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MINUTES OF EVIDENCE TAKEN BEFORE THE SECRET COMMITTEE ON THE EXPEDIENCY OF THE BANK RESUMING 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.)

About Liberty Fund:

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


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.

[1] 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.

[2] 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.

[3] 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.

[4] 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.

[5] 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.

[6] 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.

[7] 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.

[8] 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.

[9] 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.

[10] 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.

[11] 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.

[12] 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.

[13] 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.

[14] 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.

[15] 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.

[16] 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.

[17] 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.

[18] 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.

[19] 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?

Certainly.

[20] Have you turned your attention to any plan by which these desirable objects may be best attained?

Yes, I have.

[21] 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.

[22] 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.

[23] 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.

[24] 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.

[25] 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.

[26] 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

[27] Would you advise, that notes below 5l. should be continued in circulation?

Under those circumstances there necessarily must be notes of 1l. and 2l.

[28] Would you advise bank notes to be made a legal tender?

I would certainly.

[29] Would you leave to the country bankers the power of issuing notes payable on demand, in bank of England notes?

I would.

[30] And not subject them to the necessity of paying in coin?

Certainly not.

[31] Would you repeal the laws respecting the exportation of coin?

Undoubtedly.

[32] 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.

[33] 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.

[34] Would not that be an additional convenience? I think it would.

[35] 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.

[36] 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.

[37] 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.

[38] 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.

[39] 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.

[40] 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.

[41] 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.

[42] 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.

[43] 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.

[44] 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.

[45] 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.

[46] 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.

[47] 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.

[48] 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.

[49] 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.

[50] 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.

[51] Does it reduce the prices of all commodities equally? I think not, in consequence of the inequality of taxation, otherwise I think it would.

[52] 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.

[53] 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?

Undoubtedly.

[54] 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.

[55] 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?

Exactly so.

[56] 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?

Undoubtedly.

[57] Would not the increased burthen of such taxes upon the people be in proportion to the increase in the nominal value of the money?

Certainly.

[58] 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.

[59] 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.

[60] 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.

[61] 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.

[62] 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.

[63] 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.

[64] 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.

[65] As compared with gold?

As compared with either gold or silver; I have no preference for either.

[66] 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.

[67] 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.

[68] 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.

[69] 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.

[70] 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.

[71] 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.

[72] 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.

[73] 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.

[74] 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.

[75] Do you consider the difference between the market and mint price of gold to be the criterion of the depreciation of bank notes?

Strictly so.

[76] 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.

[77] 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.

[78] 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.

[79] 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.

[80] 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.

[81] 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.

[82] 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.

[83] 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.

[84] 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.

[85] 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.

[86] 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.

[87] 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.

[88] 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.

[89] 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.

[90] 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.

[91] 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.

[92] 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.

[93] 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.

[94] 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.

[95] 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.

[96] 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.

[97] 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.

[98] 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.

[99] 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.

[100] 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?

Certainly.

[101] 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.

[102] 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.

[103] 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.

[104] 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.

[105] 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.[106] 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.”

[107] 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.

[108] 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

[109] 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.

[110] 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.

[111] 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.

[112] 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.

[113] 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.

[114] 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.

[115] 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.

[116] 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.

[117] 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.

[118] 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.

[119] 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.

[120] 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.

[121] 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.

[122] 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.

[123] 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.

[124] 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.

[125] 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.

[126] Do not our colonial possessions add to those means? Undoubtedly, as far as colonial productions are exportable commodities generally in demand in other countries.

[127] 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.

[128] 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.

[129] 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.

[130] How is he to pay in bullion; by that being divided into parts, and given to the holders of the notes?

Yes.

[131] 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.

[132] 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.

[133] 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.

[134] 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.

[135] 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.

[136] 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.

[137] 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.

[138] 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.

[139] 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.

[140] 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.

[141] 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.

[142] 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?

Yes.

[143] In that case would not a considerable quantity of foreign coin be probably issued by the bank?

Certainly.

[144] 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.

[145] 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.

[147] 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.

[148] 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.

[149] 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.

[150] 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.

[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.