344.: mcculloch to ricardo2[Reply to 333.—Answered by 349] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819-June 1821 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 8 Letters 1819-1821.
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mcculloch to ricardo
[Reply to 333.—Answered by 349]
Edinburgh 2nd Nov 1819
My Dear Sir
I trust to your goodness to excuse me for not sooner acknowledging receipt of your most friendly and valuable communications of the 2nd October—But having been in the country for a few days at the time when your letters reached this, I got so much in arrear, that this is the first moment I have been able to devote to the agreeable task of answering the communications of those on whose friendship I set the highest value—
By means of your suggestions, I have, I think, considerably improved my Article on Exchange, and I have also added an explanation of the cause of its rise in 1815 and 1816 —I cannot, however, agree, notwithstanding the extreme distrust I feel of the correctness of any opinion on such a subject different from yours, to reject the consideration of the expence of the transit of bullion in estimating the real par of exchange —It appears to me that whatever affects the relative worth of the circulating media of different countries, whether it consists in a diminution of the quantity of bullion contained in their coins, or in the quantity for which their paper money will exchange, or in a diminution of the comparative value of the bullion itself, must be held to affect the nominal and not the real exchange—You have stated in your answer to Mr Bosanquet that Spain can never have an unfavourable exchange with her colonies; and by this statement I always understood you to mean that any given amount of the precious metals in Spain, was worth more than the same amount in South America, and that therefore the nominal exchange must be proportionably in favour of the former—You would admit that if gold and silver were accumulated by means of restrictive regulations in a particular country, that its nominal exchange would be rendered proportionably unfavourable—Now, why should the case be different when the same effect is produced by natural causes, such as the possession of productive mines, &c? I cannot help thinking the example I gave of the case of sugar decisive—It could not surely be maintained that the exchange was at true par, if a bill which cost 200 hogsheads of sugar in London only brought 100 in Jamaica—
I think you err in stating that if there were no expences whatever in sending bullion from one country to another the exchange would never deviate from par—This principle would hold good if no time as well as no expence were required in the transportation of bullion, but not otherwise—Although bullion could be brought free of expence from South America to restore any derangement in the equilibrium of the value of money in Europe, yet it is clear this derangement could not be adjusted for many weeks—
I was very sorry to learn that you did not mean to write an Article on the Funding System for the Supp to the E.B. but only on the Sinking Fund—I hope you will yet be prevailed on to proceed with the former—The subject is one of the greatest possible interest, and it is one which has never been properly or, I may say, at all discussed—You would have an opportunity not only of tracing the comparative advantages and defects attending the providing for extraordinary expences by means of loans, as contrasted with the advantages and defects attending the providing for them by means of a sudden increase of taxation; but would also be enabled to point out the ruinous effects attending the accumulation of a large debt—Neither would the discussion be at all difficult—It would only be giving a practical application to the grand principles which you have already established—Nothing will give me greater pleasure than to hear that you are going on with the Funding System, and I am sure that a Dissertation by you on that subject would be of infinite importance—
I am particularly gratified with what you state respecting my Article in the Review on the Trade with France; and I hope that you will endeavour to afford a practical proof of the efficacy of the principles on the freedom of trade—However much I am disposed to concur in your opinion on other subjects I beg to dissent entirely from what you say as to the person who should agitate that question in the House of Commons—If the public opinion is to have the least influence in such matters, I am certain it would be decidedly in favour of your agitating it; and in your hands I have no doubt whatever that a recognition of the great principles on that subject would soon be obtained—
I had a letter from Mr Torrens yesterday—He says he is to send me some of these days a copy of a reply he has written to your theory of value —I regret that so excellent a political economist as the Major should be so wedded to his preconceived opinions—I shall send you a copy of the Article on Exchange addressed to your House in London—And hoping to be honoured with a letter from you at your convenience I remain with every sentiment of respect and esteem
My Dear Sir Yours most faithfully
J. R. McCulloch