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NOTES ON THE EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence [1819]

Edition used:

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.

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

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NOTES ON THE EVIDENCE ON THE RESUMPTION OF CASH PAYMENTS

I.

The Committees

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.

II.

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.

III.

The Reports

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:

IV.

The ‘Ricardoes’

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:

lf0687-03_figure_010

Stamp for striking gold ingots according to the suggestion of Mr. Ricardo.

‘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.:

  • (a) 3 in February 1820 at £4 1s. per standard oz.
  • (b) 3 in October 1820 at £3 19s. 6d.
  • (c) 7 in May 1821 at £3 17s. 10½d.

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.

V.

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.