169.: ricardo to broadley1[Reply to 168] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 7 Letters 1816-1818 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 7 Letters 1816-1818.
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ricardo to broadley
[Reply to 168]
London. Upper Brook Street Grosvenor Square 14 June 1816
We differ so much on the subject of currency that there appears to be but little chance of our coming to the same opinion, but by a lengthened correspondence, which I should not have sufficient leisure to keep up. I must however remark on those parts of your letter where you appear to have misconceived my meaning in the pamphlet on which you have animadverted. I have no where justified the exposing of the Bank to ruin for the sake of a temporary and uncertain advantage to the public. On the contrary to the public as distinguished from the Bank, it is of no importance whether the circulation be carried on with an expensive currency, such as gold, or with a cheap one, such as paper, because in either case those who make use of money must pay for its whole nominal value. To the issuers of money, (the Bank in this case), it is of the utmost importance, for their gains are in proportion as they can substitute a cheap for a dear currency. My scheme was proposed as a measure which in my opinion would be beneficial to the Bank, without being attended with any corresponding injury to the public and therefore as of national advantage. I am still of the same opinion. You say that I have not provided for the Bank being enabled to buy gold bullion at or under the price at which they are to sell. I think I have; for as the Bank are to be the sole issuers of money, they have the power of regulating the quantity to be issued. Will you deny that a reduction of 1, 2 or 3 millions, would produce an effect on the comparative value of bank notes and gold? If you do, we are at variance on the first principles of the science. If you do not deny this proposition, then the Bank is in no danger; for they can regulate the price of gold at pleasure.
With respect to a standard measure of value, strictly so called, neither gold nor any other commodity can be such, for what is itself variable can never be an invariable measure of other things. But though it can not be an invariable measure of other things, it may be a variable measure of them,—and as we are possessed of none other than variable measures, this particular one has been by law constituted the general measure of value. It is not so variable as other things, and was therefore probably chosen; but if it were 20 times more so,—if from year to year it varied 30–40 or 50 pct., however inconvenient it might be; however desirable to alter the law; and change the commodity by which to estimate the value of other things; there would be no physical impossibility, as you seem to intimate, against making our paper money conform to this varying commodity. Suppose that the influence of the atmosphere were such on our measures of length, the yard for example, that it varied one fourth, being sometimes longer and sometimes shorter, than a given portion of the arc of the meridian which is supposed invariable. We might still use the yard measure and might justly call it (by law) our standard measure.
To your 1st. question “What is meant by exchange between countries, that is, does it principally relate to bills of exchange and their price?[”] I answer that by exchange we always mean the price of the currency of one country estimated in the currency of another. Thus when the exchange with Hamburgh is at 33, 33 schillings payable in Hamburgh sells in London for £1 sterling. It relates to bills and currency only and not to commodities. What may be the cause of a high or low exchange is another question. Subsidies, bad crops, unprosperous commerce may disturb the equilibrium of exports and imports, and produce powerful effects on the exchange, within its natural limits, but they do so only by affecting the relative value, or price of currency.
To your second question whether I can point out distinctly an example or instance whereby one country gains and the other country loses by the rate of exchange between them? I answer that I believe the rate of exchange quite unimportant as it affects the interests of the two countries. Inasmuch it is sometimes a symptom of subsidies being paid, of unprosperous commerce &c., it is a subject of regret when it is unfavourable. In our transactions with Hamburgh for example I believe we should neither gain nor lose by the exchange being at 28 or 33 the relative prices of commodities in the two countries being raised or lowered in proportion to the rise or fall of the exchange.—
I fear I have very imperfectly expressed my meaning on the subject of these questions,—but the Post waits and I must hastily conclude by subscribing myself
Your obedt. Servant
[In his reply, dated Glasgow, 21 June 1816, Broadley, after restating his objections, agrees with Ricardo that no commodity can be a standard measure of value; but, he says, though we cannot have a real standard, ‘we have a nominal standard that will be found really true’. ‘Need I add that what I mean, is “the Ledger pound and its parts” all our Currency of every sort and kind is subservient to it—is expressive of it—is emblematical of it, but itself is the perfect measure of all and each of them and of every thing. And I beseech you to make trial of it. And altho: I wish not to intrude myself upon yet I must confess if you come into my way of thinking I should be proud to hear from you. if we differ still. farewell. do not trouble yourself for I fear I am inflexible.’—MS in R.P.]