Front Page Titles (by Subject) 1.: ricardo to horner - The Works and Correspondence of David Ricardo, Vol. 6 Letters 1810-1815
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1.: ricardo to horner - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 6 Letters 1810-1815 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 6 Letters 1810-1815.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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ricardo to horner1
In your observations, in the House of Commons, on the present high price of gold,2 you stated that you did not agree with those who attributed the excess of the market above the mint price, wholly, and solely, to the superabundance of the paper circulation. In your view of the subject, you said, a part of that excess might be caused by the peculiar state of our commerce, owing to the hostile decrees of the enemy, which rendered it necessary for this country to pay bullion for many of the commodities which she imported, such as corn, naval stores &ca. You also thought that an excess of the market above the mint price of gold, would be produced, and had been produced, by the demand for gold both at home and abroad, and from that demand not being supplied in the usual manner from the mines in South America.
On this subject, Sir, I beg leave to differ from you and further to trouble you with my reasons for so doing, not doubting that though I may not be so fortunate as to convince you by my arguments, you will pardon me for the observations which I take the liberty of offering.
It appears then to me, that no point can be more satisfactorily established, than that the excess of the market above the mint price of gold bullion, is, at present, wholly, and solely, owing to the too abundant quantity of paper circulation. There are in my opinion but three causes which can, at any time, produce an excess of price such as we are now speaking of.
First, The debasement of the coins, or rather of that coin which is the principal measure of value.
Secondly, A proportion in the relative value of gold to silver in the market, greater than in their relative value in the coins.
Thirdly, A superabundance of paper circulation. By superabundance I mean that quantity of paper money which could not by any means be kept in circulation if it were immediately exchangeable for specie on demand.
I might add here a fourth cause1 . The severity of the law against the exportation of gold coins, but from experience we know that this law is so easily evaded, that it is considered by all writers on political economy, as operating in a very small degree on the price of gold bullion.
It will be readily acknowledged that the debasement of the coins is not now the cause of the excess of the market above the mint price of gold.2 Our gold coin, which is the principal measure of value, being at this moment of its standard weight and actually not received at the Bank unless each guinea weighs 5 dwt 8 grs—the lowest weight at which guineas are current by law.
The second cause is limited in its effects under any and every circumstance, to the superior value which gold may bear to silver in the market over and above its proportionate value in the coins. The relative value of gold and silver, in the market, was stated by you, and I believe correctly, as 15½ to 1. Their relative value in the coins is 15 to 1. Thus then an ounce of gold, which is coined into £3. 17. 10½ of gold coin, is worth, according to the mint regulations, 15 ounces of silver, because that weight of silver is also coined into £3. 17. 10½ of silver coin. But if £3. 17. 10½ in gold coin, or an ounce of gold, will sell in the market for more than 15 ounces of silver;—if it be, as it now is, of equal value with 15½ ounces of silver, or as much silver coin as 15½ oz are coined into, viz 80 shillings, then it will no longer be worth only £3. 17. 10½ but £41 .—Accordingly the alteration in the relative value of gold and silver, which it is acknowledged by me2 has of late considerably increased,3 cannot4 have produced any excess of the market above the mint price of gold of more than 2/1½ or between 2 and 3 pct. This cause, however, has in my opinion, produced no effect whatever, because in the present state of things silver cannot be considered as the standard measure of value, and therefore neither gold bullion, silver bullion, nor any commodity whatever is rated in the silver but in the gold coin.
My reasons for forming this conclusion are as follows. Whilst the relative value of gold and silver is under 15 to 1 gold will necessarily be the standard measure of value, because no one would then send 15 ounces of silver to the mint to be coined into £3. 17. 10½, when he could sell that quantity of silver in the market for more than £3. 17. 10½ in gold coin; and this he could do by the supposition that less than 15 ounces of silver would sell for5 an ounce of gold.
But if the relative value of gold to silver be more in the market than the mint proportions of 15 to 1, no gold would then be sent to the mint to be coined, because the possessor of an ounce of gold would not send it to the mint to be coined into £3. 17. 10½ of gold coin, whilst he could sell it, which he could do in such case, for more than £3. 17. 10½ of silver coin. Not only would not gold be carried to the mint to be coined, but the illicit trader would melt the gold coin and sell it as bullion for more than its nominal value in the silver coin; he would as I have already stated obtain for it 80 shillings in silver coin, a profit of 2 to 3 pct.1 . Thus then gold would disappear from circulation and silver2 become the standard measure of value. This would be the case now if the coinage of silver were allowed at the mint, but it is prohibited, while that of gold is freely permitted.3
How can silver become the measure4 of value whilst this law continues in force? The quantity of silver in circulation is barely sufficient or rather is insufficient for small payments and is now bought at a premm. of 7 pct..5 Were the relative value of gold to silver to become as 1 to 30 in the market, gold would still be the measure of value. It would be in vain that the possessor of the 30 ounces of silver should know that he once could have discharged a debt of £3. 17. 10½ by getting 15 ounces6 of silver coined at the mint into that sum of silver coin,—to discharge that debt now he would have no other means, if coins only were in circulation,7 but selling his 30 oz of silver8 for 1 oz of gold, and procuring that to be coined into £3. 17. 10½, or at once obtain for it that sum of gold coin.
The effects which may be produced by the third cause, namely, the superabundance of paper circulation, are too obvious to be disputed, and indeed have been admitted by you.
Having laid down these principles, I shall now proceed, Sir, in endeavoring to prove that the other causes which you assign for an excess of the market above the mint price of gold, are insufficient and could in no case produce such an effect.
I will for a moment allow, what in point of fact cannot I think ever be the case, that the hostile decrees of the enemy, might reduce our trade to that state, which should render it necessary for us to pay for all our imports with bullion, yet I should contend that that is not an adequate cause1 for a rise in the money price of gold bullion. Its value would no doubt be increased, and it is from not distinguishing between an increase in the value of gold, and an increase in its money price, that much of the error of our reasoning is derived. If corn were to become scarce from large exportations, not only its value, but2 its money price would be affected, because in comparing it with money we are in fact comparing it with another commodity; and when we export money or bullion3 , in the same manner, on comparing it with corn, its corn price would be affected, but its money price could not alter.4 In neither case would a bushel of corn be worth more than a bushel of corn, or an ounce of gold whether in bullion or in coin,5 more than an ounce of gold. The price of gold, whatever the demand might be, could never, whilst it was measured by gold coin, or bank notes which were an obligation to pay gold coin, and were of equal value with it, be more than £3. 17. 10½.
If the price of gold were estimated in silver indeed, the price might rise to £4, £5, or £10- an ounce, but silver I think I have already proved is not the standard in which the value of gold is estimated;—But if it were;—as an ounce of gold is only worth 15½ oz of silver, and 15½ oz of silver is precisely equivalent, or is coined into 80 shillings, an ounce of gold could now only then1 be worth and sell for £4.
Those then who maintain that silver is the measure of value, cannot prove that any demand for gold which may have taken place, from whatever cause it may have proceeded, could have raised its price above £4 pr oz. All above that price must, on their own principles, be called a depreciation in the value of Bank notes. It therefore follows that if Bank notes be the representatives of gold coin, they are depreciated 15 pct.. If they are the representatives of silver coin, then an ounce of gold selling as it now does for £4. 10, sells for an amount of notes which represent 17½ oz of silver, whereas in the bullion market it is allowed that it can only be exchanged for 15½ oz. Fifteen and a half ounces of silver bullion are therefore of equal value with an engagement of the Bank to pay to bearer seventeen ounces and a half.2
On the same grounds, I think, I could successfully shew, that no increase or decrease in the supply of the American mines could produce any variation in the money value of gold bullion.
Whilst gold continues the standard measure of value, it might be possible, either that an increased demand for silver, or a deficient supply, might raise the money price of silver to 5/6, to 6/-, to 8/- nay even to an equal or greater price than an ounce of gold. This effect would be produced by an alteration in the relative value of gold and silver, but no scarcity of gold, nor any demand for it, however great, could raise its price, tho’ it might raise its value, because it is itself the medium in which its price is estimated.1
Mr. Marryat, I believe, contended that the unfavorable exchange was the cause of the high price of gold bullion.2 He mistook, I apprehend, the cause for the effect, as I have elsewhere attempted to shew.3 He observed too that a guinea was worth in Hamburgh 26 or 28/- shillings; but if we should therefore suppose that a guinea would sell there for as much silver as is contained in 26 or 28 shillings we should be very much deceived. The silver for which a guinea will now sell at Hamburgh would, if sent to our mint, coin into 21/6 or perhaps a penny or two pence more, and that it will fetch so much is owing to an alteration in the relative value of the two metals. It is nevertheless true that that same quantity of silver will at Hamburgh purchase a bill payable in London in Bank notes for 26 or 28 shillings. Can there be a more satisfactory proof of the depreciation of our circulating medium?4
I have the honor to be Sir Your most obed. and humble Servt.
New Grove Mile-end 5th. feby. 1810.
F. Horner Esqr.
[1 ]MS (as printed in the text) in the possession of Lady Langman. Also a draft, containing small variants and corrections, in R.P. —The draft is printed in Minor Papers, pp. 37–42.
[2 ]On 1 Feb. 1810, moving for various accounts with a view to an enquiry by a Select Committee ‘into the causes of the present high price of bullion, and the consequent effect upon the value of the paper currency’ (Hansard, XV, 269 ff.). The Bullion Committee was appointed on 19 February.
[1 ]In draft, ‘reason’.
[2 ]In draft this replaces ‘The first of these causes is not now operating; this will be readily acknowledged.’
[1 ]Draft has here in addition ‘because 15½ oz. of silver are coined into 80 shillings’.
[2 ]Above, III, 67, n. 1.
[3 ]Last eleven words are ins. in draft.
[4 ]Draft has here in addition ‘at the present moment,’.
[5 ]In draft, ‘sell for’ is written above ‘purchase’.
[1 ]‘on every ounce melted’ is del. here in draft.
[2 ]In draft, ‘silver coin’.
[3 ]This argument is embodied in High Price of Bullion, ed. 3, above, III, 68.
[4 ]In draft, ‘the standard measure’.
[5 ]This sentence is ins. in draft.
[6 ]In draft, ‘15 ounces’; superscribed in another hand (?Mill’s): ‘mistake— EB’.
[7 ]Last six words are ins. in draft.
[8 ]Draft has here in addition ‘at the market value, that is to say,’.
[1 ]In draft, ‘reason’.
[2 ]Draft does not contain ‘not only its value, but’.
[3 ]‘or bullion’ is ins. in draft.
[4 ]Last six words (with ‘would’ in place of ‘could’) and the full stop are ins. in draft.
[5 ]Last six words are not in draft.
[1 ]Draft reads ‘could only then’. In final copy ‘could now only’ was first written; ‘then’ was ins.
[2 ]The last two paragraphs are reproduced in High Price of Bullion, ed. 3, above, III, 84–5.
[1 ]Cp. the same argument in High Price of Bullion, ed. 3, above, III, 60.
[2 ]Speech of Joseph Marryat, on Horner’s motion, 1 Feb. 1810 (Hansard, XV, 275).
[3 ]Above, III, 75, n. 1, and cp. ib. 64, n. 1.
[4 ]The substance of this paragraph, and the actual wording of the last two sentences, are reproduced in High Price of Bullion, ed. 3, above, III, 80–1.