, and at such Prices, as this Plan would require?
None whatever. The Bank would always have the Power of keeping the Price of Gold rather below that which was fixed by the Scale; and therefore the Price of Gold might gradually be reduced to the Mint Price, without the Bank being under any absolute Necessity of exchanging one Ounce of Bullion for its Notes.
89. If, contrary to all reasonable Expectation, any unfore-seen Contingency of such a Tendency as stated in the preceding Question should by Possibility arise, would not the Plan of a graduated Scale, operating as above proposed for the next 12 Months from the present Time, afford to the Legislature the fullest Opportunity of meeting and providing for such a Case as its Exigency might require?
It certainly would.
90. Is it not also a great Advantage of such a Plan, that nearly the whole Progress of its Operation, and that of our Currency as connected with it, would thus be brought successively under the View of Parliament, instead of its being left to the Discretion of the Bank, until the Arrival of the Time ultimately fixed for Payment in Cash or Bullion at the Mint Price, without any such Gradation?
That would be a considerable Advantage.
91. Having stated that a Circulation of 24 Millions of Bank Notes might be conducted with Three Millions of Bullion; do you not think, that it might be injurious to the general Credit of the Bank, for Parliament to legislate upon the Supposition that it would require one Twelvemonth for them to provide a Sum in that Proportion to any Currency which the Country may require?
The Wealth of the Bank is so well established as a Fact in the Opinion of the Public, that I do not think such a legislative Measure would in the slightest Degree affect the Credit of that Body.
92. Would not the Facility of dispensing with the Gold Coin in Circulation, according to the Plan you have suggested, operate as a Saving of the general Stock; so that a Country which adopted it might be considered, as in that Proportion, richer than a Country which did not?
That is the precise Advantage which I expect to follow from that Measure.
93. Supposing all, or most other Countries successively to adopt the same Plan of Paper Currency, regulated only by the Price of Bullion; must not that Circumstance, by occasioning a great Diminution in the Demand for that Bullion, and consequently lowering its Value throughout the World, ultimately occasion a Depression in all Currency, and a considerable Rise in the nominal Prices of all Commodities?
For a short Time the Value of Gold would be affected, and it would be lowered by such a general Regulation; but, in my Opinion, it would not ultimately be depressed; the Value of Gold and of all other Commodities depending on the Cost of Production, that is, on the Quantity of Labour necessary to produce them, which is not supposed to be either increased or diminished.
94. Supposing Two Countries in every other respect enjoying the same State of Wealth, but with this Difference that one possesses a Circulating Medium which is conducted with Three Millions of Bullion, and the other, over and above the same Degree of Wealth in every Thing (except in Circulating Medium), has a Circulating Medium of Eighteen Millions of Bullion, which of these Two Countries in your Opinion possesses the greatest Wealth?
The Country possessing the Eighteen Millions; but if they had any Intercourse with each other, it would be impossible for the Twenty-one Millions, the Aggregate of the Two Circulations, to be divided in these Proportions.
95. You have stated that a Reduction of Paper in Circulation, to the Amount of nearly Four per Cent., would be necessary, in order to restore the Currency to the legal Standard of the Mint; would those Reductions have any very sensible Effect on the general Rate of Interest or Discounts?
Reduction or Increase of the Quantity of Money always ultimately raises or lowers the Price of Commodities; when this is effected, the Rate of Interest will be precisely the same as before; it is only during the Interval, that is, before the Prices are settled at the new Rate, that the Rate of Interest is either raised or lowered.
96. Are we to understand that, when Money is lent, Capital is advanced, and that Interest only can be effected by the Abundance or Scarcity of real Capital, combined with the Opportunity of employing it?
Precisely so; Money is only the Medium by which the Borrower possesses himself of the Capital which he means ultimately to employ.
97. State what in your Opinion is the Difference between that State of Things, in which a Stimulus is given by fictitious Capital arising from an Over-abundance of Paper in Circulation, and that which results from the regular Operation of real Capital employed in Production?
I believe that on this Subject I differ from most other People. I do not think that any Stimulus is given to Production by the Use of fictitious Capital, as it is called.
98. State what in your Judgment are the Effects on Agriculture, Commerce, and Manufactures of a superabundant Issue of Paper?
Under some Circumstances it may derange the Proportions in which the whole Produce of Capital is divided, between the Capitalist and the Labourer; but in general I do not think it even affects those Proportions. It never I think increases the Produce of Capital.
99. Has such Issue, in your Judgment, any Tendency to the Encouragement of the Commerce or Industry of any People?
I think none, excepting that by affecting the Proportions into which Produce is divided, it may facilitate the Accumulation of Capital in the Hands of the Capitalist; he having increased Profits, while the Labourer has diminished Wages. This may sometimes happen, but I think seldom does.
100. Has not the Increase of Prices during the progressive Depreciation of Paper a Tendency to produce Over-trading, and excessive Speculation?
I think Over-speculation has rather been encouraged by the Facility with which Speculators have been enabled to raise Money upon Discount, in consequence of the progressive Increase of Paper Issues. This Facility would be in a great Degree destroyed, as soon as the full Effect of any given Abundance of Issue on Prices was felt.
101. Is not that Facility, while it exists, wholly given at the Expence of Persons already holding Paper previously in Circulation; or of those who may be compellable by Law to receive it at Par for Payments previously stipulated for, in Money of account?
It is only given at their Expence.
102. Are you of Opinion that the occasional Success of Speculators, and Over-traders, even when beneficial to themselves, is advantageous to the Community, or that such individual Benefits are overbalanced by the general Evils of such a System?
The Public are only interested in the Abundance of Production; these will not be increased; and therefore, if one Party gains, it must be at the Expence of another.
103. Is not the Irregularity of the Distribution, and the Inequality of the Demand, under the System supposed in the last Answer, very injurious to the Country?
104. From what Circumstance do you draw the Conclusion, at any particular Period, that there is a Superabundance of Circulating Medium?
From the Market Price of Gold exceeding the Mint Price in those Countries where Gold is the Standard, and the unfavourable State of the Exchanges.
105. Is not the Market Price of Gold, and the State of the Exchanges, liable to vary, when there is no Variation in the Amount of the Circulating Medium?
The Rate of Exchange is; but the Market Price of Gold I think is not.
106. Does not the Market Price of the precious Metals vary at Hamburgh, when there is no Variation in the Amount of the Circulating Medium; but Payments are made by a Transfer of Credit on the Bank, representing a given Quantity of Silver of a given Fineness?
The utmost Limits of Variation to which Silver would be subject at Hamburgh, would be the Difference of Price at which the Bank purchases Silver, and the Price at which it sold it. And if the Bank of England were to fix the Price of £3 17s. 10½d. for the Rate of Gold, and the Price of £3 17s. 6d. for the Purchase of Gold, as proposed, I think that Gold could never vary but between those Limits.
107. Are not the Rates of Exchange affected by the Balance of Payments on all Accounts?
Yes, within the Limits of the Expence attending the Transmission of Gold.
108. Must not therefore a Part of the Depression of the Exchange between any Countries, be attributable to a Cause independent of the Amount of the Circulating Medium?
Very frequently, but the real Exchange would be in favour of the Country, while the nominal Exchange is against it.
109. Can you therefore conclude, from the Degree to which the Exchange is at any Moment against any Country, that the whole Per-centage of that unfavourable Exchange is owing to the Amount of its Circulating Medium?
A Part may be owing to other Causes. There is no unfavourable Exchange, which might not be turned in our Favour, by a Reduction in the Amount of Currency; it might not however be wise to make such a Reduction.
110. If a considerable Portion of such unfavourable Exchange were at any Time owing to the Balance of Payments being against us, would not a Reduction of our Circulating Medium, grounded on a Supposition that the unfavourable Exchanges was owing to its Excess, be productive of considerable Distress?
It might; but the best Criterion of an Excess of Circulation, is the Agreement of the Market Price of Gold with the Mint Price.
111. Would you then conclude, that when such Agreement exists there can be no Excess in our Circulating Medium?
There might be a temporary Excess in our Circulating Medium, but it would be attended with such a State of Exchange, as would make it profitable for Individuals to export Bullion, or Coin, which would have the Effect of reducing the Circulating Medium to its proper Limits.
112. Can such a State of Exchange be compatible with an Equality between the Mint Price and Market Price of Bullion?
If there was no Seignorage on Coin whatever, nor any Delay in returning Coin for Bullion at the Mint, it is quite compatible.
113. Would you conclude, then, that when not only the Market Price of Bullion does not exceed the Mint Price, but the Exchanges are also favourable or at Par, that there is no Excess of Circulating Medium?
It is quite possible, that under such Circumstances there might be a Deficiency of Circulating Medium, but there could not be any Excess.
114. You have stated that you consider the abundant Issue of Paper as having given Facilities to Speculation; do you conceive, that if on the Balance such Speculations have been unsuccessful, it would have been possible for so large an Increase to have taken place in the internal and external Commerce of the Country, as has occurred within the last 20 Years?
I think the Increase of the external and internal Commerce of the Country totally independent of those Causes.
115. To what Causes then do you attribute it?
To the Discovery of improved Machinery, and to the Industry and Ingenuity of our People.
116. You have stated that the most important Consideration in the Mode of returning to Cash Payments, was preventing the Currency being further depreciated; and if the graduated Scale were adopted you think the ultimate Effect would be anticipated; and with the Security which the Adoption of the graduated Scale would give, that the Bank must ultimately pay in Bullion at the Mint Price, there were Advantages in deferring the Period of the ultimate Reduction to that Price. Do you think, on the whole, that any Inconvenience would arise from prolonging that Period beyond the Period of 12 Months from July next, with a Security that at the different Stages of it the Plan would be put into Execution, sufficient to counterbalance the Convenience which such a Prolongation would give, by giving further Time to the Bank to increase its Treasures, by allowing more gradual Reduction of its Issues, and by enabling all Persons engaged in Commerce to accommodate their Transactions gradually to the new State of our Circulation?
I think the Advantages to be derived from a Prolongation of the Period would preponderate, provided the Public had complete Security, by obliging the Bank to sell Gold at the present Market Price, against a further Excess of Paper Circulation. I say the present Market Price, because I am averse to entrusting the Bank, for even the next Three Months, with the Power of raising the Price of Bullion.
117. Would not the Danger be completely obviated by providing, that on the 5th of July next the Bank should pay its Notes in Bullion at the present Market Price, and not at the Price at which it may then be?
Nothing could prevent it but gross Misconduct on the Part of the Bank.
118. Do you think the Balance of the Advantage of Prolongation would extend to a Period of Two Years from July next?
I think Two Years an ample Time; I should say a less Period; but it may be prudent to consult the Fears of even the most timid.
119. If the Period were to be so prolonged, what would in your Opinion be the best Gradation of Scale, both in Price and Time?
I should think the Price of Gold should diminish 6d. per Ounce at stated and equal Intervals.
120. Do you not think, that the longer the Time allowed the Bank for the Payment of their Notes in Cash or Bullion at the Mint Price, the more necessary the graduated Scale would be, as a Security to the Parliament and to the Public for the Accomplishment of their ultimate Object?
Certainly; without it we should not have complete Security that the ultimate Object would be attained.
121. As Part of the Advantages, to which you look, as facilitating the Operation of the Plan of a graduated Scale, arise from the Certainty which Dealers in Bullion will have, that Bullion will in a short Time be brought down to the Mint Price; would not those Advantages be in some Degree diminished, even by deferring the Period of that ultimate Operation for 6 or 12 Months longer than could really be necessary?
The Advantages would be diminished by deferring the Period: and I am only reconciled to a further Length of Time by a Consideration of the Fears which I think many People very unreasonably entertain.
122. As far, therefore, as your own Judgment goes, should you prefer the Period of One or of Two Years for the Operation?
I should prefer One Year.
123. Do the Prices of Commodities conform to the Fluctuations in the Market Price of Gold, or does not a Length of Time elapse before such Conformity takes place?
They do not immediately conform, but I do not think it very long before they do.
124. If the Prices of Commodities have not already fallen to a Level with the present Market Price of Gold, is it certain there will not be a greater Reduction in their Prices than 4 per Cent., on the Market Price of Gold falling to the Mint Price?
I think the Prices of Commodities fall from a Reduction of the Paper Circulation quite as soon as Gold falls. If the Prices of Commodities and of Bullion have not already fallen in proportion to the Reduction of Paper, I should think that, to make the Value of Bullion and Paper agree, a less Reduction of Paper would be necessary.
125. If the Bank should for their own Security think proper to make a further Reduction of their Notes to the Amount of Three Millions, between this Time and the Month of July next, what Effect would this have upon the Prices of Commodities?
I think a greater Effect would be produced on the Prices of Bullion, on the Currency and on the Prices of Commodities, than what is necessary to bring Bullion down to the Mint Price. Both Bullion and Commodities might probably fall 8 or 10 per Cent. No such Fall could take place if the Mint were open, or the Bank were obliged to buy Bullion at £3 17s. 6d. The Bank could not then reduce the Circulation Three Millions.
126. If, in consequence of large Foreign Payments, the Course of Foreign Exchanges should become more unfavourable, unless counteracted by a great Contraction of Bank Notes, would it not be necessary to make such Contraction for the Purpose of reducing the Market Price of Gold to the Mint Price?
It certainly would; but this is an Inconvenience to which our Currency was always exposed before 1797.
127. Might it not then be necessary for the Bank to make a Reduction of Three Millions between this and the 5th of July, notwithstanding the present favourable Tendency of the Exchanges?
Possibly it might.
128. Supposing the Bank not to think that they could engage with Safety to pay their Notes in Bullion at any specified Period, according to the present Market Price, without previously making a considerable Purchase of Gold, would not such Purchase have a Tendency to increase the Price of Bullion?
I think it would have such a Tendency; but I should not admit this Plea, for I should think it not founded on a Knowledge of the true Principles of Currency, the Purchase of any great Quantity of Gold being wholly unnecessary.
129. Has not the present Suspence of Commercial Transactions, in consequence of the Examination now taking place, the Effect, to a certain Extent, which a contracted Issue of Notes would have had?
I think it has.
130. If then that Suspence were relieved by a Decision one Way or the other, would not the Price of Gold have a Tendency to rise, unless it were counteracted by some further Reduction of Bank Notes?
It would very much depend on the Decision taken.
131. Would not the Danger of any improvident Diminution of Issues by the Bank during the Progress of these Operations, of which we have been speaking, be best obviated by applying to the Period of gradual Reduction the same Principle which you have proposed for Bullion Payments at the Mint Price, viz. an Obligation on the Bank to purchase Bullion at Prices bearing a fixed Proportion to those at which they are to deliver it?
It undoubtedly would; still I am inclined to recommend that the Price at which the Bank should be obliged to purchase Gold, should be at once fixed at £3 17s. 6d. The only Inconvenience that could arise from such a Regulation might possibly be a more rapid Diminution of the Amount of the Currency, than what a graduated Scale would require.
132. But if the Apprehensions of the Bank should so far exceed all just Reasoning on the Subject, as to lead them to make a sudden and excessive Diminution of the Currency, far beyond what the Necessity of the Case might require; might not such a Provision as above stated be useful, not only as a Corrective of the Evil, but also as an Indication to them of the real Circumstances of the Case?
The Provision above stated would afford a complete Security against a sudden and mischievous Reduction in the Amount of the Circulating Medium.
133. How would it afford that complete Security?
Without such a Provision the Bank might diminish their Issues till the Price of Bullion fell to £3 17s. 6d. per oz., with it they could only diminish them till it fell to the Price fixed for the Purchase on the graduated Scale.
134. Might not the Bullion Merchant under such Circumstances, by occasionally bringing forward their Gold to the Bank immediately before the Time at which the Price would be lowered for the Bank to make such Purchases, and by watching the Variations occasioned by the Increase or Diminution of the Issue of Notes, for the Purpose of meeting such Demand, throw great Confusion during the whole Time into the Market Price of Gold; and would not the Uncertainty in which the Bank would be placed, oblige them to withhold the Issue of their Notes on Discount to a considerable Extent?
I think, if the selling Price of Gold and the buying Price of Gold should be fixed too near to each other, the Bank might be exposed to this Inconvenience, but if they differ as much as a Shilling, no great Inconvenience would arise. As to the Question of Discount, the Accommodation to Commerce must depend on the whole Amount of the Circulation, and not on that Part of it which the Bank may issue in that particular Manner.
135. If the Bank were to be the only Market to which Persons would resort for Bullion, as distinguished from Coin, at a fixed Price; might there not be, under extreme Circumstances, a peculiar Run upon the Bank for that Article?
The Run upon them must necessarily be limited by the Amount of their Notes, because it is with their Notes only that the Bullion could be purchased. The Diminution of the Quantity of Bank Notes would increase their Value, and would consequently stop the Demand for Bullion. In this respect we should be precisely in the same Situation that we were previous to 1797, the only Difference would be, that we could then demand Coin, and now we should demand
Bullion; as Articles of Commerce they may be considered as the same.
136. Supposing the Bank to keep no more Treasure than what you consider would be necessary, or Three Millions of Bullion, might not a Run for Bullion to that Amount be made with so much greater Rapidity, than could possibly be made for the same Amount of Coin, as to expose the Bank to greater Danger in the new State of Things, than it could ever have incurred in the former?
Bullion could be drawn out of the Bank in a shorter Space of Time than an equal Amount of Coin, as there would be no Necessity for counting.
137. Might not a Demand for Bullion be made upon the Bank to that Extent, in so short a Space of Time, as not to allow of the Effect which a Diminution of the Quantity of Notes would have in raising their Value, to operate in Time to check such a Run?
I should answer, in no greater Degree than before 1797, and this could only happen in the extreme Case of a Panic, against which no System of Banking can possibly provide.
138. Do you think, on the whole, that the Danger of any such Panic would be increased or diminished, by making Bank Notes payable in Bullion for large Amounts only, or in Coin for the smallest Amounts, as before 1797?
If there is any Difference, I should think that the Danger of Panic would be less in the former Case than in the latter.
139. Would there be, in case of a Panic, less Eagerness to demand Bullion than Coin, if that were demandable?
I think there would be less Eagerness to demand Bullion.
140. Would not such a Demand be made, without any Reference to the Market Price of Gold?
141. Referring to Question and Answer (No. 84), you have stated, that our Currency and Prices have undergone, during the last Eight Years, much greater Variations than what you conceive would be now produced by the Resumption of Cash Payments; was not the Inconvenience which may have resulted at any of those former Periods, from the Fall of Prices, much mitigated by the unlimited Power then possessed by the Bank of increasing its Issues, without any regard to the Price of Gold and the State of Exchanges?
The Variations in the Value of the Currency, and in Prices, have generally been in a different Direction from that at present to be provided against; the Bank having the Power to issue Paper unchecked, could certainly mitigate the Inconvenience resulting from a sudden Fall.
142. When the Bank have lost that Power, might not the same Degree of Reduction of Currency which took place in former Periods produce a greater Reduction of Prices, and of course greater Distress?
Equal Effects would follow equal Amounts of Reduction; but when the Bank was unchecked, they had the Power of arresting that Reduction; an Advantage counterbalanced by other Disadvantages.
The Witness is directed to withdraw.
[1 ]Reply to Bosanquet; above, III, 195.
[1 ]This answer is amended below, pp. 401–3, Question 106.
[1 ]See Economical and Secure Currency (1816), above, IV, 63
[1 ]Alexander Baring, too, in his evidence to the Commons Committee on 12 March 1819, referred to the possibility ‘that the amount of silver may be hereafter increased by the improvement in the working of the South American mines’ (‘Minutes of Evidence’, p. 192). Cp. below, VIII, 3.
[1 ]Questions 26 and 59.
[1 ]A similar proposal had been made on 10 March by Alexander Baring before the Lords’ Committee: ‘I should certainly say that it would be better to have no Gold Coin, if the Question of the Forgery of Paper can be satisfactorily settled. If there should be a Gold Coin, it must be to a restricted Amount, with a Seignorage which may be carried to any Extent, provided it be not sufficient to encourage illegal coining; the Gold Coin would in fact be a Gold Token, and could not affect the Value of the Standard.’ (Lords’ Report, ‘Minutes of Evidence’, p. 132, Q. 167.) Cp. Principles, above, I, 371–2.
[1 ]There are extensive extracts from the regulations of 1803 concerning French coinage, in Ricardo’s hand, among his papers; these however belong to a much earlier period.
[1 ]The price is not mentioned in the earlier part of the evidence as published; cp. Question 36 ff., p. 381 ff. above.
[1 ]Should be ‘13.79’. See Robert Mushet, An Enquiry into the Effects produced on the National Currency and Rates of Exchange by the Bank Restriction Bill..., London, Baldwin, 1810, Appendix.
[2 ]Cp. above, p. 390–1.