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 Front Page arrow Titles (by Subject) arrow 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 - The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence

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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 - 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 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?

Quite impossible.

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?

None.

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?

Certainly.

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?

Certainly.

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?

Certainly.

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?

It would.

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.

    £
In Bonuses and Increase of Dividends7,451,136
New Bank Stock (£2,910,600) dividedamong the Proprietors7,276,500
Increased Value of Capital of £11,642,400, (which on an Average of 1797 was worth 125, and which is now worth 250), that is14,553,000
Making in all, on a Capital of £11,642,400, a Gain in 19 Years of£29,280,636

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?

Frequently.

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?

Certainly.

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.

SPEECHES ON VARIOUS OCCASIONS

1811–1823

[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.